The impact of this case on ATO policy is discussed in Decision Impact Statement: ECC Southbank Pty Ltd as trustee for Nest Southbank Unit Trust & Anor v Commissioner of Taxation (NSD 1569 of 2010 ).
ECC SOUTHBANK PTY LTD AS TRUSTEE FOR NEST SOUTHBANK UNIT TRUST & ANOR v FC of TJudges:
Federal Court, Sydney
MEDIA NEUTRAL CITATION:
 FCA 795
1. The principal issue in this proceeding is whether each of four particular supplies of premises at Urbanest Southbank ( the Urbanest premises ) were supplies of "commercial residential premises" or accommodation in "commercial residential premises" and is thus a taxable supply under s 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) ( the GST Act ). It is the contention of the applicants that they were and the applicants seek declarations to that effect. The respondent contends that each of the four supplies was a supply of "residential premises" but that none was for the supply of "commercial residential premises" or accommodation in "commercial residential premises" as each of those expressions is defined for the purposes of the GST Act.
2. The GST Act distinguishes between a supply that is a taxable supply and a supply that is not a taxable supply. A person who makes a taxable supply is liable for GST in respect of that supply (s 9-40). However, a supply is not taxable if it is either "GST-free" or "input taxed" (s 9-5). Supplies that are "GST-free" and "input taxed" are defined for the purposes of the GST Act (s 195-1).
3. A person who makes a taxable supply may be entitled to input tax credits for things acquired or imported to make the supply. If a supply is not a taxable supply because it is GST-free, then any entitlement to an input tax credit is not affected (s 38-1). But if a supply is not a taxable supply because it is input taxed, then there is no entitlement to an input tax credit for things that are acquired or imported to make the supply (ss 11-15 and 15-10).
4. It is common ground that none of the supplies with which I am concerned is GST-free. The question to be decided is whether any of them is input taxed.
5. Section 9-30(2) of the GST Act provides:
(2) A supply is input taxed if:
- (a) it is input taxed under Division 40 or under a provision of another Act; or
- (b) it is a supply of a right to receive a supply that would be input taxed under paragraph (a).
6. Section 40-35 in Div 40 of the GST Act identifies some of the circumstances in which a supply of premises will be input taxed. Relevantly, subs (1) and (2) provide:
- (1) A supply of premises that is by way of lease, hire or licence (including a renewal or extension of a lease, hire or licence) is
- (a) the supply is of *residential premises (other than a supply of *commercial residential premises or a supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises); or
- (b) the supply is of *commercial accommodation and Division 87 (which is about long-term accommodation in commercial premises) would apply to the supply but for a choice made by the supplier under section 87-25.
- (2) However:
- (a) the supply is input taxed only to the extent that the premises are to be used predominantly for residential accommodation (regardless of the term of occupation); and
- (b) the supply is not input taxed under this section if the lease, hire or licence, or the renewal or extension of a lease, hire or licence, is a *long-term lease.
7. The expression "residential premises" is defined in s 195-1 as follows:
residential premises means land or a building that:
- (a) is occupied as a residence or for residential accommodation; or
- (b) is intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation;
(regardless of the term of the occupation or intended occupation) and includes a *floating home.
8. The expression "commercial residential premises" is defined in s 195-1 as follows:
commercial residential premises means:
- (a) a hotel, motel, inn, hostel or boarding house; or
- (b) premises used to provide accommodation in connection with a *school; or
- (c) a *ship that is mainly let out on hire in the ordinary course of a *business of letting ships out on hire; or
- (d) a ship that is mainly used for *entertainment or transport in the ordinary course of a *business of providing ships for entertainment or transport; or
- (da) a marina at which one or more of the berths are occupied, or are to be occupied, by *ships used as residences; or
- (e) a caravan park or a camping ground; or
- (f) anything similar to *residential premises described in paragraphs (a) to (e).
However, it does not include premises to the extent that they are used to provide accommodation to students in connection with an *education institution that is not a *school.
9. Division 87 of the GST Act is concerned with the supply of long-term accommodation in commercial residential premises. The broad effect of Div 87 is summarised in s 87-1. It states that long-term stays in commercial residential premises are given a lower value than would otherwise apply, reducing the amount of GST payable. The key provisions of Div 87 are s 87-5 - s 87-20 which provide:
87-5 Commercial residential premises that are predominantly for long-term accommodation
- (1) The value of a *taxable supply of *commercial accommodation that:
- (a) is provided in *commercial residential premises that are *predominantly for long-term accommodation; and
- (b) is provided to an individual as *long-term accommodation;
is 50%, or such other percentage as is specified in the regulations, of what would be the *price of the supply if this Division did not apply.
- (2) This section has effect despite section 9-75 (which is about the value of taxable supplies).
87-10 Commercial residential premises that are not predominantly for long-term accommodation
- (1) The value of a *taxable supply of *commercial accommodation that:
- (a) is provided in *commercial residential premises that are not *predominantly for long-term accommodation; and
- (b) is provided to an individual as *long-term accommodation;
is the sum of:
- (c) the value, worked out in the way set out in section 9-75, of that part of the supply that relates to provision of the commercial accommodation during the first 27 days; and
- (d) 50%, or such other percentage as is specified in the regulations, of what would be the *price (if this Division did not apply) of that part of the supply that relates to provision of the commercial accommodation after the first 27 days.
- (2) This section has effect despite section 9-75 (which is about the value of taxable supplies).
87-15 Meaning of commercial accommodation
Commercial accommodation means the right to occupy the whole or any part of *commercial residential premises, including, if it is provided as part of the right so to occupy, the supply of:
- (a) cleaning and maintenance; or
- (b) electricity, gas, air conditioning or heating; or
- (c) telephone, television, radio or any other similar thing.
87-20 Meaning of long-term accommodation etc.
- (1) Long-term accommodation is provided to an individual if *commercial accommodation is provided, for a continuous period of 28 days or more, in the same premises:
- (a) to that individual alone; or
- (b) to that individual, together with one or more other individuals who:
- (i) are also provided with that commercial accommodation; and
- (ii) are not provided with it at their own expense (whether incurred directly or indirectly).
- (2) For the purpose of working out the number of days in the period for which an individual is provided with *commercial accommodation:
- (a) count the day on which he or she is first provided with the commercial accommodation; and
- (b) disregard the day on which he or she ceases to be provided with commercial accommodation.
- (3) *Commercial residential premises are predominantly for long-term accommodation if at least 70% of the individuals who are provided with *commercial accommodation in the premises are provided with commercial accommodation as *long-term accommodation.
10. Section 87-25(1) provides that Div 87 does not apply to a supply of commercial accommodation if the supplier chooses not to apply it to any supplies of commercial accommodation that the supplier makes. The supplier's right to make such a choice is subject to the requirements of ss 87-25(2) and (3).
11. The first applicant is the trustee of the Nest Southbank Unit Trust ( NSUT ). NSUT is registered for GST purposes under Pt 2-5 of the GST Act. The second applicant is the trustee of the Urbanest Southbank Leasing Trust ( USLT ). USLT is also registered for GST purposes under Pt 2-5 of the GST Act.
12. On 30 June 2005, the State of Queensland entered into a development agreement with ABN Amro Australia Limited ( ABN Amro ) for the design and construction of student accommodation and serviced apartments at the Southbank site in Brisbane. It provided for the grant by the State of Queensland of a lease of the site for 99 years upon completion of the development.
13. On 24 October 2008, pursuant to a deed of novation, NSUT was substituted for ABN Amro as the developer under the development agreement. NSUT entered into a design and construction contract with John Holland Pty Ltd on 24 September 2008 in respect of the design and construction of student accommodation and serviced apartments at the Southbank site.
14. Practical completion of the construction was achieved on 16 December 2009. On 17 December 2009 the building known as Urbanest Southbank (relevantly the ground level and levels 1 to 13 inclusive) was certified as a "Class 3 building" in accordance with Part A3 of the Building Code of Australia. "Class 3 building" is defined under the Code as follows:
a residential building, other than a building of Class 1 or 2, which is a common place of long term or transient living for a number of unrelated persons, including:
- (a) a boarding-house, guest house, hostel, lodging-house or backpackers accommodation; or
- (b) a residential part of a hotel or motel; or
- (c) a residential part of a school; or
- (d) accommodation for the aged, children or people with disabilities; or
- (e) a residential part of a health-care building which accommodates members of staff; or
- (f) a residential part of a detention centre.
15. On 7 January 2010, NSUT entered into a lease with the State of Queensland in respect of the Southbank site. Under the terms of the lease, the "Permitted Use" of the Southbank site is defined to be:
the operation and/or sale (including sale of strata subdivided lots) of the Building for student accommodation and/or serviced apartment purposes.
16. On 11 February 2010, NSUT granted USLT a sub-lease of the Southbank site. Under the terms of the sub-lease, the "Permitted Use" of the Southbank site is defined to be:
managed residential accommodation including the ancillary provision and operation of vending machine facilities, laundrette facilities, internet services, bicycle storage and car parking facilities.
17. The Urbanest premises consists of 132 shared apartments, 27 studio apartments and various common areas. In total, the Urbanest premises incorporates 686 combined "study/bedrooms" (either single or double occupancy) made up of:
- (a) 13 shared apartments, each incorporating a cluster of 4 study/bedrooms (i.e. 4 single occupancy study/bedrooms);
- (b) 78 shared apartments, each incorporating a cluster of 5 study/bedrooms;
- (c) 35 shared apartments, each incorporating a cluster of 6 study/bedrooms;
- (d) 4 shared apartments, each incorporating a cluster of 6 double occupancy study/bedrooms (i.e. 6 double occupancy combined study/bedrooms);
- (e) 2 shared apartments each incorporating 5 double occupancy study/bedrooms;
- (f) 6 single studio apartments (single studios have a single bed with smaller floor area than double studio apartments);
- (g) 21 double studio apartments.
18. Each study/bedroom include a single bed (in the single occupancy rooms) or a bunk bed (in the double occupancy rooms). Each study/bedroom also includes a private ensuite bathroom, study desk, air-conditioning and storage spaces. Each cluster of study/bedrooms shares kitchen and living facilities located within each shared apartment.
19. Residents of the shared apartments are given two keys to the apartment. The first key is to the main entrance to the apartment and the second is to his or her study/bedroom. In the case of double occupancy rooms, two residents will have a key to the same study/bedroom in which there will be two bunk beds.
20. The studio apartments consist of a bedroom with ensuite bathroom, private study and living space and a kitchen.
21. The single occupancy study/bedrooms and the studio apartments are classified as either "standard" or "premium". The distinction relates to the location of the rooms within the building and to the level of equipment and furnishings provided within the rooms.
22. In addition to the facilities available within a resident's apartment, the Urbanest premises also incorporates within its common areas:
- (a) Coin operated laundry including washing machines and dryers;
- (b) Games rooms;
- (c) TV areas;
- (d) External garden with barbeque areas;
- (e) Group study rooms and individual study booths;
- (f) Library;
- (g) Meeting and presentation rooms;
- (h) Bike storage room; and
- (i) A cafeteria-style eating area.
23. The common areas also include a reception desk that operates 24 hours per day. The reception desk provides services including check in, check out, room changes, maintenance requests, customer queries, parcel delivery, making reservations, and monitoring telephones. Goods and services supplied or arranged through the reception desk include internet top-up cards, bed and kitchen packs, air-train tickets, room cleaning services and laundry services. Six people are employed to work at the reception desk, though the evidence did not indicate how many people were there at any given time.
24. The evidence described the services provided at the reception desk as similar to those services provided at the reception and concierge desks of most hotels. I think that is a reasonable description of the services provided at the reception desk.
25. The Urbanest premises provides accommodation to students from several educational institutions, mostly Southbank Institute of Technology but also Bond University, Central Queensland University, Griffith University, James Cook University, Queensland University of Technology, University of Queensland and others.
26. The accommodation in the Urbanest premises is also available to persons other than students. In January 2011 several attendees at the Linux software conference held in Brisbane stayed at the Urbanest premises.
Rooming Accommodation Agreements
27. Accommodation provided by USLT in the Urbanest premises within a shared apartment is provided pursuant to a "Rooming Accommodation Agreement" between USLT and residents of the Urbanest premises. There are two particular agreements in evidence, the first of which relates to the supply of the shared apartment in which Mr O'Leary resided (in a single occupancy study/bedroom) and the second of which relates to the shared apartment in which Ms Guiloff resided (in a double occupancy study/bedroom). Each agreement identifies the provider (USLT) and the "resident" or "customer" with whom the agreement is made. It also specifies the particular room to which the agreement relates, the inclusions, the rent payable, the rental bond payable and the term of the agreement. Rent is payable fortnightly, quarterly or annually in advance. If the rent is paid fortnightly, the resident is required to pay a rental bond, but if rent is paid quarterly or annually in advance then no rental bond is required.
28. The Rooming Accommodation Agreements also provide that air-conditioning/heating is provided up to a certain number of hours per week. Residents pay extra for such services where the basic allowance is exceeded. Residents are also given a wireless broadband allowance which they are entitled to use free of any additional charge. Extra charges are applicable if this allowance is exceeded.
29. The Rooming Accommodation Agreements refer to the Residential Tenancies and Rooming Accommodation Act 2008 (Qld) ( the Qld Act ) with which they are apparently intended to comply. They make express reference to relevant provisions of the Qld Act that are applicable and include as express terms, rights and obligations mandated by the Qld Act in so far as it applies to rooming accommodation. Of these, clauses 14, 15 and 16 are most relevant. In particular, clauses 14 and 15 specify the provider's and the resident's obligations in a way that substantially mirrors s 247, s 249 and s 253 of the Qld Act. Clauses 14 and 15 provide:
14 Provider's obligations - ss 247 and 249
- 1) The provider has the following obligations -
- (a) to ensure the provider is not in breach of a law dealing with issues about the health or safety of persons using or entering the resident's room or common areas;
- (b) to take reasonable steps to ensure the resident -
- (i) always has access to the resident's room and to bathroom and toilet facilities; and
- (ii) has reasonable access to any other common areas;
- (c) to take reasonable steps to ensure the security of the resident's room and the resident's personal property in the room;
- (d) to maintain the resident's room and common areas in a way that the room and areas remain fit for the resident to live in;
- (e) to take reasonable steps to ensure the resident's room and common areas and facilities provided in the room and areas -
- (i) are kept safe and in good repair; and
- (ii) subject to any agreement with the resident about cleaning the resident's room or common areas or facilities - are kept clean;
- (f) not to unreasonably restrict the resident's guests in visiting the resident;
- (g) to ensure that the times during which the provider, or an agent of the provider, is available to be contacted by the resident are reasonable, having regard to all the circumstances including the services being provided to the resident under this agreement.
- 2) For subclause (1)(e)(ii), an agreement about cleaning common areas may be made only for a common area used by the resident and a minority of other residents of the provider.
Example for subclause (2) -
Four residents have individual rooms opening out onto a living area which is available for use only by those residents. The provider and the 4 residents may agree that the cleaning of the living area is to be done by the 4 residents.
- 3) The provider must take reasonable steps to ensure the resident has quiet enjoyment of the resident's room and common areas.
- 4) The provider or the provider's agent must not interfere with the reasonable peace, comfort or privacy of the resident in using the resident's room and common areas.
15 Resident's obligations - s 253
- 1) The resident has the following obligations -
- (a) to use the resident's room and common areas only or mainly as a place of residence;
- (b) not to use the resident's room or common areas for an illegal purpose;
- (c) not to interfere with, and to ensure the resident's guests do not interfere with, the reasonable peace, comfort or privacy of another resident or another resident's appropriate use of the other resident's room or common areas;
- (d) to pay the rent when it falls due;
- (e) not to keep an animal on the rental premises without the provider's permission;
- (f) not to intentionally or recklessly damage or destroy, or allow the resident's guests to intentionally or recklessly damage or destroy, any part of the rental premises or a facility in the rental premises;
- (g) to keep the resident's room and inclusions clean, having regard to their condition at the start of this agreement;
- (h) to maintain the resident's room in a condition that does not give rise to a fire or health hazard;
Examples of a fire hazard -
- (1) allowing newspapers to build up in the resident's room
- (2) blocking access to the resident's room.
30. Clause 16 provides that the resident must comply with the house rules for the rental premises. The provider is required to provide a copy of the house rules to the resident before entering into the agreement.
Studio Accommodation Agreement
31. Accommodation provided by USLT in the Urbanest premises in the form of studio apartments are the subject of a different form of agreement. The evidence includes a copy of a "Studio Accommodation Agreement" which relates to the supply of a studio apartment to Mr Chairatna.
32. The terms of the Studio Accommodation Agreement are somewhat different to the Rooming Accommodation Agreement. This is no doubt because the Qld Act imposes different requirements in relation to what it defines as a residential tenancy as opposed to what it defines as rooming accommodation: see ss 10-40 of the Qld Act.
33. The provisions of the Studio Accommodation Agreement also refer to the Qld Act and include as express terms, rights and obligations mandated by the Qld Act in so far as it applies to residential tenancies.
34. In the Studio Accommodation Agreement, the lessor (USLT) and the tenant (Mr Chairatna) are identified, as is the room and its inclusions. The provision for the payment of rent and a rental bond is essentially the same as those found in the Rooming Accommodation Agreements to which I have already referred, except that the rent payable for the studio apartment is significantly higher.
35. The most significant provisions of the Studio Accommodation Agreement are clauses 18 and 19 which concern the tenant's right to possession and quiet enjoyment of the premises. They provide:
18 No legal impediments to occupation - s 181
The lessor must ensure there is no legal impediment to occupation of the premises by the tenant as a residence for the term of the tenancy if, when entering into this agreement, the lessor knew about the impediment or ought reasonably to have known about it.
Examples of possible legal impediments -
- • if there is a mortgage over the premises, the lessor might need to obtain approval from the mortgagee before the tenancy can start
- • a certificate might be required under the Building Act 1975 before the premises can lawfully be occupied
- • the zoning of the land might prevent use of a building on the land as a residence
19 Vacant possession and quiet enjoyment - ss 182 and 183
- 1) The lessor must ensure the tenant has vacant possession of the premises (other than a part of the premises that the tenant does not have a right to occupy exclusively) on the day the tenant is entitled to occupy the premises under this agreement.
Editor's note -
Parts of the premises where the tenant does not have a right to occupy exclusively may be identified in a special term
- 2) The lessor must take reasonable steps to ensure the tenant has quiet enjoyment of the premises.
- 3) The lessor or the lessor's agent must not interfere with the reasonable peace, comfort or privacy of the tenant in using the premises.
The House Rules
36. There are provisions included in the House Rules that are relevant to the questions for decision. In particular, there are House Rules that deal with inspection reports, room inspections and moving out procedures as follows:
2. Share Apartment/Room Condition Report Form
Within the first 72 hours, amid all the buzzing excitement of moving into a new home, you will be required to fill out a Room Condition Report Form. This form will be given to you on arrival, and is a list of all the items that you can expect in the room and share apartment. We need you to do a detailed inspection of the room and share apartment and confirm that there are no damaged or missing items.
If you don't report any issues to us within the first 72 hours of moving we will take it you are satisfied with the condition of the room and share apartment and that it was in a good and undamaged condition when you moved in. This is important as when you leave USB, you will be billed for any damaged or missing items that were not reported and agreed with us on the Room Condition Report Form within the first 72 hours of your stay.
8. Looking after your living space ...
The Urbanest Hospitality Team will be working round the clock to make sure all the common areas stay clean and comfortable, and looking great. In return we ask that you regularly:
- • Dust and vacuum your room.
- • Maintain the cleanliness of your share apartment. This includes regularly wiping down appliances and vacuuming the lounge area.
- • Remove general rubbish to the ground floor refuse area
Too busy or can't be bothered cleaning? Ask at our Reception Desk for a professional weekly or monthly clean that comes with a small fee.
These rules are not only to keep your life comfortable and hygienic, but to ensure others can share a clean living space as well.
Your room and share apartment is equipped with split unit reverse cycle (ie cooling and heating) air-conditioning that you can control yourself. Included in your accommodation package is a daily allowance of 8 hours cooling or heating. If you exceed this allowance over a continuous fortnightly assessment period, your air-conditioning may be restricted until your allowance is refreshed in the next assessment cycle. Of course, we'll give you warning that you are exceeding your allowance so that you can adjust your usage patterns before restrictions apply.
THE RELIEF CLAIMED
37. As I have mentioned, the proceeding concerns four specific supplies of what the parties agree are residential premises for the purposes of the GST Act. The parties disagree as to whether these residential premises also constitute commercial residential premises or accommodation in commercial residential premises for the purposes of the GST Act. The applicants seek declarations that (inter alia) each of the following supplies was a taxable supply.
The first supply
38. The first of the relevant supplies involves the sub-lease of the Urbanest premises by NSUT to USLT. The applicants say that the whole of the premises the subject of that supply are commercial residential premises and that it was thus a taxable supply under the GST Act. In the alternative, the applicants contend that the whole of the premises, except for those parts that consist of studio apartments, are commercial residential premises the supply of which by NSUT to USLT was a taxable supply.
The second and third supplies
39. The second and third of the relevant supplies concerns the provision of accommodation to Mr O'Leary and Ms Guiloff respectively pursuant to Rooming Accommodation Agreements which each of them entered into with USLT. Mr O'Leary's agreement was for a fixed term of approximately four months starting on 1 March 2010. Ms Guiloff's agreement was for a fixed term of approximately three months beginning 24 September 2010. Again, the applicants say that each of these supplies was a taxable supply.
The fourth supply
40. The fourth supply relates to the supply of the premium studio apartment to Mr Chairatna pursuant to the Studio Accommodation Agreement previously referred to. The term of the agreement was for six months, beginning on 28 February 2010. The applicants say that this also was a taxable supply.
THE PARTIES' SUBMISSIONS
The applicants' submissions
41. The applicants submitted that the Urbanest premises are "commercial residential premises" because they are similar to a hotel, motel, inn, hostel or boarding house. It followed, according to the applicants, that each of the four supplies in relation to which declarations are sought was a supply of commercial residential premises or, at least, a supply of accommodation in commercial residential premises to an individual by an entity that owns or controls the commercial residential premises. Hence, it is the applicants' case that if the Urbanest premises, considered as a whole, constitute commercial residential premises, then not only is the supply of these premises by NSUT to USLT a taxable supply, so is each of the other supplies involving the shared apartments occupied by Mr O'Leary and Ms Guiloff and the studio apartment occupied by Mr Chairatna. In this regard, the applicants' submission focuses on the language of the definition of commercial residential premises in s 195-1 and the words appearing in parenthesis in s 40-35(1)(a).
42. The applicants primarily rely upon the following attributes in support of their submission that the Urbanest premises are commercial residential premises that are similar to a hotel, motel, inn, hostel or boarding house:
- • The premises are centrally controlled and managed by USLT;
- • The premises are operated by USLT as a commercial venture and with a view to making a profit;
- • The premises are configured for multiple occupancy;
- • The premises include a reception desk which operates 24 hours a day that provides services similar to those often provided by the reception desk or the concierge's desk of a hotel;
- • The premises include common areas consisting of a communal eating area, study area, a games room, a library and other recreational space and facilities similar to those often found in a hostel or boarding house;
- • The premises are held out to the public as accommodation available for rent;
- • The apartments within the premises are fully furnished.
43. The applicants relied upon the judgment of Greenwood J in
Meridien Marinas Horizon Shores Pty Ltd v Federal Commissioner of Taxation (2009) 74 ATR 787,  FCA 1594. In that case his Honour was concerned with the supply of marina berths which, according to the taxpayer in that case, attracted the application of Div 87. In the context of the definition of the expression "commercial accommodation" in s 87-15 (which refers to the "right to occupy the whole or any part of commercial residential premises") his Honour observed (at para ):
The right to occupy, however, is necessarily given meaning by the context in which the definition operates, in conjunction with the other defined terms within Div 87 and the GST Act more generally. The right to occupy the whole or any part of the marina or any other premises falling within the definition of commercial residential premises is not a right to occupy at large, for the purposes of the definition of "commercial accommodation", in a way divorced from any corresponding purpose serving the statutory objectives of Div 87. Division 87 is directed to long-term accommodation in commercial residential premises which exhibit particular characteristics (normally, premises run by a controller for a commercial purpose; premises having multiple occupancy; premises so held out to the public; premises having central management; premises providing services in addition to commercial accommodation; and, premises normally used for the main purpose of accommodation).
44. His Honour's observations as to the particular characteristics normally exhibited by commercial residential premises pick up some of the indicia identified in the Explanatory Memorandum to the Tax Laws Amendment (2006 Measures No. 3) Bill 2006 and the New Business Tax System (Untainting Tax) Bill 2006. The Explanatory Memorandum explained how amendments to (inter alia) the definition of "residential premises" (
the 2006 amendments
) were intended to reverse aspects of the decision of the Full Court in
Marana Holdings Pty Ltd v Commissioner of Taxation (2004) 141 FCR 299,  FCAFC 307.
45. In Marana the Full Court took the view that the words "reside" and "residence" implied a permanent or long-term commitment to dwelling in a particular place. The 2006 amendments (inter alia) introduced the words that appear in parenthesis ("regardless of the term of the occupation or intended occupation") into the definition of "residential premises" in s 195-1. Most relevant for present purposes is the part of the Explanatory Memorandum which refers to the definition of "commercial residential premises" in s 195-1. The Explanatory Memorandum stated (at paras 15.5 and 15.12 - 15.16):
15.5 These amendments confirm the policy intent of the GST law. The continuation of input taxed treatment of supplies of affected premises represents a sound balance between taxing (and crediting) business inputs and ensuring that owners of residential premises do not have to concern themselves with the GST treatment of such premises.
Interaction between commercial residential premises and residential premises
- 15.12 These amendments do not change the definition of 'commercial residential premises'. The GST treatment of accommodation in hotels, motels, inns, hostels and similar premises which exhibit similar characteristics (which may include: being run with a commercial intention, having multiple occupancy, holding out to the public, being used for the main purpose of accommodation, having central management, being offered by management in its own right, providing services, and where individuals have the status of guests) is not altered.
- 15.13 Broadly, these amendments ensure that a sale of residential premises (other than new residential premises) comprising a strata titled unit in commercial residential premises, such as a hotel or motel, will be input taxed.
- 15.14 For example, a sale of one or several units in a hotel complex will not constitute a supply of commercial residential premises. This is because the sale of a single unit or several units in, for example, a hotel or motel is not a supply of a hotel or motel.
- 15.15 On the other hand, a sale or lease of, for example, the whole of a hotel complex will be a supply of commercial residential premises, whether or not the hotel complex is strata titled. Whether a sale or lease of anything less than the whole of a hotel complex (eg, not all of the rooms within the complex or not all of the hotel infrastructure such as lobby, kitchen or pool areas) would constitute a supply of commercial residential premises, will depend on the facts of each case.
- 15.16 However, a supply comprising only the accommodation units in a hotel complex, without other parts of the hotel, such as the reception, is not a supply of commercial residential premises. It is a supply of residential premises.
Owner Pty Ltd developed a new serviced apartment complex which consists of 50 apartments, a reception area and conference facilities. Owner Pty Ltd has retained the complex for the purposes of leasing the entire complex to Proprietor Pty Ltd who will operate an accommodation business, which essentially is run as a hotel.
The apartments are offered to the public, by Proprietor Pty Ltd in its own right, for short-term stays. The apartments are used predominately for accommodation and include self contained kitchen and laundry facilities. Proprietor Pty Ltd provides room cleaning and other services to the guests.
In this example the supply of the complex by Owner Pty Ltd to Proprietor Pty Ltd under the lease is similar to the supply of a hotel and is a supply of commercial residential premises.
The supply by Proprietor Pty Ltd when it supplies the apartments to the guests will also be taxable as a supply of accommodation in commercial residential premises to an individual by an entity that controls the commercial residential premises. The fact that the apartments may or may not be strata titled will not alter the conclusion in this example.
The respondent's submissions
46. The respondent submitted that none of the words "hotel", "motel", "inn", "hostel" or "boarding house" describes accommodation "similar to that which would be expected for those who own or rent a house or apartment." He contended that a resident of the Urbanest premises rented his or her accommodation in much the same way as a person would rent any apartment for the purpose of exclusive or shared residence. He submitted that it was the policy of the GST legislation, as explained in extrinsic materials, and as discussed in various Full Court authorities, that "[t]hose renting a house or apartment are to be on the same footing as persons who own their own homes - neither is to pay GST in connection with such occupation".
47. In support of these submissions the Commissioner relied upon the Explanatory Memorandum to A New Tax System (Goods and Services Tax) Bill 1998 in which the following statements appear:
Supply of residential premises-Subdivisions 40-B and 40-C
- 5.164 When you supply residential premises such as houses and flats, the supply will be input taxed to ensure comparable treatment with owner occupiers. No GST will be payable on the supply of residential premises and you are not entitled to input tax credits for your acquisitions that relate to the supply. However, the residential premises will only be input taxed to the extent that the premises are to be used predominantly for residential accommodation. For example, if you have a flat on top of a shop, the supply of the shop will be taxable. Paragraphs 40-35(1)(a) and 40-70(1) (a) and subsection 40-65(1) .
- 5.165 The supply of residential premises will be input taxed whether:
- • you receive residential rent because the residential premises are supplied by lease, hire or licence- section 40-35 ; or
- • you supply the residential premises by the sale of real property - section 40-65 .
- 5.166 The supply of a long term lease (that is, a lease of 50 years or more) is not a supply of residential rent. The supply of a long term lease is to be treated as a sale of residential premises and input taxed under Subdivision 40-C. Subsection 40-35(2) and section 40-70 .
- 5.167 The supply of real property as residential premises and the supply of residential premises by way of a long term lease is input taxed to the extent that the residential premises are not:
- • 'commercial residential premises' such as hotels, motels, etc ('commercial residential premises' is discussed at 6.140); or
- • newly constructed residential premises. Subsections 40-55(2) and 40-70(2)
Therefore, the sale of new residential houses by registered businesses (such as builders and developers) and the sale of commercial residential premises will be taxed.
48. I was referred to various dictionary definitions of the words "hotel", "motel", "inn", "hostel" and "boarding house". I do not propose to refer to all of the entries to which I was taken. The dictionary definitions which I think most relevant may be found in the Macquarie Dictionary 5th Edition ( Macquarie ), the Oxford English Dictionary 2nd and 3rd Editions ( OED ) and the Shorter Oxford English Dictionary 5th Edition ( SOED ). They include:
- • a building in which accommodation and food, and alcoholic drinks are available. (Macquarie)
- • building or establishment where travellers or tourists are provided with overnight accommodation, meals and other services. (OED)
- • an establishment, esp. of a comfortable or luxurious kind, where paying visitors are provided with accommodation, meals and other services. (SOED)
- • a roadside hotel which provides accommodation for travellers in self-contained, serviced units, with parking for their vehicles. (Macquarie)
- • a hotel catering primarily for motorists; spec. one comprising self-contained accommodation with adjacent parking space. (OED)
- • a small hotel that provides lodging, food, etc., for travellers and others. (Macquarie)
- • a public house providing accommodation, refreshments, etc., for payment, esp. for travellers. Now also, a public house serving alcoholic liquor for consumption on the premises, whether providing accommodation or not. (SOED)
- • a supervised place of accommodation, usually supplying board and lodging, provided at a comparatively low cost, as one for students, nurses, etc. (Macquarie)
- • a public house of lodging and entertainment for strangers and travellers; an inn, a hotel. (OED)
- • a house of residence for students at a university or on a course, esp. at a non-residential college, or for some other special class of people. (SOED)
- • a dwelling in which lodging is provided to paying residents who share common facilities such as a kitchen, laundry, living room, etc. (Macquarie)
- • a dwelling, usually a private house, in which board and lodging are provided for payment. (Macquarie)
- • a house offering board and lodging for paying guests. (SOED)
The first supply
49. It is first necessary to detemine whether the Urbanest premises, considered as a whole, are commercial residential premises. If they are, then the sub-lease of the Urbanest premises by NSUT to USLT will constitute a taxable supply.
50. The test to be applied for the purpose of determining whether the Urbanest premises are commercial residential premises involves asking whether the Urbanest premises is a hotel, motel, inn, hostel or boarding house or whether it is similar to - in the sense that it has a likeness or resemblance to - any of those types of establishment. The application of this test necessarily raises questions of fact involving matters of impression and degree.
Hotels and motels
51. There are a number of features that distinguish hotels and motels from some other types of establishment that provide accommodation to guests, such as that provided at the Urbanest premises.
52. First, hotels and motels provide not only accommodation to their guests but also at least some meals in which guests may choose to partake. Consequently, a hotel or motel will usually include a kitchen where meals are prepared by the proprietor or the proprietor's employees or contractors for consumption by guests. And it will usually include a restaurant or dining room for guests where such meals may be consumed.
53. Secondly, the guest rooms in a hotel and a motel are invariably furnished, and always include a bed and some living space (usually with one or more chairs and a table at which to eat or work) and have an adjoining separate bathroom or ensuite. Linen and towels are usually supplied. The rooms are usually cleaned and serviced by staff on a daily basis, with the costs of such services being included in the tariff.
54. Thirdly, guests of hotels and motels primarily consist of travellers who ordinarily have their principal place of residence elsewhere and who need or desire accommodation while away for business or pleasure.
55. Fourthly, guests of hotels and motels do not usually enjoy any exclusive right to occupy any particular part of the premises in the same way as does a tenant to whom a house or apartment is let. Nor does a guest of a hotel or motel usually let a room for a term. Leaving aside cancellation fees, he or she is usually charged for a room in accordance with a daily rate multiplied by the number of days of occupancy.
56. The last two propositions require some qualification in the case of what are sometimes referred to as residential or private hotels. These types of establishments would often include long-term residents who were not travellers or visitors in any relevant sense, but for whom the hotel was a permanent place of residence.
57. There are various other features or attributes of hotels and motels that should also be mentioned. Hotels and motels usually have a reception desk to handle the requirements of both management and guests, particularly when guests check in or check out of the establishment. They may also offer concierge services either at the reception desk or at a separate concierge's desk. As I have mentioned, the applicants place particular reliance upon the fact that the Urbanest premises includes a reception desk that provides such services.
58. The relevant dictionary definitions make clear that a motel is a particular type of hotel that primarily caters to the needs of motorists seeking roadside accommodation. That is a basic characteristic of a motel which is lacking in the case of the Urbanest premises. In fact, the House Rules make it clear that the Urbanest premises has no parking spaces for cars or motorbikes available for residents.
59. While the Urbanest premises has more similarity to a hotel than a motel, it is unlike a hotel in a number of significant respects.
60. First, most of the accommodation facilities within the Urbanest premises consist of shared apartments which are configured in a way that would be most out of place in a hotel. Accommodation in a hotel is not normally shared in this way.
61. Secondly, there is no kitchen (apart from those within the apartments), restaurant or dining room on the premises for the preparation or service of meals to guests as is usually found in a hotel.
62. Thirdly, residents of the Urbanest premises are responsible for the cleanliness of their own rooms, which are not serviced in the way one would usually expect in a hotel. While the evidence indicates that cleaning services are available at additional cost, none of Mr O'Leary, Ms Guiloff or Mr Chairatna appear to have taken up that option and there was no evidence to indicate the extent to which other residents may have done so. Still, the availability of such services, and the fact that they may be arranged through the reception desk located on the premises, distinguishes the Urbanest premises from most blocks of residential apartments (excluding what are commonly referred to as serviced apartments) where a resident would be left to make his or her own arrangements for the cleaning of his or her apartment.
63. Fourthly, residents or customers of the Urbanest premises enter into agreements with USLT that more closely resemble tenancy agreements than agreements which one would expect to see between a proprietor of a hotel and a guest. These agreements provide for the completion of inspection reports before or shortly after occupancy begins, and also provide (at least in some situations) for the payment of a bond. They also provide - consistently with the requirements of the Qld Act - that the proprietor must take reasonable steps to ensure that a resident is given quiet enjoyment of his or her room and common areas.
64. Fifthly, residents or customers of the Urbanest premises are primarily students rather than visitors or travellers. The accommodation is much more likely to be used by them as their place of residence during the extended periods in which they are engaged in study at nearby educational institutions. The configurations of the rooms and common areas include dedicated study areas that one would not usually expect to find in a hotel.
65. According to the Macquarie Dictionary, a hostel is a supervised place of accommodation usually supplying board and lodging provided at a comparatively low cost particularly to students.
66. In my view, the Urbanest premises bears a much closer resemblance to a hostel than a hotel. The accommodation available at the Urbanest premises is intended to be (at least in the case of the shared apartments) comparatively low in cost and is obviously configured with the needs of students seeking low cost accommodation in mind. The accommodation provided at the Urbanest premises is supervised in the sense that the reception desk is manned 24 hours a day. I infer that residents may lodge complaints with management through the reception desk about the behaviour of other residents or visitors including in relation to excessive noise, failures to maintain the cleanliness of shared apartments and like matters dealt with in the House Rules.
67. It is true that meals are not provided to residents or customers of the Urbanest premises as they might usually be in the case of a more traditional hostel. However, that does not mean that the Urbanest premises may not be fairly described as a hostel or, at least, as being similar to a hostel. In my opinion, if the Urbanest premises is not a hostel, it is very similar to a hostel.
Inn and boarding house
68. In my view the Urbanest premises is not similar to an inn or a boarding house. An inn is an establishment at which board and lodging is provided to travellers. Similarly, a boarding house is a place at which board and lodging are provided to guests or residents.
The Explanatory Memorandum to the 2006 Amendments
69. It is useful to compare the attributes of the Urbanest premises to those specified in para 15.12 of the Explanatory Memorandum to the 2006 amendments some of which were referred to by Greenwood J in Meridien Marinas (supra) at para . According to the Explanatory Memorandum, commercial residential premises normally:
- • are run by a controller for a commercial purpose;
- • have multiple occupancy;
- • are held out to the public as such;
- • have a central management;
- • provide services in addition to commercial accommodation;
- • are used for the main purpose of accommodation.
70. The Urbanest premises meet all of these requirements. It is true that in comparison with some other types of establishment referred to in the relevant definition, the level of services provided in addition to accommodation may seem slight. But the services provided by staff to residents through the reception desk are by no means insignificant and, considered along with all other relevant matters, confirm my view that the Urbanest premises are properly regarded as commercial residential premises for the purposes of the GST Act.
71. I should add that the legislative policy upon which the respondent's submissions focused explains why the supply of residential premises (though not commercial residential premises or accommodation in commercial residential premises) is input taxed. However, it must also be recognised that the legislature has drawn a distinction between residential premises and commercial residential premises such that accommodation provided in commercial residential premises, even if of a long-term nature, is taxable if the entity that supplies the accommodation owns or controls the commercial residential premises in which such accommodation is provided. The fact that such accommodation (which might as in this case take the form of either a shared apartment or a self-contained apartment) is the principal place of residence of the individual concerned does not mean that the supply is not taxable. In such circumstances, however, the value of the supply may be substantially reduced for GST purposes: see Div 87.
The second, third and fourth supplies
72. It is not disputed by the respondent that USLT controlled the Urbanest premises at the time it supplied accommodation to Mr O'Leary, Ms Guiloff and Mr Chairatna. In the case of each of these supplies, there was a supply by the entity (USLT) that controlled the commercial residential premises (the Urbanest premises) of accommodation in such premises to an individual. Accordingly, the supplies of accommodation to Mr O'Leary, Ms Guiloff and Mr Chairatna are not input taxed and are thus taxable supplies: see s 40-35(1)(a).
73. I shall direct the applicants to bring in short minutes of order including declarations in the form which they contend should be made. I will stand the proceeding over for 7 days to enable the parties' legal representatives to confer in relation to the appropriate form of declarations and any costs order.