31 Jul 1414 GST: payments by vendor to purchaser under rental guarantee - GSTD 2014/3
On 30 July 2014, the ATO issued GST Determination GSTD 2014/3 entitled "Goods and services tax: do payments made by a vendor to a purchaser of real property when the rent received falls below a rental yield guaranteed by the vendor give rise to an adjustment event for the purposes of Division 19 of the A New Tax System (Goods and Services Tax) Act 1999?"
It was previously released in draft form as GSTD 2014/D2.
The answer given to the question posed is Yes in the circumstances outlined in para 1 of the Determination.
The payment of the purchase price by the purchaser to a vendor of real property with a guaranteed rental yield is 'in connection with' a supply and is consideration for the supply of that real property with the guaranteed rental yield to the purchaser. That is, the vendor makes a supply for consideration of the real property with the guaranteed rental yield to the purchaser within the meaning of s 9-15 of the GST Act.
The Determination states:
"29. Having regard to the connection between the payments and the earlier supply, it is considered that the practical effect of the payments made under rental guarantee arrangements that exhibit the features referred to in paragraph 1 of this Determination, is a reduction in the consideration provided by the purchaser for the vendor's supply of the real property with a guaranteed rental yield.
30. Therefore, in these cases, the payments by the vendor to the purchaser give rise to an adjustment event under paragraph 19-10(1)(b) of the GST Act."