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You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your written advice

Authorisation Number: 1051278746918

Date of advice: 5 September 2017

Ruling

Subject: Goods and Services Tax (GST) and commercial residential premises

Question

Is your supply of accommodation a taxable supply of accommodation in commercial residential premises for the purposes of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No, your supply is not a taxable supply of accommodation in commercial residential premises for the purposes of section 9-5 of the GST Act. It is an input taxed supply of residential premises.

Relevant facts and circumstances

    ● You are currently registered for GST.

    ● You carry on a leasing enterprise of supplying residential accommodation. You lease a number of premises within Australia.

    ● You offer residential accommodation through XX apartments, situated in XX complexes in various locations.

    ● Each apartment has bedroom(s), kitchen and bathroom facilities.

    ● There are no services/facilities such as restaurant, room service, swimming pool or concierge in any of these buildings, except for one building. This building has a pool, gym and coffee shop, these facilities are not provided by, maintained or operated by you.

    ● Pay TV and internet are provided in all apartments.

    ● A weekly linen change and housekeeping service is provided.

    ● Basic limited 1-day only amenities such as cleaning liquids, laundry powder, shampoo & conditioner, cereal packs and milk, tea & coffee are provided inclusive of the rates.

    ● You have entered into lease agreements with the owners of the apartments through letting agents.

    ● Individual lease agreements are made for each property between the owners and you; they are renewable 12 month residential rental agreements. You have the right to assign leases with the property owners consent.

    ● You pay the rent and all gas, electricity, telephone, insurance and any other charges associated with your business operations.

    ● The owner pays water and council rates and any other charges that you are not required to pay.

    ● You agree to maintain the premises.

    ● You operate your office from a leased premises.

    ● You have staff to take calls and queries from prospective clients, they also provide keys to apartments and issue invoices.

    ● Guests are not admitted to premises unless full payment has been received.

    ● You advertise on the internet, via your web page.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5

A New Tax System (Goods and Services Tax) Act 1999 Section 9-40

A New Tax System (Goods and Services Tax) Act 1999 Subsection 11-15(2)

A New Tax System (Goods and Services Tax) Act 1999 Section 11-20

A New Tax System (Goods and Services Tax) Act 1999 Section 40-35

A New Tax System (Goods and Services Tax) Act 1999 Subsection 40-35(2)

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 40-35(1)(a)

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

In this ruling:

    ● unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

    ● all terms marked by an *asterisk are defined terms in the GST Act

    ● all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on ato.gov.au

Section 9-40 provides that you must pay GST on any taxable supply that you make.

Under section 9-5, you make a *taxable supply if:

    (a) you make the supply for *consideration; and

    (b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and

    (c) the supply is *connected with the indirect tax zone; and

    (d) you are *registered, or *required to be registered

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

The primary issue in this case is whether your supply of the apartments (property) through leasing or letting out of the property would be an input taxed supply of residential accommodation. Input taxed means that GST is not payable on the supply and there is no entitlement to an input tax credit for anything acquired to make the supply.

Input taxed

Under paragraph 40-35(1)(a), a supply of residential premises by way of lease, hire or licence (other than a supply of commercial residential premises or a supply of accommodation in commercial residential premises provided to an individual by an entity that owns or controls the commercial residential premises) is input taxed.

Under subsection 40-35(2) of the GST Act, the supply will only be input taxed to the extent that the premises are to be used predominately for residential accommodation (regardless of the term of occupation).

It is common ground that you supply accommodation and that accommodation is in premises that satisfy the definition of residential premises. The issue to be determined is whether those premises are commercial residential premises.

Commercial residential premises and accommodation

‘Commercial residential premises’ is defined in section 195-1 of the GST Act to include (amongst other things):

    (a) a hotel, motel, inn, hostel or boarding house; 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.

The Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises (GSTR 2012/6) provides the Australian Tax Office (ATO) view of the characteristics of commercial residential premises.

The terms hotel, motel, inn, hostel and boarding house are not defined in the GST Act and take their ordinary meaning. Paragraphs 140-141 of GSTR 2012/6 list the ordinary meanings of the terms and referred to the Macquarie Dictionary (Macquarie) which provides the following definitions:

      Hotel a building in which accommodation and food, and alcoholic drinks are available

      Motel a roadside hotel which provides accommodation for travellers in self-contained, serviced units, with parking for their vehicles.

      Inn a small hotel that provides lodging, food etc., for travellers and others

      Hostel a supervised place of accommodation, usually supplying board and lodging provided at a comparatively low cost, as one for students, nurses, etc.

      Boarding house a dwelling in which lodging is provided to paying residents who share common facilities such as a kitchen, laundry, living room, etc.

Paragraph 10 and 11 of GSTR 2012/6 explains that the objective factors that are relevant to characterising premises under paragraph (a) or (f) of the definition include the overall physical character of the premises and how the premises are operated. The test to apply for paragraph (a) of the definition is whether the premises are a hotel, motel, inn, hostel or boarding house and the test for applying paragraph (f) is whether the premises are similar to these types of premise, in the sense that they have sufficient likeness or resemblance to any of those types of establishments.

In ECC Southbank Pty Ltd as trustee for Nest Southbank Unit Trust & Anor v Commissioner of Taxation [2012] FCA 795 (ECC Southbank). Nicholas J stated in ECC Southbank at [50]:

      [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.

Paragraph 12 of GSTR 2012/6 lists the characteristics that are considered to be common to operating hotels, motels, inns, hostels and boarding houses that are relevant to characterising premises as commercial residential premises:

    ● commercial intention

    ● multiple occupancy

    ● holding out to the public

    ● accommodation is the main purpose

    ● central management

    ● management offers accommodation in its own right

    ● provision of, or arrangement for, services, and

    ● occupants have the status of guests.

Based on the definitions in paragraph 141 of GSTR 2012/6, a hotel motel or inn is a building or establishment from which accommodation and other services or facilities are supplied.

The accommodation that you supply is not from a single building or establishment as the accommodation is situated in XX separate buildings. Relevantly, paragraphs 95 and 96 of GSTR 2012/6 provides guidance in respect of separately titled apartments that are not located within the same building.

Paragraphs 95 and 96 of GSTR 2012/6 states:

      95. In addition to living accommodation areas, premises that are commercial residential premises include commercial infrastructure to support the commercial operation of the premises. This infrastructure may include (but is not limited to) reception areas, dining and bar areas, meeting/function areas, kitchens, laundry facilities, storage areas and car parks. This infrastructure is used to provide services to occupants. Premises described in paragraph (a) and similar premises under paragraph (f) of the definition contain some or all of these areas to some degree.

      96. Separately titled rooms, apartments, or adjacent cottages or villas located on adjoining or abutting land can be combined with sufficient commercial infrastructure (as discussed in paragraph 95 of this Ruling) so that, as a whole, it can be operated similarly to a hotel, motel, inn, or hostel. Supplies of accommodation in premises operated in this way are supplies of accommodation in commercial residential premises.

You supply accommodation from separate buildings that are not co-located and you provide services to guests from an off-site office. As the accommodation and the infrastructure to provide services is not located within a single building or from buildings that are situated on adjoining or abutting land, these premises cannot be characterised as a hotel motel or inn or sufficiently similar to a hotel, motel or inn. Accordingly, the premises from which you supply the accommodation does not satisfy the definition of commercial residential premises under paragraph (a) or (f) of section 195-1.

In your case, we consider that you are not making a supply of accommodation in commercial residential premises provided to an individual by an entity that owns or controls the commercial residential premises. Consequently your supply is an input taxed supply of residential premises when you lease the properties to guests pursuant to section 40-35.Therefore, the leasing of your properties (in this case residential apartments) is not a taxable supply under section 9-5.You are entitled to an input tax credit for any creditable acquisition that you make (refer to section 11-20). However, in your case, any acquisitions that relate to making input tax supplies such as input taxed residential rent are not for a creditable purpose (see subsection 11-15(2)). Hence, you are not able to claim input tax credits for the costs incurred in relation to making input taxed supplies under section 11-20.