GST and the surrender of the right to lease a commercial premise

Is the entity, the lessee of commercial premises, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it surrenders the lease.

Yes, the entity is making a taxable supply under section 9-5 of the GST Act when it surrenders its lease.

The entity is the lessee of commercial premises. The entity agrees to surrender its lease, thereby releasing the lessor from its obligations under the lease. The lessor of the commercial premises pays the entity a lump sum, which is a payment to the entity for releasing the lessor from its obligations under the lease.

The entity is registered for goods and services tax (GST). The transaction is made in the course or furtherance of an enterprise carried on by the entity in Australia.

Under section 9-5 of the GST Act, an entity makes a taxable supply if: • it makes a supply for consideration; and • the supply is made in the course or furtherance of an enterprise that the entity is carrying on; and • the supply is connected with Australia; and • the entity is registered or required to be registered.

The existence of a 'supply' is an essential element in determining whether the transaction is a taxable supply under section 9-5 of the GST Act.

Section 9-10 of the GST Act discusses the meaning of the word 'supply' for GST purposes. Paragraph 9-10(2)(e) of the GST Act provides that a supply includes a creation, grant, transfer, assignment or surrender of any right. In addition, paragraph 9-10(2)(g) of the GST Act provides that a supply includes a release from an obligation to do anything.

In this case, the entity is surrendering its right under the lease and in so doing, the entity is also releasing the lessor from its obligations under the lease. Accordingly, the entity is making a supply under section 9-10 of the GST Act.

The lessor of the commercial premise has paid the entity a lump sum, which is a payment to the entity for surrendering the lease. This satisfies the requirement under section 9-5 of the GST Act that the supply must be made for consideration.

The entity is registered for GST and the transaction is a 'supply' that satisfies all of the requirements of section 9-5 of the GST Act. Furthermore, the supply is neither

GST-free under Division 38 of the GST Act, nor input taxed under Division 40 of the GST Act. Therefore, the entity is making a taxable supply under section 9-5 of the GST Act when it surrenders the lease.