GST on Security Bond

Q&A Tax

Question :

Mr. C owns a commercial rental property and is registered for GST.

The tenant has paid a security bond of 3 months’ rent which includes a GST component. Does this GST
need to be remitted to the ATO now or when the bond is used?

 

Answer :

It will be necessary to determine whether the bond represents a security deposit for GST purposes.

According to GSTR 2006/2, the ATO indicates that a deposit or bond should be treated as a security
deposit where the landlord requires a deposit (or bond) to be paid to secure the payment of periodic
rental instalments and/or the return of the asset on time and in good condition as long as the amount of
the deposit is reasonable.

Subsection 99-5(1) GST Act prevents a security deposit from being treated as consideration for a
supply until such time that the deposit is either forfeited because of a failure to perform the secured
obligation or applied as all or part of the consideration for a supply.

Under subsection 99-10(1), the GST payable on a taxable supply for which the consideration is a
security deposit is attributable to the tax period in which the security deposit is forfeited or applied
as all or part of the consideration for a supply.

If the security deposit is returned to the customer then there should be no GST implications.

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