SMSF trustees seeking reimbursement of costs from a tenant related to the ongoing operation, maintenance or repair of a leased commercial property must ensure they apply the goods and services tax (GST) charge on these expenses to satisfy their compliance obligations.
“If we have a lease over commercial premises and that lease specifies that the tenant is responsible for the SMSF landlord’s outgoings, bear in mind that the SMSF then must charge GST on all of those outgoings,” Heffron head of education and content Lyn Formica told attendees of a recent webinar.
“So you might have a situation where the lease agreement specifically says that the SMSF is to charge $100,000 worth of lease payments each year and then the tenant is also responsible for covering the rates, the land tax, the repairs, cleaning costs, those sorts of things.”
Formica noted this requirement arises from a tax determination released by the ATO shortly after the introduction of the A New Tax System (Goods and Services Tax) Act in 2000.
“If that’s not something that you are used to, have a look at GST Determination 2000/10 as it does explain how that works. The ATO considers the responsibility to cover outgoings as essentially part of the supply of the property. It’s not a supply of the underlying outgoings,” she said.
According to Formica, expenses that do not typically incur a GST charge for the SMSF landlord, such as land tax or provision of water, would need to be applied and passed on to the tenant as they are classified as taxable supplies by the ATO.
“Even though the fund is going to have a rates bill that is not going to include any GST when it on charges the rates to the tenant, that on-charge has to include GST because that on-charge is a supply for the premises,” she said.
“So just bear that in mind that we’re supposed to be charging GST on all of the outgoings that the SMSF is recouping back from the tenant.”