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Ruling

Subject: GST and the supply of accommodation in a resort.

Questions

1. Will the supply of accommodation to guests in respect to the apartments in the Properties, by Entity A be a taxable supply?

2. Will the supply of the management services by Entity B to Entity A in respect of the Properties be a taxable supply?

3. Will the sale of individual strata titled units located within the complex to third parties be a taxable supply?

Answers

1. Yes

2. Yes

3. No.

This ruling applies for the following periods:

The scheme commences on:

1 July 2012.

Relevant facts and circumstances

Both Entity A and Entity B are registered for GST.

Entity A acquired a number of properties at a single address which comprise a resort.

Due to a series of cross easements permitting access over each of the relevant titles the properties are managed as a single complex.

The complex comprises of a number of rooms across 60 units and contains the following facilities and equipment.

· One or two bedrooms

· Full kitchen

· Laundry facilities with washing machine

· Air conditioner

· Hair dryers and

· CD player plus Austar.

The following services are supplied or advertised with the accommodation

· Daily cleaning

· Bookings for tours and events for guests

In addition a commercial tenant in the complex operates a restaurant which is operated separately from the complex. Access to the restaurant is only from the street. Guests at the resort can order food from the restaurant but there is no verbal or written agreement between the resort and the restaurant. Any meals purchased from the restaurant are billed by the restaurant directly to the guest and are not part of any services billed by the Resort. Orders by guests can be delivered to guests in the same manner as any other takeaway business.

The resort's advertised facilities are:

· Heated Spa

· Sauna

· Gym

· Barbecue Areas

· Undercover secure parking

· Heated swimming pools

· Heated children's wading pools

· Self serve laundry facilities on site.

Management services

Entity A acquired the property with a management agreement in place with Entity C.

Entity A then replaced Entity C with Entity B as the Manager under a new letting and property management agreement. The new Management Agreement has not been completed yet. However, it is intended that it will mirror the pre-purchase agreement.

The rights, titles and agreements which the vendor held were transferred to entity A under the sale agreement.

There is a number of existing maintenance contracts including those for maintenance of infrastructure. These were supplied with the sale of the property along with the assets of Entity C.

Entity A will pay Entity B (the Manager):

A commission:

· equal to a percentage of the gross rental receipts for the residential units

· equal to a percentage of the gross rental receipts for the commercial units.

A fee for service costs incurred in operating the hire of the units including:

· Cleaning costs

· Linen hire

· Laundry service

· Television, video and stereo rental

· Electricity supply

· PABX access and

· Any other utility service

· Agency fees paid to any airline, coach company, wholesaler or other agent or the like by way of fees for the introduction of tenants to the unit

· Repair and maintenance fees

· Capital item replacements

· Video

In addition to the guest and leasing services noted above, Entity B, as agent for Entity A

· Takes forward bookings and deposits for accommodation;

· Takes bookings for tours and events

· Maintains the business name and the website;

· Maintains telephone and fax numbers;

· Retains keys and codes for any locks in the complex;

· Has entered into rental and service agreements

· Acquires, maintains and manages stock and consumables and other physical resources.

· Maintains records and pays bills

· Manages the leasing of the retail tenancies.

Management Agreement

Clause 2.1 states that the Manager will account to entity A for the net receipts by forwarding statements monthly showing details of the period of occupancies etc.

Clause 2.2, states the Manager shall not be liable to the owner in respect of any default in payment of rent.

Clause 2.3 provides that the Manager will have the right to remove tenants who are a risk to the property.

Entity B, in its own right:

· Provides some of the plant and equipment utilised in the complex and

· Employs workers to run the complex.

Relevant legislative provisions

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

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

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

A New Tax System (Goods and Services Tax) Act 1999 40-75.

Reasons for decision

1. Will the supply of accommodation to guests in respect to the apartments in Properties 1, 2 and 3 by Entity A be a taxable supply?

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, Entity A through its agent, Entity B

· will be providing a supply of accommodation to the public for consideration,

· the supply is made in the course or furtherance of the enterprise that Entity A carries on,

· the supply is connected with Australia as the property is in Australia and

· Entity A is registered for GST.

In the current factual situation, there is no provision of the GST Act that would make the supplies GST-free.

Therefore, the supply of accommodation will be a taxable supply and thus, subject to GST unless the supply is input taxed.

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 definition of residential premises in section 195-1 of the GST Act refers to land or a building that is occupied as a residence, or for residential accommodation, or is intended and capable of being occupied as a residence or for residential accommodation (regardless of the term of occupation), and includes a floating home.

Paragraph 26 of Draft Goods and Services Tax Ruling GSTR 2012/D1: residential premises and commercial residential premises (GSTR 2012/D1) explains that the physical characteristics common to residential premises are premises that provide the occupants with sleeping accommodation and at least some basic facilities for day to day living. The apartments in the resort contain a bedroom, bathroom and a kitchen. Further, they are fit for human habitation. Therefore, the apartments meet the definition of residential premises.  

However, as a supply of accommodation in commercial residential premises is specifically excluded from being input taxed, we will consider whether the entity is making a supply of accommodation in 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 the 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.

In this case the layout of the premises mean that they are similar to a hotel or motel but lack some of the features to some degree.

Paragraph 181 of GSTR 2012/D1 lists the following as the main characteristics of commercial residential premises:

· commercial intention

· accommodation is the main purpose

· multiple occupancy

· occupants have the status of guests

· holding out to the public

· central management

· provision of, or arrangement for, services, and

· management offers accommodation in its own right.

The residential units meet criteria (i) to (vi) and Entity A offers accommodation in its own right through an agent.

GSTR 2012/D1 states at paragraphs 91 and 92:

91. 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, 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.

92. 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 91) so that, as a whole, it can be operated similarly to a hotel, motel, inn, hostel or boarding house. Supplies of accommodation in premises operated in this way are supplies of accommodation in commercial residential premises.

Although there is no "in house" restaurant, guests can order meals from a restaurant located within the building. Further, the rooms are cleaned daily and bookings are made on behalf of guests for tours and events.

A recent judgement of the Federal court case, ECC Southbank Pty Ltd atf Nest Southbank Unit Trust and Anor v Commissioner of Taxation, was handed down on 31 July 2012. It is cited as 2012 ATC 20-336. The issue here was whether student accommodation supplied in serviced apartments was a taxable supply of commercial residential premises. In the judgment, his Honour noted that the fact that meals were not provided to residents did not mean that the premises could not be described as a hostel or similar to a hostel.

The Commissioner has issued a Decision Impact statement stating that he considers that the preliminary views expressed in GSTR 2012/D1 are broadly consistent with the decision.

The three separate properties with cross easements allow the guests to use any of the common areas of all three properties. There is a reception, car parking for guests, access to laundry facilities, pools spa and gym. Although the restaurant is leased to an independent third party it is available for in house orders and there is daily cleaning of the apartments and the manager provides a service of booking tours and events on behalf of guests.

Therefore, although there is no in-house restaurant and other services are limited, we consider that the supply of accommodation in the apartments combined with the associated commercial infrastructure is operated in a manner similar to a hotel, motel, inn or boarding house. We consider that overall the criteria above are met to a degree sufficient to conclude that the supplies of accommodation are being made in commercial residential premises.

Therefore the supplies of accommodation will be taxable supplies.

2. Will the supply of the management services to Entity A by Entity B in respect to the three Properties be a taxable supply?

As entity B is registered for GST and their supplies of management services are:

· made for consideration, being a monthly management fee

· made in the course or furtherance of their enterprise and

· connected with Australia,

they will satisfy the requirements of section 9-5 of the GST Act.

Further, in this factual situation, there is no provision of the GST Act that would make the supplies GST-free or input taxed.

Therefore, the supplies of management services by entity B to entity A will constitute taxable supplies.

3. Will the sale of individual strata titled units located in the complex by Entity A to third parties be a taxable supply?

Section 40-75 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.

As set out above, the apartments in the complex meet the definition of residential premises and are not new residential premises as they have previously been sold.

Paragraph 94 of GSTR 2012/D1 states:

94. A supply by sale or lease of real property consisting of part of a building cannot be characterised by reference to another supply. A supply by sale or lease of strata titled rooms, apartments, cottages or villas is an input taxed supply of residential premises to be used predominantly for residential accommodation regardless of whether the building complex, or any part of it, is being operated as commercial residential premises. This characterisation does not change where an entity makes multiple supplies to another entity under an overarching agreement that together constitute a hotel or other commercial residential premises.

As explained in paragraph 94 above, the supply of an individual apartment, is not a supply of commercial residential premises.

Accordingly, when Entity A supplies one of the individual strata titled units in the complex to a third party, it will be an input taxed supply of residential premises.

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