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Ruling

Subject: GST and supply of accommodation in a hotel

Question

What is the GST treatment of accommodation provided to guests in the "Hotel"?

Answer

The supply is a taxable supply of commercial residential accommodation.

Relevant facts and circumstances

The Resort contains various facilities, the Hotel and the Villas.

The Hotel includes various restaurants and lounges,

Entity 1 owns the land pursuant to a Crown leasehold arrangement and is registered for GST purposes.

Entity 4 acts as operator and manager of the Hotel as agent for Entity 1.

Entity 1 acquired the leasehold and, buildings and resort business subject to various agreements previously entered into by the Vendor. These agreements include a Management Agreement, a Management Services Agreement, a Licence Agreement, a reservation services agreement and a technical services agreement (collectively referred to as the 'Hotel Management Agreements").

Entity 1 did not acquire the Villas, which are owned by various third party investors.

You, Entity 3, are only seeking advice on the GST treatment of the supply of accommodation in the Hotel, located within the Resort.

Entity 1 is keen to restructure its commercial operations and manage inherent risks involved in the provision of tourist accommodation operations. From this perspective, Entity 1 is proposing to enter into a sub-lease with you, in respect of the whole of the lease under which Entity 1 holds its leasehold interest ("the Sub-lease") - you supplied a copy of the draft Sublease.

The Sub-lease agreement has the following terms:

· The parties to the Sub-lease will comprise Entity 1 (as sub-lessor) and Entity 3 (as sub-lessee)

· The sub-lease is for the whole of the land.

· Entity 3 will only be entitled to use the sub-leased premises for the "business of an international tourist hotel and associated facilities".

· The Sub-lease will be subject and conditional upon the consent of the Crown.

· Entity 3 will acquire the interests pursuant to the Sub-lease subject to the existing agreements between Entity 1 and the Manager.

The relationship between you and the Manager would be similar to the relationship that existed between Entity 1 and the Manager pursuant to the Management Agreement and Management Services Agreement - you provided copies of these agreements with Entity 1.

You advised that the main terms of the, as yet undrafted, agreement between you and the Manager will be:

· You engage the Manager as the exclusive operator of the Hotel, which includes a first class international standard hotel;

· The Manager has exclusive control and discretion in the operation, direction, management and supervision of the Hotel, including determining labour policies; credit policies, terms of admittance, charges for rooms (but only after consultation with you), entertainment and amusement policies, food and beverage policies, leasing, licencing and granting of concessions for commercial space at the Hotel and all phases of promotion and publicity relating to the Hotel;

· In exercising its control and discretion, the Manager may negotiate contracts, leases, concession agreements and other undertakings on behalf of you but must submit the agreements to you for execution;

· The Manager must provide you with budgets, which must include certain specified criteria;

· No lease, licence or concession agreement for stores, office space or lobby space at the Hotel shall be agreed by the Manager without your approval;

· The remuneration of the employees at the Hotel shall be subject to certain limits;

· Expenditure in excess of annually adjusted amounts must be approved by you;

· The Manager may purchase goods, supplies and services from any of its affiliated or subsidiary companies provided certain price and quality conditions are satisfied;

· The Manager is allocated rooms for purposes of accommodation to personnel, use of the reception area and other areas in the Hotel to conduct the hotel business; and

· The Manager shall act solely as your agent in respect of the supply of accommodation;

· You ultimately bear all operating expenditure;

· As operator and agent, the Manager is paid a management fee for services rendered based on the gross operating profit of the Hotel;

· You bear the risk to the income if the rooms are vacant, i.e. the Manager does not guarantee a level of income. Further, you bear all the operating expenses;

· Entity 5 and its affiliates have extensive expertise in all phases of the operation and management of international hotels, who develop and maintain policies and procedures related to international hotels and render continuous assistance, supervision and review of all aspects of the operation and promotion of all hotels bearing the Hotel name;

· Entity 5 will provide continuous assistance and supervision of the hotel, review all aspects of the operation of the hotel and generally supply the executive expertise to enable the Manager to manage the hotel;

· Entity 5 acts solely as your agent;

· Entity 5 provides these services to you for a fee;

· Reservations in the Hotel are made through the Manager and an international associate of the Manager Entity 6. The relationship between you and Entity 6 is dealt with in accordance with the Reservations Services Agreement - you did not supply a copy of this agreement. You advised that the main features are:

Entity 6 maintains a worldwide network for the making and confirming or reservations at Hotels throughout the world, which is interconnected with other reservations networks ("the System"), the benefits of which are available to all Hotels;

You enrolled the Resort in the System;

Entity 6 provides centralised reservation services for a fee;

All taxes, levies and other fees imposed by any governmental body (other than manufacturer's excise taxes and taxes imposed on any Hotel affiliate's corporate income or franchise taxes) shall be an obligation imposed on you to pay directly, and

The relationship between you and Entity 6 is the provision of reservation services by Entity 6 to you - this is because of Entity 6's expertise and intellectual property in respect of reservation services.

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 40-35

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

Reasons for decision

Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), you make a taxable supply if:

· you make a supply for consideration

· the supply is made in the course or furtherance of your enterprise

· the supply is connected with Australia, and

· you are registered or required to be registered.

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

In this case, you will be providing accommodation to the public for consideration, the supply is made in the course or furtherance of the enterprise you carry on, the supply is connected with Australia as the property is in Australia and you are registered for GST. Therefore, the supply of accommodation will be a taxable supply and thus, subject to GST, unless the supply is GST-free or input taxed.

In your situation, there are no provisions in the GST Act that will make your supply of accommodation GST-free.

Under subsection 40-35(1) of the GST Act, 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.

The term 'commercial residential premises' is defined in section 195-1 of the GST Act to include amongst other things:

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

(b)

(f) anything similar to residential premises described in paragraphs (a) to (e).

On the facts provided, your premises' is a hotel. This satisfies the definition of commercial residential premises under paragraph (a) above. Therefore, it is not necessary to enquire whether it satisfies the definition of commercial residential premises under any of the paragraphs (b) to (f) of the definition of commercial residential premises above.

In addition, you control the premises through the leasehold interest over the property and bear the risk of the supply of the accommodation provided to individuals.

Accordingly, your supply of accommodation in those premises will be a taxable supply.

You state that the Manager will be acting as your agent. This is supported by various terms to be incorporated in the, as yet undrafted, agreement between you and the Manager. Therefore, you will be making taxable supplies of commercial residential accommodation through your agent.

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