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Ruling

Subject: GST and the supply of accommodation

Question 1

Does the supply of Short-Term Accommodation units and campsite tents within the facility constructed, constitute a taxable supply of commercial residential premises pursuant to section 40-35 and 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes

Question 2

Where a visitor is supplied with accommodation for more than 28 days, are you making a taxable supply of long-term commercial accommodation in commercial residential premises that are predominantly for long-term accommodation pursuant to Division 87 of the Act?

Answer

No

Question 3

Are you entitled to claim input tax credits in relation to construction expenditure incurred to build the facility as well as ongoing operational costs?

Answer

Yes (Please see detailed answer)

Relevant facts and circumstances

You have constructed a visitor's accommodation centre.

This is an innovative response to the need for short-term accommodation for visitors from remote communities.

List of facilities:

· Eight STA units to accommodate a maximum of four persons per unit;

· Seven campsite tents to accommodate a maximum of three persons per campsite;

· Two STA Units (containing two beds per unit, toilet and shower/bath facilities) to accommodate a maximum of six persons per unit. You have advised that there is no final design currently available for these units;

· Male and Female ablution blocks and services yard;

· Detached accommodation, which is intended for use by the onsite staff member(s);

· A community centre including an office and dining facilities;

· A communal kitchen, laundry facilities, public telephone booth and water point;

· A communal recreation facility, outdoor playground, Barbecues and fire pits;

· Twelve guest car park bays, bus park bay and staff car park bays; and

· Landscaped area surrounding each of the spaces and security fencing.

You will own and manage the development of the project and the construction of the facility as part of your enterprise. In relation to the construction, costs are incurred which include GST.

The facility is a short-stay option for up to 65 guests. Guests will be allowed a maximum stay of up to 90 days at the facility which will be operated 24 hours a day, seven days a week.

There are specific eligibility criteria in respect of the accommodation which is contained in the Draft Service Agreement.

Where demand exceeds available accommodation, applicants must be prioritised and maintained on a waitlist based on the following criteria:

· Women and children;

· Health and disability factors;

· Age related circumstances.

It is expected that the majority of the visitors will stay between 1 to 30 days.

Although occupants can stay for up to 90 days, occupation is not intended to be for more than 30 days. The intention behind building the accommodation facility is to provide occupants, who are of an itinerant nature while on travel, facilities available for short-term stay.

There will be advertisement signage that is visible.

Initially managed jointly by you and another entity, a local not for profit organisation (NFPO) will oversee the day to day operation of the facility. The service provider will employ staff to centrally manage the facility.

There will be central management that accepts reservations, allocates rooms and provides other functions. The management function includes the following:

· Assessing eligibility requirements;

· Collecting payment;

· Provision of free laundry services;

· Property inspections

· Enforcing the rules and regulations of occupancy such as alcohol rules;

· Arranging support services (e.g. two meal services a day); and

· General maintenance of the premises.

The facility provides on-site accommodation for the on-site Manager who will be based on-site in a full time role.

The facility will be operated on a revenue based model (base rate per guest per night) and the shortfall between income and expenses will be subsidised through funding.

The following services and facilities will be provided to visitors:

· Furnished units including a bed, mattress, linen, curtains and lamps;

· Two meals per visitor per day charged on a cost recovery basis;

· Laundry facilities and linen (free of charge);

· Storage of bags or locked item service;

· Weekly cleaning and access to a public telephone;

· Cleaning can also be organised with the Service Provider on visitor's requests;

· On-site sports and recreational facilities.

The House Guest Rules as per the Draft Service Agreement are:

· No alcohol or prohibited drugs are to be consumed within the facility;

· No intoxicated persons are permitted to enter the facility;

· No dangerous weapons are permitted;

· No pets are permitted within the Facility;

· No entering the Facility via the fence;

· Smoking is only permitted in designated areas to ensure the health and safety of staff, House Guests/Visitors and Facility Assets;

· To ensure their safety at all times, house guests / visitors must supervise their children including when in communal areas; and

· House guests/visitors should not disrupt the peace and harmony of other house guests/visitors. Each person should conduct themselves in a manner that is mindful of and fair to others. This includes respecting other people's privacy.

Relevant legislative provisions

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

A New tax System (Goods and Services Tax) Act 1999 Section 40-65,

A New tax System (Goods and Services Tax) Act 1999 Section 40-70,

A New tax System (Goods and Services Tax) Act 1999 Section 11-5 and

A New tax System (Goods and Services Tax) Act 1999 Division 87.

Reasons for decision

Question 1

The requirement in sections 40-35, 40-65 and 40-70 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), that premises be residential premises to be used predominantly for residential accommodation, is to be interpreted as a single test that looks to the characteristics of the property.

Paragraph 40-35(1)(a) of the GST Act, provides that a supply of premises by way of lease, hire or licence is input taxed if it is a supply of 'residential premises'. However, the supply will not be an input taxed supply if it is 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'.

The terms 'residential premises' and 'commercial residential premises' are defined in section 195-1 of the GST Act.

'Residential premises' means land or a building that:

· is occupied as a residence or for residential accommodation, or

· 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 intention with which premises are designed, built or modified which, to some extent, will be reflected in their suitability for a particular purpose will determine whether premises are residential premises for GST purposes. This is overlayed by the further requirement that the premises are capable of occupation as a residence (see Marana Holdings Pty Ltd v.Commissioner of Taxation (2004) 141 FCR 299 at 313; [2004[ FCAFC 307 at 62; 2004 ATC 5068; (2004) 57 ATR 521 (Marana)).

The definition of residential premises was amended post-Marana to confirm that premises that provide shelter and basic living facilities such as a bedroom and bathroom come within the definition of residential premises in the GST Act (see South Steyne Hotel Pty Ltd v. Commissioner of Taxation [2009] FCA 13 at [31]; 2009 ATC 20-090 at 9331; (2009) 71 ATR 228 at 239).

Whether newly constructed premises that provide shelter and basic living facilities are residential premises, or another type of premises, may be ascertained by establishing the physical characteristics of the premises and the purpose for which the premises are designed and built.

The premises comprise of eight non-self contained Short Term Accommodation (STA) units to accommodate a maximum of four persons per unit and seven campsite tents to accommodate a maximum of three persons per campsite. This accommodation is serviced by separate male and female ablution blocks as well as communal dining, laundry and recreation areas.

A further two self-contained units to accommodate a maximum of six persons per unit will also be available. These units will comprise of two beds, toilet and shower/bath facilities. You have advised that there is no final design currently available for these units.

Paragraphs 150 and 151 of Draft Goods and Services Tax Ruling GSTR 2012/D1, Goods and services tax: residential premises and commercial residential premises (GSTR 2012/D1) explains what is meant by 'residential premises':

150. In South Steyne it was held that only the elements of shelter and basic living facilities are necessary for premises to satisfy the definition of residential premises. This includes, for example, shelter and basic living facilities provided by a bedroom and bathroom. However, premises may provide shelter and basic living facilities without necessarily having a conventional bedroom or bathroom.

151. The premises may be in any form, including detached buildings, semi-detached buildings, strata title apartments, single rooms or suites of rooms within larger premises. Premises that lack the features of shelter and basic living facilities are not residential premises.

In your case, the premises are designed to provide shelter and basic living accommodation and it is accepted that these premises are residential premises. They are suitable for occupation as a residence or for residential accommodation and possess features necessary for residential accommodation and are able to be occupied as residential premises.

However, you contend that your premises have been designed in the style of a hostel, boarding house, motel or camping ground and as such constitutes commercial residential premises rather than residential premises. It remains to be determined whether this is the case.

The term 'commercial residential premises' is defined in section 195-1 to include (amongst other things):

· a hotel, motel, inn, hostel or boarding house; or

· a caravan park or camping ground; or

· anything similar to residential premises described in paragraphs (a) to (e)…

Paragraph 49 of GSTR 2012/D1 states:

49. The terms in paragraph (a) of the definition must be considered by reference to their ordinary meanings, and the context in which the term 'commercial residential premises' is used in the GST Act including divisions 40 and 87.In this context, the Commissioner considers that the list of premises in paragraph (a) creates a class of premises that share common characteristics. These

a). In the context of the GST Act, the terms 'hotel, motel, inn, hostel and boarding house' do not include premises that principally provided accommodation of a kind expected for those who own or rent a house or apartment.

Paragraph 50 of GSTR 2012/D1 outlines a number of characteristics that are commonly found in operating hotels, motels, inns, hostels and boarding houses including:

Commercial intention

· Accommodation is the main purpose

· Multiple occupancy

· Occupants have status as guests

· Holding out to the public

· Central Management

· Provision of, or arrangement of services

· Management offers accommodation in it's own right.

Paragraph 51 of GSTR 2012/D1 states that, in addition to these characteristics, there may be other relevant objective factors including the overall physical character of the premises as well as government zoning and planning permissions. However, paragraph 53 of GSTR 2012/D1 emphasises that to be classified under paragraph (a) of the definition of commercial residential premises or under paragraph (f) for premises that are similar to those described in paragraph (a), it is necessary that the premises are principally used to provide accommodation to individuals who have the status of guests. Other than this characteristic, it is not a requirement for all of the remaining operating characteristics or additional objective factors to be present.

Paragraph (a) of the definition of commercial residential premises includes a hostel and motel. These terms are not defined in the GST Act . Paragraph 173 of GSTR 2012/D1 refers to the definitions provided in The Macquarie Dictionary (Macquarie), the Shorter Oxford English Dictionary (Shorter Oxford) and the Oxford English Dictionary (OED):

Hostel

A supervised place of accommodation, usually supplying board and lodging provided at a comparatively low cost, as one for students, nurses, or the like.

[cross reference] Youth hostel: a simple lodging place for young travellers. (Macquarie)

A public house of lodging and entertainment for strangers and travellers; an inn, a hotel. Arch [ cross reference] Youth hostel : providing cheap accommodation for (orig. young) people, esp. on hiking or cycling holidays. (Shorter Oxford)

2. spec. a. A public house of lodging and entertainment for strangers and travellers; an inn, a hotel. B. = youth hostel. (OED)

Motel

A roadside hotel which provides accommodation for travellers in self-contained, services units, with parking for their vehicles. (Macquarie)

A roadside hotel catering primarily for motorists; spec. one comprising self-contained accommodation with adjacent parking space. (Shorter Oxford)

A hotel catering primarily for motorists, spec. one comprising self-contained accommodation with adjacent parking space. (OED)

In their ordinary meanings, the terms 'hotel', 'motel', 'inn' and 'hostel' are largely synonymous as they provide accommodation to guests. The meaning of these terms in the GST Act is derived from the context in which the term 'commercial residential premises' is used in the GST Act. This context includes commercial residential premises being excluded from the input tax treatment of residential premises. As noted in paragraph 160 of GSTR 2012/D1, residential premises are input taxed so that those renting a house, flat or home unit are on the same footing as those who own their own homes.

So while premises may be referred to as a 'hostel' or 'motel', it will be the physical characteristics, infrastructure and mode of operation which will determine whether it is of a class of premises defined by paragraph (a).

Physical characteristics, infrastructure and layout of the accommodation

Paragraph 81 in GSTR 2012/D1 states:

81. Premises may be characterised under paragraphs (a) or (f) of the definition of commercial residential premises even when they are not operating. Premises that are not being operated at the time of supply may be classified by their overall physical character, considered with other objective characteristics. Prior use, physical characteristics, plans, or council or other government planning and / or zoning restrictions may all be indicative of the premises' nature.

GSTR 2012/D1 explains that 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 includes (but is not limited to) reception areas, dining and bar areas, meeting/function areas, kitchen, 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,

Paragraph 232 in GSTR 2012/D1 states further:

232. This position is supported by the following observation made by Emmett J in the Full Federal Court decision of South Steyne :

A hotel, motel, inn, hostel or boarding house consists of more than the rooms or apartments that are occupied by guests. It must also of necessity include common areas such as reception areas, dining areas, car parks and the like, such as were the subject of the management lot. The supply that consisted only of the rooms or apartments or accommodation units in a hotel complex is not, without those other areas, the supply of commercial residential premises. The management lot is an essential part of the Sebel Hotel.

Further in Noosa Shire Council v. Staley [2002] QPEC 18 (Noosa Shire Council), McLauchlan J considered the term 'hostel'. His Honour stated at [14] that the ordinary meaning:

….implies budget accommodation involving shared arrangements and shared toilet and ablution facilities between people who are unrelated and who cannot be regarded as constituting a household

In your case, the eight STA non-self contained units, providing accommodation for four people in a single room, are characteristic of hostel accommodation. The accommodation is low cost at a rate of $X per guest per night and is configured with the needs of the community seeking low cost accommodation.

There are shared separate male and female ablution facilities which service the eight STA units as well as communal dining facilities, shared laundry facilities, public telephone booth and communal recreation facilities.

The accommodation is supervised, as central management will allocate rooms to individuals and families, enforce the rules and regulations of occupancy and arrange general maintenance of the premises.

Guests will have access to two meals per visitor per day which will be provided on a cost recovery basis. You advise that due to the location of the accommodation, most guests are likely to take up this option.

The two self-contained STA units, although similar in style and purpose, are differentiated by the fact that they will include toilet and shower/ bath facilities and can cater for families up to a maximum of six persons with adjacent car parking. You advise these units have not yet reached the final design stage.

Based on the information provided, we consider that the two STA units will be characteristic of motel accommodation. The guests taking up this type of accommodation will also make use of the central management facilities, communal dining facilities, laundry facilities, public telephone and communal recreation facilities.

With regard to the seven campsite tents, Paragraph 247 of GSTR 2012/D1 contains the following definition of camping ground:

247. The terms 'caravan park' and 'camping ground' are not defined in the GST Act and take their ordinary meanings in context. Dictionaries provide the following meanings for each of these terms:

Caravan park:

Caravan

Camping ground

1. a supervised site, often with amenities, on which tents may be erected and caravans parked for holiday occupation ( Macquarie )

[cross reference] camp-site a place for camping ( Shorter Oxford )

Camping 1. Going into a camp, encamping; a lodging in tents, etc. 2. attrib., as in camping-place,- ground. ( OED )

Paragraph 248 goes on to say that there are some differences between the way these premises operate and the operation of hotels and similar premises. Guests may stay in a caravan, a demountable home, a permanent cabin or villa, or a tent provided by the operator on the site. Further, accommodation in a caravan park or camping ground is held out to the public and are operated on a commercial basis or in a business-like manner. Paragraph 249 states that supplies of sites within a caravan park or camping ground are taxable under the basic rules.

Further, the GST Bulletin 2001/2 specifies that the supply of camping grounds is a supply of commercial residential premises.

In your case, the campsite contains seven campsite tents to accommodate a maximum of three persons per campsite. These campsites are also serviced by the separate male and female ablution blocks and guests also enjoy all communal services and facilities.

You have also referred to the eight characteristics of 'commercial residential premises' outlined in GSTR 2012/ D1 and outlined a number of reasons to support your view that the premises exhibit sufficient characteristics to support that the accommodation to be supplied in the eight STA Units is a hostel, or similar to a hostel and that the two STA Units are a motel, or similar to a motel.

To be classified under paragraph (a) of the definition of commercial residential premises or under paragraph (f) for premises that are similar to those described in paragraph 9(a), it is necessary that the premises are principally used to provide accommodation to individuals who have the status of guests.

Paragraph 50 of GSTR 2012/D1 clarifies what is meant by the phrase 'status as guests:

(iv) occupants have status as guests

The premises are used to provide accommodation of a transient nature to guests. A guest is someone who is away from their usual home, or who has no other home. The accommodation may be of a short or long term nature. As a guest, a person has the right to occupy and enjoy the premises, but accepts as part of the hire of accommodation that the management maintains overall control of both their room, and the premises as a whole.

In your case, you have advised that the facility will provide short-term accommodation to people who are of an itinerant nature while on travel, with facilities for a short-term stay which is less than 90 days

Management will maintain overall control and the right of entry into any room at any time. Occupants of the centre will be required to abide by a number of criteria and rules in order to occupy the accommodation premises and at no time will the occupants have a right to exclusive possession.

We therefore consider that the occupants of the facility have the status as guests.

We agree that while the accommodation will be limited to applicants of a particular group and other eligibility criteria, that the characteristic of holding out to the public is displayed. As per paragraph 208 of GSTR 2012/D1, commercial residential premises may be marketed directly to a particular segment of the public or to a niche market.

Based on the information supplied, we also consider that the facility exhibits the characteristics of commercial intention, accommodation is the main purpose, central management, provision of, or arrangement for services and management offers accommodation in its own right.

Other objective factors which support your view that the premises meets the definition of commercial residential premises

There are a number of other objective factors which support your view that the facility meets the definition of commercial residential premises. In particular:

The House Guest Rules as per the Draft Service Agreement demonstrate that guests have a lack of control of the premises that renters would ordinarily expect to have.

Conclusion

Having examined the facts and considered your submissions, we consider that the accommodation provided exhibits the characteristics of commercial residential premises. The physical characteristics, infrastructure, facilities and layout support this conclusion in conjunction with the stated aim of the facility.

Other

In your ruling request, you have not considered the GST implications pertaining to employee accommodation. Given the location of the facility, it is likely that the accommodation supplied to employees will be their principle place of residence and will not satisfy the characteristics of hotels, motels, inns, hostels and boarding houses and as such, the supply of these premises may fall under section 40-35(a).

Question 2

You have advised that it will be highly unlikely, based on projections for the next 12 months, that 70% or more of the visitors will stay at the facility for a continuous period of more than 28 days.

Consequently, you will not meet the definition of 'predominantly for long term accommodation' and you will not be making a taxable supply of long-term accommodation in commercial residential premises.

Question 3

Based on the information supplied above, you are entitled to claim input tax credits in relation to the construction expenditure incurred to build the facility as well as ongoing operational costs.

To the extent that the accommodation supplied to employees is residential premises to be used predominantly for residential accommodation, you will need to apportion these costs between taxable and input taxed supplies.

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