ATO Interpretative Decision

ATO ID 2010/19

Goods and Services Tax

• With effect from 1 July 2015, the term 'Australia' is replaced in nearly all instances within the GST, Luxury Car Tax and Wine Equalisation Tax legislation with the term 'indirect tax zone' by the Treasury Legislation Amendment (Repeal Day) Act 2015. The scope of the new term, however, remains the same as the repealed definition of 'Australia' used in those Acts. For readability and other reasons, where the term 'Australia' is used in this document, it is referring to the 'indirect tax zone' as defined in subsection 195-1 of the GST Act.

Issue

Is the entity, a time-sharing scheme, making a taxable supply of accommodation in commercial residential premises under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when it supplies excess accommodation?

Decision

Yes. The entity is making a taxable supply of accommodation in commercial residential premises under section 9-5 of the GST Act when it supplies excess accommodation.

Facts

The scheme meets the definition of a time-sharing scheme under the Corporations Act 2001 (Corporations Act) and is a registered managed investment scheme under the Corporations Act.

The time-sharing scheme is a trust which is an entity for GST purposes. As the trust is not a legal entity, a company in its capacity as responsible entity and trustee of the scheme is registered for GST and is taken to be the scheme entity. This entity will be referred to as 'the scheme'.

The scheme provides participants with an annual entitlement to a period of accommodation (accommodation entitlement) at a holiday resort.

All assets of the scheme are held on trust for scheme participants. The assets of the scheme include real property (scheme accommodation) in the form of:

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resorts owned and operated by the scheme, and

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accommodation rights at other resorts.

Participants are able to book scheme accommodation by using their accommodation entitlement.

Not all participants use their accommodation entitlement every year, which can result in scheme accommodation being unoccupied. At the beginning of each year, the scheme estimates the amount of accommodation that may not be used by participants. This accommodation is referred to as 'excess accommodation'. To reduce excess accommodation, the scheme offers preferential rates for participants on excess accommodation. This provides participants with accommodation in addition to their usual accommodation entitlement.

In some circumstances, the entity may rent the excess accommodation to the general public. The fee that participants pay for the excess accommodation is always less than the rent payable by a member of the public.

The purchase of excess accommodation provides the right to occupy and enjoy the premises, but does not provide any legal interest in the premises.

The excess accommodation is provided at a variety of resorts offering different standards and styles of accommodation ranging from studio apartments, to apartments with a number of bedrooms and separate kitchen facilities. All scheme accommodation is provided in resorts located in Australia. These resorts comply with local and State regulatory requirements in relation to zoning, building code and health regulations that apply to hotels and motels. The accommodation in these resorts is also provided in a business-like manner.

The resorts that provide excess accommodation accommodate multiple groups of unrelated guests. Scheme accommodation is advertised on the internet and in printed media. However, marketing strategies designed to promote the purchase of excess accommodation may only be directed at scheme participants.

The scheme's supplies of excess accommodation include the use of the resort facilities and amenities as well as services such as reception, cleaning and maintenance, electricity, gas, air-conditioning or heating, telephone and television. In addition, towels and linen are provided. The accommodation rooms are fully furnished and rooms are serviced at least weekly.

Reasons for Decision

Under section 9-5 of the GST Act, an entity makes a taxable supply if:

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the supply is for consideration

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the supply is made in the course or furtherance of an enterprise that the entity carries on

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the supply is connected with Australia, and

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the entity is registered or required to be registered for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

The scheme's supplies of excess accommodation satisfy all of the positive elements of section 9-5 of the GST Act as:

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the scheme charges a fee for these supplies

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these supplies are made in the course or furtherance of operating the time-sharing scheme

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these supplies are made at resorts located in Australia, and

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the scheme is registered for GST.

Therefore it must be determined if the entity's supplies of excess accommodation are GST-free or input taxed.

There are no provisions in the GST Act under which these supplies would be GST-free.

However, a supply of residential premises by way of lease, hire or licence is input taxed under subsection 40-35(1) of the GST Act other than:

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a supply of commercial residential premises, or

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a supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises.

The term 'residential premises' is defined in section 195-1 of the GST Act to mean land or a building that:

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is occupied as a residence or for residential accommodation, or

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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.

The term 'commercial residential premises' is also defined in section 195-1 of the GST Act to include, among other things, a hotel, motel, inn, hostel or boarding house or anything similar to these residential premises.

Paragraph 20 of Goods and Services Tax Ruling GSTR 2000/20 'Goods and Services Tax: commercial residential premises', states that the physical characteristics common to residential premises are that these premises provide the occupants with sleeping accommodation and at least some basic facilities for day to day living, such as areas for eating and bathing.

The Federal Court has confirmed that premises that provide shelter and basic living facilities such as a bedroom and bathroom will come within the definition of residential premises in the GST Act (see South Steyne Hotel Pty Ltd v. Commissioner of Taxation [2009] FCA 13; 2009 ATC 20-090; (2009) 71 ATR 228; and confirmed by the Full Federal Court at [2009] FCAFC 155; and see also Vidler v. Commissioner of Taxation [2009] FCA 1426 at [12]; 2009 ATC 20-149).

However, accommodation in commercial residential premises is supplied by an entity in the business of providing accommodation together with some level of services to guests.

The physical characteristics common to commercial residential premises such as a hotel include infrastructure, for example a reception area, restaurant and conference rooms, in addition to providing the occupants with sleeping accommodation and some facilities for daily living. The inclusion of infrastructure in the premises facilitates the operation of the premises on a commercial basis and the provision of some level of services.

The characteristics that are common to a hotel, motel, inn, hostel or boarding house are listed in paragraph 83 of GSTR 2000/20 to assist in identifying premises that are similar to these establishments.

These characteristics include:

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commercial intention

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multiple occupancy

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holding out to the public

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accommodation is the main purpose

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central management

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management offers accommodation in its own right

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services offered, and

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status of guests.

Excess accommodation may result from scheme property where the entity controls the whole of the premises in its own right or may include accommodation rights in premises that are owned and controlled by another entity. Under both arrangements the resorts exhibit the characteristics of commercial residential premises. In particular:

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the accommodation in these resorts is provided in a business-like manner. It is irrelevant that the entity may not make a profit in relation to its supplies of excess accommodation. The accommodation provided at these resorts is provided on a regular basis and on a significant scale.

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all resorts accommodate more than one group of unrelated guests.

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the accommodation at the resorts is advertised and these resorts comply with all regulatory requirements applicable to similar types of premises such as zoning, building code and health regulations. It is immaterial that the scheme's supplies of excess accommodation may be restricted to scheme participants only as a condition of purchase.

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these resorts are designed and built to provide accommodation.

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reception and additional services are provided to guests.

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the entity that owns or controls the premises offers the accommodation in its own right.

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excess accommodation includes some level of services.

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purchasers of excess accommodation obtain occupancy rights under which they have the status of guests.

Accordingly, the scheme's supply of excess accommodation is a taxable supply under section 9-5 of the GST Act of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises.

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 9-5
   subsection 40-35(1)
   section 40-5
   section 195-1

Case References:
South Steyne Hotel Pty Ltd v Commissioner of Taxation
   [2009] FCA 13
   2009 ATC 20-090
   (2009) 71 ATR 228

Related Public Rulings (including Determinations)
Goods and Services Tax Ruling GSTR 2000/20

Keywords
Goods and services tax
GST property & construction
GST time share
Taxable supply

Siebel/TDMS Reference Number:  5963985

Business Line:  Indirect Tax

Date of publication:  22 January 2010

ISSN: 1445 - 2782