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Ruling

Subject GST and the supply of separately strata titled premises in a motel

Question

Will your supply of strata titled units located in a motel precinct be taxable supplies when supplied individually?

Answer: Yes

Relevant facts

You acquired a motel in yyyy. The motel was built prior to this time and had been operating as a motel for a period of time. It comprises a specified number of individually strata titled units. Each unit is fully self contained and contains one or two bedrooms and has its own bathroom, kitchen and laundry. There is also a driveway to each unit.

The motel units have been used in the business since purchase. They have been let for short term accommodation with the average stay being five nights. The owner spends a significant amount of time operating the motel units. Although no meals are supplied, basic supplies such as tea, coffee and sugar are supplied and there is a barbeque available for use. All linen is refreshed weekly or at the end of a guests stay.

The owner has been approached to sell the units. The arrangement would be to sell one unit each year for a number of years until the motel business is no longer viable and then the remaining units would be sold. No work will be involved to sell the motel units as they are already strata titled and the unit trust has been approached by the purchaser so there is no need to advertise.

Relevant legislative provisions

Section 9-5, 40-65, 40-75, 195-1

Reasons for decision

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that a supply will be a taxable supply if:

· you make a supply for consideration

· the supply is made in the course or furtherance of an enterprise that you carry on

· the supply is connected with Australia and

· 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.

Your enterprise is located in Australia as are the units you plan to sell. You will receive consideration for these units and the sale is in the course of your leasing enterprise. Therefore, as you are registered for GST, your supplies of these units will be taxable supplies unless they are input taxed or GST-free. From the facts you have provided, these supplies will not be GST-free and therefore we will examine whether they are input taxed.

Residential premises

Subsections 40-65 (1) and (2) of the GST Act provides that a sale of real property is input taxed, but only to the extent that the property is residential premises to be used predominantly for residential accommodation (regardless of the term of occupation).

However, the sale is not input taxed to the extent that the residential premises are:

(a) commercial residential premises; or

(b) new residential premises other than those used for residential accommodation (regardless of the term of occupation) before 2 December 1998.

Residential premises' is defined in section 195-1 of the GST Act to mean 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.

The Commissioner's view on the meaning of 'residential premises' is set out in the Goods and Services Tax Ruling GSTR 2000/20: commercial residential premises (GSTR 2000/20).

Paragraph 28 of GSTR 2000/20 explains that residential premises should have such things as areas for sleeping accommodation and basic facilities for day to day living. The premises may be in any form, including single rooms or suites of rooms within larger premises. This Ruling also states that in residential premises the tasks of daily living such as preparing food, cleaning and laundering are performed by the occupant or by others under private arrangements and the status of the occupant is most commonly that of owner, tenant or lessee.

As your premises provide shelter and basic living facilities, they fall within the definition of residential premises as defined in the GST Act. Therefore, your supply of these units will be input taxed unless they are (a) new residential premises that were not used for residential accommodation before 2 December 1998 or (b) commercial residential premises.

Commercial residential premises

The term '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).

For your premises to be commercial residential premises, they must be one of the types of establishments listed in paragraph (a), or, under paragraph (f), must possess the characteristics that are common to the premises listed in paragraph (a) to a degree that would place them in that class rather than with premises of another kind.

Paragraph (a): hotel, motel, inn, hostel or boarding house

The facts provided indicate that your premises are a motel. However, you have advised that you are only selling one of the strata titled units at a time.

Paragraphs 51 of 54 of GSTR 2000/20 explain that a strata titled unit cannot, by itself, exhibit the characteristics of commercial residential premises.

Strata and other separately titled premises

51. Residential premises are input taxed under the GST unless they have the character of commercial residential premises. One of the fundamental characteristics is multiple occupancy, as discussed in paragraphs 88 to 91. This characteristic emphasises the difference between a single room or suite or house for hire, and a hotel or boarding house. A strata titled unit or suite cannot, by itself, exhibit the characteristics of commercial residential premises.

52. This is why an individual unit only takes on the character of commercial residential premises when it is aggregated with others and run by an entity who has acquired the interests necessary to let the rooms in its own right, rather than on behalf of the owners, in the same manner as a hotel, motel, inn, or hostel.^F19

53. The following diagram gives a view of how a simple arrangement of this kind works:



54. Strata and other separately titled residential premises retain their character as residential premises when sold and are input taxed, regardless of whether they are located within the precincts of commercial residential premises.^F20

You have advised that you will be making supplies of individually strata titled units. Therefore, as set out in GSTR 2000/20, although your premises are located within commercial residential premises, they retain their character of residential premises and the individual supplies will not be a supply of commercial residential premises.

New Residential premises

Subsections 40-75 (1) and (2) of the GST act provide that:

(1) residential premises are new residential premises if they:

(a) have not previously been sold as residential premises (other than commercial residential premises) and have not previously been the subject of a long-term lease; or

(b) have been created through substantial renovations of a building; or

(c) have been built, or contain a building that has been built, to replace demolished premises on the same land.

(2) However, the premises are not new residential premises if, for the period of at least 5 years since:

(a) if paragraph (1)(a) applies (and neither paragraph (1)(b) nor paragraph (1)(c) applies)-the premises first became residential premises; or

(b) if paragraph (1)(b) applies-the premises were last substantially renovated; or

(c) if paragraph (1)(c) applies-the premises were last built;

the premises have only been used for making supplies that are input taxed because of paragraph 40-35(1)(a).

Determining if residential premises are new residential premises involved a two step process as prescribed in section 40 -75 of the GST Act. The first step is to consider whether your supply of residential premises is new residential premises and then to see if it is excluded on any basis set out in subsection 40-75(2). That is if your premises meet any of the paragraphs in subsection 40-75 (1) then they will be new residential premises unless excluded by any of the paragraphs in subsection 40-75(2) of the GST Act.

Your premises meet the definition of paragraph 40-75(1) (a) in that they have not previously been sold as residential premises and have only ever been used as commercial residential premises.

Therefore we need to look at subsection 40-75(2). In your case, none of the paragraphs in this subsection apply and therefore your supply of residential premises will be a supply of new residential premises.

In conclusion you will be making a supply of new residential premises when you sell your strata titled units one at a time. As your supply of new residential premises is not input taxed or GST free, your supply will be a taxable supply and you will be required to remit GST on the supply.

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