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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of your private ruling

Authorisation Number: 1012441149624

Ruling

Subject: GST and commercial residential premises

Question

Is your supply of accommodation a taxable supply?

Answer

No

Relevant facts and circumstances

You are registered for GST.

You lease premises situated at a specified location.

The lease agreement provides that you pay a fixed rate per week for a specified period.

You use the premises to supply accommodation to students attending local universities.

To date you have been treating the supply of the accommodation as an input taxed supply of residential premises for GST purposes.

The accommodation is provided on a room by room basis.

The premises were not operated as student accommodation by the owners prior to you leasing the premises.

The premises were originally designed as an X bedroom house.

Minimal renovations were carried out by the owners of the property prior to the premises being able to be used for the student accommodation (mainly partitioning). The renovation added Y additional rooms with Y doors.

The premises now have Z bedrooms, bathrooms, kitchen and living room.

Students share living and kitchen facilities.

Council approval and registration has been obtained by the owner of the property to operate the premises as a rooming house.

Occupants enter into a rooming agreement (Residential Tenancy Agreement) specifying they are being provided with accommodation for a specific period.

The typical length of stay is between 6 - 12 months.

A property condition document is agreed to by you and an occupant prior to moving in to the premises.

You provide the following services:

Management does not have a 24 hour on-site presence.

You do not provide food or meals. The occupants are responsible for their own cooking in the shared kitchen facilities.

You do not provide linen and towels.

The occupants pay a bond prior to commencing their stay.

You consider the accommodation to be low cost and competitive compared to other accommodation.

Your primary purpose is not to provide accommodation for students from rural or remote locations within Australia.

The students are not undertaking a 'primary course', 'secondary course' or 'special education course'.

The students are undertaking a 'tertiary course' as defined under the GST legislation.

You are not the supplier of the course.

The universities do not have any input in the running of the accommodation including the setting of rental charges and determining the relationship between the supplier of the accommodation and the occupier.

Consequently, there is no specific or implied requirement that preference must be given to students of the education institution.

The premises are not constructed on land owned by the universities.

The accommodation is marketed through the university's websites.

The provision of the accommodation does not reflect the university's charters or other governing instruments.

The accommodation is made available to non-students. However, the occupants are primarily students.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999

Section 9-5

Section 9-40

Division 38

Section 38-105

Division 40

Subsection 40-35(1)

Subdivision 40-B

Subdivision 40-C

Section 195-1

Reasons for decision

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

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

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

In this case, you lease the premises for consideration in carrying on your leasing enterprise. As the property is located in Australia, your supply is connected to Australia and you are registered for GST. As such, you satisfy the positive limbs of section 9-5 of the GST Act.

The issue is whether your supplies of accommodation are GST-free or input taxed.

GST-free supplies

Division 38 of the GST Act contains details of supplies that are GST-free. Section 38-105 of the GST Act provides that a supply is GST-free if it is a supply of student accommodation to students undertaking a primary course, secondary course or a special education course and either:

The terms 'primary course', 'secondary course' and 'special education course' are defined in section 195-1 of the GST Act.

In this case you advised that the students are undertaking a tertiary course and not a primary course, secondary course or special education course. Additionally, you are not supplying the tertiary course, nor is your primary purpose to provide accommodation for students from rural or remote locations within Australia.

As such, section 38-105 of the GST-Act will not apply to your supply of accommodation.

Input taxed supplies

Division 40 of the GST Act contains details of supplies that are input taxed. Subsection 40-35(1) of the GST Act provides:

The term 'residential premises' is defined in section 195-1 to mean land or a building that:

The definition states that the premises must be capable of occupation as a residence. The physical characteristics common to 'residential premises' is that they provide the occupants with sleeping accommodation and at least some of the basic facilities for day to day living. These characteristics will be inherent in the design and fabrication of the premises, which typically include areas for sleeping, eating and bathing. However, these things do not need to be arranged in a manner that is similar to a conventional house or apartment.

In this case the premises contain Z bedrooms, bathrooms, kitchen and living room and are residential premises. The next issue to consider is whether the premises fall within the definition of 'commercial residential premises'.

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

The term 'school' is also defined in section 195-1 of the GST Act as an institution that supplies pre-school, primary, secondary or special education courses but not any other education course. In this case, the universities supply tertiary courses and thus are not a school.

The issue of whether a supply of accommodation to students is 'in connection with an education institution that is not a school' is discussed in Goods and Services Tax Ruling GSTR 2001/1 Goods and services tax: supplies that are GST-free for tertiary education courses (GSTR 2001/1).

Paragraph 150 of GSTR 2001/1 contains a number of factors to be considered in determining whether a supply is in connection with an education institution that is not a school.

Based on the facts provided, the supply of accommodation does not have the necessary connection with the universities to fall within the exclusion of the definition 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. The Macquarie Dictionary (Macquarie) provides the following definitions:

In their ordinary meanings, these terms share the common attribute of providing accommodation to guests. Paragraph (f) of the definition of commercial residential premises extends the scope of the definition to premises that are 'similar' to the class of establishments described in paragraphs (a) to (e).

Premises that are 'similar' to establishments that are commercial residential premises must have sufficient characteristics in common with the class of premises described.

Goods and Services Tax Ruling 2012/6 'Goods and services tax: commercial residential premises' provides the Commissioner's considered view about how Subdivision 40-B, 40-C and section 9-5 apply to supplies of commercial residential premises and accommodation in commercial residential premises. The principles outlined in GSTR 2012/6 have been applied in addressing the issues raised.

Paragraph 12 of GSTR 2012/6 lists the following eight characteristics that are considered to be common to operating hotels, motels, inns, hostels and boarding houses:

Paragraph 41 of GSTR 2012/6 states that ultimately, determining whether premises are commercial residential premises is a matter of overall impression, involving the weighing up of all relevant factors.

Paragraph 10 of GSTR 2012/6 explains that this includes an examination of the physical character of the premises and how the premises are being operated having regard to the characteristics listed above. Where such an examination does not provide a clear characterisation other factors may be considered including:

In this case, the premises was constructed as a Y bedroom house and not constructed to be a hotel, motel, inn, hostel or boarding house. Therefore the premises do not fall squarely within the scope of paragraph (a) of the definition of commercial residential premises.

However, since the original construction of the premises, renovations have been carried out on the property, partitioning the existing Y bedrooms resulting in the creation of an additional Y bedrooms (total Z bedrooms) together with constructing separate entrances for each additional bedroom.

We therefore need to consider whether the current physical character of the premises, together with the operation, bring the premises within the scope of paragraph (f) of the definition of commercial residential premises to be 'similar' to a hotel, motel, inn, hostel or boarding house.

Paragraph 145 of GSTR 2012/6 explains that premises that fall within paragraph (f) may be described as something other than those premises listed in (a) to (e), for example, a 'resort' or 'serviced apartments'. These premises are commercial residential premises if they are used in a particular way.

The issue of whether premises were 'commercial residential premises' was examined 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]:

Hotels, motels and inns

Paragraphs 13 to 25 of GSTR 2012/6 provide the following features which are typical of hotels, motels and inns.

A motel is a particular type of hotel that primarily caters to the needs of motorists seeking roadside accommodation. An inn is a small hotel at which board (meals) and lodging are provided to travellers. Subject to those qualifications, the following features of hotels are equally relevant to motels and inns:

In considering the similarities and differences between the characteristics of hotels, motels, inns, and those features provided by you, the following observations are provided:

Given the above we do not consider your premises to be similar in nature to a hotel, motel or inn.

Hostels and boarding houses

A hostel is described as a supervised place of accommodation, usually supplying board and lodging provided at a comparatively low cost.

In this case, you do not have an on-site presence and therefore the premises are not considered to be supervised. As such, the premises would not fall within the classification of being similar to a hostel.

Paragraph 181 of GSTR 2012/6explains that a boarding house is a dwelling at which board (meals) and lodging are provided to guests or residents.

A primary characteristic of a boarding house is the provision of meals. As previously discussed you do not provide meals and as such the premises are not considered to similar to a boarding house.

Conclusion

Your supply of accommodation is an input taxed supply of residential premises. The premises are not considered to be commercial residential premises.

As an input taxed supply, your supply of accommodation is not a taxable supply pursuant to section 9-5 of the GST Act.


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