Australian Property News
Ruling gives guidance on the meaning of ‘rent reserved’
Posted on Tuesday, March 09 2010 at 4:08 PM
A recent ruling by the State Revenue Office (SRO) Victoria has provided guidance on the meaning of the term 'rent reserved' in lease provisions. In 2009, Section 7(1)(b)(v) of the Duties Act 2000 (the Act) was amended to make sure that certain lease arrangements aren’t used as a mechanism for avoiding duty.
Under that section of the Act, duty is now payable on the grant of a lease of land in Victoria if consideration other than rent reserved is paid or agreed to be paid.
In the Act, 'rent reserved' is defined as the rent paid or payable during the term of the lease and any amount paid or payable for the right to use the land under the lease, such as rates and utilities.
Revenue Ruling DA.050 provides guidance on the meaning of 'rent reserved' and explains what factors the Commissioner of State Revenue (the Commissioner) will take into account in determining whether an amount payable under a lease falls within that term.
While rent is typically payable under a lease in periodic instalments over the term of the lease, the Commissioner recognises that it might benefit a lessee to make an upfront payment of rent on a discounted basis at the start of a lease.
As long as the payment is rent in advance and not other consideration – such as a premium – for the grant of the lease, the Commissioner will regard the payment as a payment of rent.
To determine whether that payment is rent or other consideration, the Commissioner will consider the nature and circumstances of the transaction as a whole including the value of the underlying land, the subject of the lease, the amount paid and whether any portion of it is refundable on a termination of the lease before expiry of the term, how the payment was calculated and the duration of the lease.
In determining whether any other payment falls within the definition of rent reserved, the ruling states that the Commissioner will have regard to the nature, size and frequency of the payment.
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