Australia: New ATO Interpretative Decision: GST & Prepaid Rent

Tax Update (Australia)
Last Updated: 27 May 2013
Article by Matthew Cridland

On 17 May 2013, the ATO issued a new Interpretative Decision, ATO ID 2013/30, entitled: "GST and the sale of commercial premises that are subject to a lease". This is an important decision that will have implications for all entities that buy or sell tenanted commercial premises. The key points and implications are summarised below.


The lease of commercial premises is a taxable supply and subject to GST, which is payable by the landlord. The decision sets out the Commissioner's view on whether a vendor of a commercial premises is liable for GST on prepaid rent in circumstances where a tenanted property is sold part way through the month to which the prepaid rent relates.

Note in this context "commercial premises" includes all premises other than residential premises (i.e. office, industrial, commercial, rural and other properties).

The Commissioner considers that the vendor is liable for GST on the prepaid rent. This is notwithstanding that the vendor may allow the purchaser a purchase price adjustment to reflect the days of the relevant month during which the purchaser will be the owner of the property.


Vendors will need to consider this issue for the sale of any tenanted commercial premises, including where the sale may be GST-free as the supply of a going concern or farm land.

Given that vendors should be liable for GST on the prepaid rent, a vendor will want to ensure that any rent adjustments are calculated on a GST exclusive basis (so that the vendor in effect retains all of the GST component of the prepaid rent, which will be remitted to the ATO). This is illustrated in a worked example further below.

Note that if the sale of a property is a taxable supply and subject to GST (i.e. not GST-free as a going concern or farm land), the vendor may only DLA Piper 2 be liable for GST on the reduced purchase price (i.e. after taking into account the settlement adjustment for prepaid rent).


As purchasers will not be liable for GST on any portion of the prepaid rent, a purchaser may not need to issue tax invoices to tenants for the portion of the month that the purchaser owns the tenanted property. Rather, a purchaser will generally only need to commence issuing tax invoices from the beginning of the next month.


We can assist clients by:

  • providing advice / sign-off as to which party will be liable for GST on prepaid rents in the context of a particular sale;
  • drafting appropriate clauses to ensure that any rental adjustments are calculated on a GST exclusive basis (if appropriate); and
  • ensuring that GST is calculated correctly on any settlement adjustments (where the sale of the property is a taxable supply and subject to GST).


The Property Council of Australia has lobbied the ATO for guidance on these issues. The decision is broadly consistent with the Property Council's submissions to the ATO and will likely be welcomed by most property groups (notwithstanding the limitations of the decision outlined below).


  • An Interpretative Decision is not a "public ruling". While it does provide guidance on the Commissioner's view, and provides vendors/purchasers with some protection in limited circumstances, it does not provide the same level of protection as a public ruling.
  • The decision refers to circumstances where a vendor has "received and retained" prepaid rent for a particular month (i.e. the money has come in from tenants). In our view, the same principles should also apply where a vendor has invoiced for prepaid rent (and remains entitled to receive that rent), albeit the monies may not be received until after the property has been sold. Typically a purchaser that receives rent that is due to the vendor does so on behalf of the vendor (and is generally obliged to on-pay the rent to the vendor). The Interpretative Decision may not offer any protection in these circumstances and vendors should consider whether they need GST advice / sign-off.
  • The decision only deals with circumstances where rent has been prepaid in advance for one month. It does not deal with circumstances where a lease premium or prepaid rent may have been paid upfront for the entire lease period. Such premiums /prepayments are common in the context of "development lease arrangements" and infrastructure projects which may involve leases for 99+ years, with either a premium or prepaid rent (for the life of the lease) being payable when the lease is granted. It is arguable that the same principles should apply. However, the Interpretative Decision itself won't apply and the parties should consider whether they may need a separate GST opinion / sign-off.


In the decision the ATO outlines a scenario in which an entity leases office premises for $110,000 (including GST of $10,000) per month. The rent was invoiced to the tenant on 1 April and the tenant paid the rent on the same date. The property is then sold on 16 April for $11 million.

The contract provides that the entity is entitled to retain the $110,000, but that the vendor will make an adjustment in favour of the purchaser to reflect the number of days (from 16 April to 30 April) during which the purchaser will be the owner of the property.

The ATO example suggests that the vendor allows an adjustment of $55,000 (being half of the prepaid rent and GST). However, in our view, the vendor should only allow an adjustment of $50,000 based on the GST exclusive prepaid rent. This is because, consistent with the Commissioner's view, the vendor will need to retain and remit $10,000 as GST (so the adjustment should be 50% of $100,000, not 50% of $110,000).

The sale of the property would likely be treated as the GST-free supply of a going concern. The ATO's decision does not indicate whether the $11 million purchase price includes or excludes GST, or the GST treatment applied to the sale. However, if the sale was instead treated as a taxable supply, the vendor may be entitled to first take into account the purchase price reduction (i.e. the settlement adjustment) relating to the prepaid rent before calculating its GST liability.

8. LINK TO ATO ID 2013/30

The decision is available on the ATO's website at the following address: 2FAID201330%2F00001&PiT=99991231235958&L ife=20130517000001-99991231235959

© DLA Piper

This publication is intended as a general overview and discussion of the subjects dealt with. It is not intended to be, and should not used as, a substitute for taking legal advice in any specific situation. DLA Piper Australia will accept no responsibility for any actions taken or not taken on the basis of this publication.

DLA Piper Australia is part of DLA Piper, a global law firm, operating through various separate and distinct legal entities. For further information, please refer to

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions