VICTORIAN CIVIL AND ADMINISTRATIVE TRIBUNAL
CIVIL DIVISION
BUILDING AND PROPERTY LIST	
vcat reference No. BP359/2022	
CATCHWORDS	
Landlord and tenant, interpretation of lease, whether GST payable on rent, liability of guarantor.	

APPLICANT	JROC Products Pty Ltd (ACN 085 311 388)	
RESPONDENT	Ashmog Investments Pty Ltd (ACN 106 666 595)	
APPLICANT BY COUNTERCLAIM	Ashmog Investments Pty Ltd (ACN 106 666 595)	
FIRST RESPONDENT BY COUNTERCLAIM	JROC Products Pty Ltd (ACN 085 311 388)	
SECOND RESPONDENT BY COUNTERCLAIM	Robert Crisafi	
WHERE HELD	Melbourne	
BEFORE	L Forde, Senior Member	
HEARING TYPE	Hearing	
DATE OF HEARING	5 June 2023	
DATE OF ORDER	26 June 2023	
CITATION	JROC Products Pty Ltd v Ashmog Investments Pty Ltd (Building and Property) [2023] VCAT 719	

ORDER
1	I find and declare that the applicant/first respondent by counterclaim (JROC Products Pty Ltd) is liable to pay GST on the rent payable under the Lease from 5 September 2020.
2	I find and declare that the amount of GST payable on the rent payable under the Lease from 5 September 2020 to 31 May 2023 is $11,769.08.
3	The applicant/first respondent by counterclaim (JROC Products Pty Ltd) must pay the applicant by counterclaim (Ashmog Investments Pty Ltd) the sum of $11,769.08.
4	I find and declare that the second respondent by counterclaim (Robert Crisafi) is liable to indemnify the respondent/applicant by counterclaim (Ashmog Investments Pty Ltd) for any outstanding GST payable under the Lease from 5 September 2020.
5	The applicant by counterclaim’s claims for costs and damages (in relation to legal fees) are reserved with orders to follow. 

L Forde
Senior Member			

APPEARANCES:		
For Applicant	Mr R Crisafi – director	
For Respondent 	Mr P Annabell – counsel	

Reasons
1	In April 2022 JROC Products Pty Ltd (Tenant) obtained an interlocutory injunction restraining Ashmog International Pty Ltd (Landlord) from terminating its lease of premises in Port Melbourne. The Landlord had issued a default notice claiming outstanding GST on rent and an unpaid outgoing.
2	The serious questions to be tried were whether GST was payable on the rent under the lease dated 11 January 2017 (Lease) and whether all outgoings had been paid. 
3	The Landlord brought a counterclaim seeking a declaration that the Tenant is liable to pay GST on rent, interest and an outstanding outgoing. A claim was brought against the second respondent being the guarantor under the lease for a declaration that he was liable to indemnify the Landlord in respect of the Tenant’s liabilities and for the Landlord’s legal costs. The claim in relation to outgoings has since been abandoned by the Landlord.  
BACKGROUND FACTS
4	The following matters are not in dispute:
a.	pursuant to the Lease the Tenant agreed to pay the rent in advance on the first day of each month, without demand, deduction or set-off;
b.	the rent at commencement of the Lease was $36,000.00 per annum. At the time the [previous] Landlord was not registered for GST and GST was not payable on the commencing rent;
c.	on about 4 September 2020 the Landlord purchased the premises;
d.	in February 2021, the Lease was extended for three years, pursuant to cl 23 of the Lease, to an end date of 27 February 2024;
e.	in May 2021, the parties obtained a rental determination from Raine & Horne, which determined the rental value of the premises (excluding GST) to be $43,680.00 per annum plus outgoings;
f.	on 9 March 2022, the Landlord’s solicitors sent an email to the Tenant enclosing a notice of breach pursuant to s 146 of the Property Law Act 1958 (Vic). One of the grounds of breach was the non-payment of GST on the rent; and 
g.	payment of rent under a commercial lease is a taxable supply under the A New Tax System (Goods and Services) Tax Act 1999 (Cth).
ISSUES
5	The dispute turns on the narrow issues of whether GST is payable on the rent and whether the guarantor is liable to indemnify the Landlord for any unpaid GST and legal expenses.
6	The Tenant’s position is that GST is not payable because the schedule to the Lease (which set out the rent at commencement) states that GST is not payable.
Is GST payable on rent? 
7	Clause 37 of the Lease relevantly provides as follows:
 37. 	Goods and Services Tax 
… 
37.3	Except where this Lease states otherwise, each amount payable by a party under this Lease in respect of a taxable supply by the other party is expressed as a GST exclusive amount and the recipient of the supply must, in addition to that amount and at the same time, pay to the supplier the GST payable in respect of the supply. 
… 
37.5   A party is not obliged, under clause 37.3, to pay GST on a taxable supply to it under this Lease, until given a valid tax invoice for the supply. 
37.6  If during the term or period of over holding the landlord registers, or is required to be registered, for GST under the GST Act, then on and from the date the landlord registers, or is required to be registered, for GST under the GST Act clauses 37.3, 37.4 and 37.5 will apply to each amount payable by a party under this lease in respect of a taxable supply by the other party or an amount payable by the tenant in respect of a creditable acquisition.
8	“Commencing rent” is defined in the schedule to the lease as follows 

9	The Tenant says that by reason of the statement “GST is not payable on the rent” in the schedule to the lease, it is not liable to pay GST for the duration of the Lease. It says that the clause in the Schedule triggers the reference in clause 37.3 to “except where this Lease states otherwise”.
10	I accept the Tenant’s position that at the start of the Lease no GST was payable. The schedule clearly provides that no GST is payable on the commencing rent.
11	However, clause 37.6 of the Lease expressly contemplates that the Landlord may become registered for GST during the term of the Lease, and the Tenant expressly agreed to pay GST in those circumstances. That is what occurred in this case.
12	I find that the inclusion of the words “GST is not payable on the rent” in the schedule is limited to the commencing rent. That is what the clause clearly says. 
13	The format of the Lease is a standard form commercial lease and the Lease must be read as a whole. The form provides three options regarding rent for the commencing rent in the schedule and the parties chose the no GST option. 
14	The selection of the option “GST is not payable on the rent” in the commencing rent provision in the schedule does not determine forever whether GST is payable. That construction would require ignoring the words of cl 37 (which specifically contemplates that GST may become payable during the term of the Lease).
15	The wording of cl 37 permits the Landlord to charge GST on the rent in the event it becomes registered for GST. As noted by the Landlord, the Tenant, who is registered for GST, is then entitled to claim the amount of the additional GST payments as an input tax credit. That construction is supported by cl 37.5 which requires the rendering of a valid tax invoice (which enables the Tenant to claim the amount as an input tax credit).
16	For the reasons stated I find and declare that the Tenant is liable to pay the Landlord GST on the rent payable under the Lease from 4 September 2020 being the date when the Landlord, being registered for GST, became the registered proprietor of the premises.
17	I accept the unchallenged evidence of the Landlord that the amount of the GST, if payable, on the rent from 5 September 2020 to 31 May 2023 is $11,769.08. 
Is the guarantor liable to indemnify the Landlord for GST?
18	The Lease included a Guarantee and Indemnity dated 1 February 2018 signed by Mr Crisafi. 
19	The respondents by counterclaim do not admit the paragraphs in the counterclaim which plead the guarantee and indemnity provisions. They deny Mr Crisafi is liable to pay GST or costs incurred by the Landlord by reason of the Tenant’s failure to pay GST. 
20	No submissions were made by the respondents by counterclaim as to why, if GST were payable, Mr Crisafi was not liable to indemnify the Landlord for that liability. 
21	I accept the Landlord’s submissions, which were not addressed by Mr Crisafi, that the Guarantee included terms to the following effect: 
a.	Mr Crisafi guaranteed the Tenant’s performance of all terms, covenants and conditions contained in the Lease (cl 1); 
b.	Mr Crisafi guaranteed the punctual payment by the Tenant of the rent and all other monies payable by the Tenant under the lease and all costs and damages which may be payable by the Tenant on a default, repudiation or otherwise (cl 1); and
c.	Mr Crisafi indemnified the Landlord and agreed to keep the Landlord indemnified against all loss arising out of or relating to the lease, including losses, costs, charges, damages and expenses which the Landlord may incur by reason of a default by the Tenant (cl 2).
22	Mr Crisafi is therefore liable to indemnify the Landlord for any GST payment not paid by the Tenant.
23	The Landlord’s cost application is reserved as further submission are required by the parties. Further orders will be issued in relation to the application. 

L Forde
Senior Member