Does GST apply to the payment made for the termination of lease
Scenario:
My question is about the GST law relating to a payment made on the termination of a commercial lease. A cash payment made by us to a tenant, because we decided to use the premises as our business was expanding. The payment of $15,000 was a reimbursement/ compensation for the costs of moving out of the premises (no paperwork to state what the payment is for). The tenant agreed, moved their business out and accepted the cash. GST Ruling GSTR 2003/16 talks about inducements of entry into a commercial lease. If inducements attract GST, then this payment may also attract GST. Is this correct?
Explanation:
It all comes down to the basics——is there a supply for consideration as required by s 9-5(a) of the GST Act?
‘Consideration’ is defined in s 9-15. Therefore, it follows that a payment act or forbearance (a payment in this case) will not be ‘consideration’ unless it has the necessary connection with a supply.
‘Supply’ is defined in s 9-10. The tenant has entered into an obligation to tolerate this act (of having its lease terminated), which amounts to a ‘supply’. The payment was made in connection with this supply, so it has a supply for consideration.
So, it the other elements of s 9-5 are present, then this will be a taxable supply and the termination payment would attract GST.