FAQ: Why have I been charged GST on outgoings?

Water, council rates, and body corporate fees are examples of statutory outgoings that a Landlord pays to operate their premises. Though the Landlord may not have been charged GST for these outgoings, the tenant may be charged GST for the ‘on supply’ of this service. 

Many of our Tenants ask us how this could possibly be correct: surely the Landlord can’t just add GST on top of outgoings which don’t include GST…right?

Modo Property director Allison Collis simply explains why a commercial Tenant may be charged GST for outgoings. “Basically, you need to remember that there are two transactions occurring: the first is between the statutory body and the Landlord, then the second between the Landlord and the Tenant. It is also important to point out that the Landlord can only charge GST if they are registered for GST; also that GST charges cannot be added on top of pre-existing GST.”

Example One:

  1. Landlord receives an invoice for yearly council rates of $100. There is no GST charged.
  2. The Tenant receives an invoice from the Landlord to reimburse this charge per the terms of their lease. This is referred to as an “operating expense” or “OPEX” for short. The invoice is $110 as the Landlord is registered for GST.

Example Two:

  1. Landlord receives an invoice for owners corporate fees for $110 which is inclusive of GST.
  2. The Tenant received an invoice of $110 inclusive of GST as GST cannot be added on top of GST.

Example Three:

  1. Landlord who is not registered for GST receives an invoice for water rates of $100. There is no GST charged.
  2. The Tenant received an invoice for $100 with no GST applicable. 

The terms and conditions of each commercial lease vary but will clearly outline in the lease schedule what percentage of operating expenses the Tenant is responsible for reimbursing to the Landlord. 

If the Landlord is registered for GST, they are liable to remit GST to the ATO on the consideration that it is received from the tenant. The GST that is included in the on-charge to the Tenant is not profit or an additional fee: the Landlord is merely passing on a charge as they would with all other outgoings.

Still unsure or need further clarification? We’re always available to discuss this further or you can have a chat to your accountant.

5 Responses to “FAQ: Why have I been charged GST on outgoings?”

  • David says:

    Commercial Lease.
    So my Landlord, via the Real Estate company, is adding gst on top of my total water rates bill, which has no GST component to it. Is this correct?

    I have not been able to find an outright yes or no to this. Is that correct?

    Your help would be appreciated.

    Kind Regards,

    David

  • Hi David,

    Your real estate agency will only add GST on top of your water bill if your Landlord is registered for GST.

    Though the water bill itself does not have a GST component to it, it becomes redefined as an ‘Operating Expense’ once the bill is on-charged to the Tenant (and Operating Expenses do incur a GST charge). Because you are reimbursing the Landlord for the water bill as opposed to paying the Water Company directly, you are liable to pay the GST component if your Landlord is registered for GST.

    On the rare occasion that the Landlord is not registered for GST, the Tenant would not be charged GST for any operating expense that does not already have a GST component.

    You can find out if your Landlord is registered for GST by contacting your real estate agency. If the Landlord is registered for GST, it will be disclosed to the agency prior to leasing the property.

    I hope this helps!

  • Jason says:

    Hi my landlord sent me the building insurance invoice $5090 GST inclusive and he reimbursed me with GST on top, can he do that?

    I have asked my accountant they said landlord allowed to add GST on top when reimbursement.

  • Ken says:

    I’m also interested in the question from Jason 29/7/20
    My understanding is that GST should be charged on GST exclusive amounts when a landlord invoices for outgoings. ie. Its Ok to charge GST on the full GST free supply such as water to the tenant, but if an invoice such as building insurance already includes GST then the landlord should only charge GST on the GST exclusive amount when invoicing the tenant, recovering his cost only. Are you able to point to any information from the ATO about this.

  • Peter from Modo Property says:

    Hi Jason & Ken,

    While an invoice from the Insurer to the Landlord would include some GST Inclusive items; the invoice may also contain GST Exclusive items.

    In this case, the Landlord-to-Tenant invoice would include the original GST from the applicable items on the Insurer-to-Landlord invoice (ie. Premium, Administration Fee), PLUS additional GST on the items that were GST-exclusive on the Insurer-to-Landlord invoice (ie. Stamp Duty).

    You can find more information here: https://www.ato.gov.au/law/view/document?DocID=GST/GSTR200035/NAT/ATO/00001&PiT=99991231235958

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