Question

Darryl Kerrigan is the director of DK Pty Ltd, which is a property investment company in Sydney and the company is registered for Goods and Services Tax (GST). Due to the COVID-19 impact, DK Pty Ltd has decided to rent out their twenty (20) existing office units that they finished in a building project in February 2020. To negotiate rental contracts, DK Pty Ltd employs a property lawyer, Mr. Dennis Denuto. Dennis is a busy lawyer and his practice income is $300,000 per year. DK Pty Ltd offered Dennis a rent-free office in the city of Sydney in exchange for his service to DK Pty Ltd. The market rental value of the office provided to Dennis is $38,000 per year. Required: Advise of the GST obligations and the input tax credit of this arrangements to DK Pty Ltd and Mr. Dennis Denuto.

Answer 1

Answer

Facts

DK Party Ltd., a property investment company in Sydney, is registered under Goods and Service Tax (GST). They decided to rent out the twenty units of a recent finished building project. DK Pty Ltd employed a property lawyer Dennis Denuto, to negotiate the rental contracts. Dennis' practice income is $300,000 per year. DK, in exchange of service received, offered a rent-free office to Dennis whose market rental value is $38,000.

Law and Provisions

GST is levied on supply of goods or services where supply includes barter i.e.. exchange of goods or services for any services or goods provided or receipt. Any person in it's business or enterprise with turnover of $75,000 or more, is subject to GST registration. Further, only a registered person can claim input tax credit of GST paid. Further, where the value of any goods or service is not ascertainable, the market value shall be the taxable value for GST liability computation.

Conclusion

In the aforementioned, DK is service recipient and Dennis is service provider. DK is already registered under GST. Further, Dennis' income is $300,000 which exceeds the threshold limit of $75,000 and therefore, GST registration should be obtained. Due to some circumstances, DK (service recipient) offered a rent-free office in exchange of service receipt from Dennis (service provider). This transaction is in nature of Barter and thus constitutes a supply under GST. The market rental value of office is $38,000 per year. Therefore, from GST obligation view a tax invoice shall be issued by Dennis wherein the taxable amount would be $38,000. The GST shall be payable on $38,000 by DK. The GST is paid on $38,000 by DK to Dennis. Further, Dennis is obligated to deposit the GST collected to the revenue department. Once the service is provided, tax invoice is issued and GST is paid, DK shall claim input tax credit during filing the GST returns of the specified tax period.

Should you have any query, please comment.

Good luck!