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This edited version has been archived due to the length of time since original publication.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: 1012473761947

Ruling

Subject: GST and commercial residential property

Question

Is GST applicable to your supply of accommodation to students?

Answer

No

Relevant facts

You are not currently registered for GST.

You originally registered for GST effective from 1 July 2000.

You cancelled your GST registration several years later.

You purchased a building approximately prior to 2000.

The building was originally built as a commercial building.

The building was renovated a number of years ago to cater for student accommodation with the capacity to accommodate students in a mix of single and shared rooms.

The building is used to provide accommodation to students attending nearby tertiary institutions.

The students are not primary or secondary students.

You are the point of contact for the students with regards to security and behaviour of the residents and the ongoing functioning and operation of the building.

You do not reside on-site and are contactable via mobile phone. One student residing on-site has a master key however they must only use with your authority.

Currently there is no full time reception or management.

The building is configured as follows:

The building comprises five separate titles:

Ground floor and mezzanine floor;

The commercial areas on the ground floor and mezzanine floor are not currently tenanted with the area being used as storage for items including spare beds, mattresses, ovens, chairs, fridges, etc. This area also includes a workshop area.

There are no plans to tenant this area and the intention is to continue to use this area as storage.

The property is registered with the Local State Revenue Office as a rooming house.

Rooms are fully furnished (except linen) containing a bed, desk, chair, wardrobe/clothes rack, shelving, heater and fridge.

You do not benchmark the room rates against other student accommodation however believe the rates are slightly below market rates.

The common rooms contain table and chairs, couches and coffee tables, television, payphone, food and drink vending machines and computer room.

The common kitchens contain electric cook tops, electric ovens, upright fridge/freezers, microwaves, food lockers, kitchen utensils, pots and pans, cutlery and toaster.

A vacuum cleaner, iron, ironing board and brooms are also available for use by the residents.

The residents are responsible for cleaning of their room, laundry, linen, internet, telephone and food.

You provide cleaning to common areas and utilities (gas, water and electricity).

You do not provide any food, meals, drinks or room service. You do not have a mini-bar or restaurant facilities.

The residents have access to laundry facilities which are equipped with industrial coin operated washing machines and dryers.

Telephone lines are available for private phones and internet access.

The building provides secure resident only access.

A lift contractor and fire services also have access to the building.

Residents enter into a standard tenancy agreement usually for a period of 12 months.

The agreement provides that residents have access to the roof area however is silent on access to the storage areas.

Residents pay rent on a monthly basis.

Residents also pay a bond equal to one months rent which is lodged with the relevant State authority.

There is no separate agreement between you and the residents (other than the residential tenancy agreement) detailing house rules (for example, no overnight guests, minimal noise after a specified hour, etc).

The tertiary institutions do not have any input into the running of the accommodation facility including the setting of rental charges and determining the relationship between the supplier of the accommodation and the occupier.

There is no specific or implied requirement that preference must be given to students of the university/TAFE when assessing potential residents.

The building is not constructed on land owned by the university/TAFE.

Some students reside in the building at times they are not required to attend the university/TAFE (for example, some students work at times outside their trimester).

The university/TAFE does not have any interest (either direct or indirect) in the entity that is providing the accommodation.

The accommodation is advertised on the internet and through word of mouth.

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

The residents may include the partners and families of students, apprentices and post grad students.

Relevant legislative provisions

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

Section 9-5

Section 40-35

Section 195-1

Reasons for decision

Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you are liable for GST on any taxable supplies that you make.

You make a taxable supply if:

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

The issue in this case is whether your supply of accommodation is an input taxed supply. Input taxed means that GST is not payable on the supply and there is no entitlement to an input tax credit for anything acquired to make the supply.

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 supply will only be input taxed to the extent the premises are to be used predominately for residential accommodation (regardless of the term of occupation).

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.

Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) provides the Tax Office view of the characteristics of residential premises.

Paragraph 9 of GSTR 2012/5 explains that the requirement that the residential premises are to be used predominately for residential accommodation in section 40-35 is to be interpreted as a single test that looks to the physical characteristics of the property to determine the premises' suitability and capability for residential accommodation. Paragraph 15 of GSTR 2012/5 continues by stating that to satisfy the definition of residential premises, premises must provide shelter and basic living facilities.

Further to this paragraph's 16 and 17 of GSTR 2012/5 discusses the situation where a residential apartment building includes other areas such as a garage or storage area:

In this case the building comprises a number of levels with distinctive features or characteristics:

The ground floor and mezzanine level - these areas are under a single title and contain commercial retail offices, toilets and strongroom.

Levels 1 - 4 which contain numerous bedrooms (both single and duel occupancy), communal kitchen, lounge area, bathroom, laundry and toilets. This area comprises three separate titles.

Level 5 is a 'manager's residence' containing bedrooms, bathroom, kitchen and living areas. This residence is currently vacant.

Rooftop terrace - this area contains a BBQ/garden and common area with outdoor tables and chairs, laundry and outside drying area. Level 5 and the rooftop are on a single title. The tenancy agreements entered into with the residents provide for residents' access to this area.

Ground floor and mezzanine level

This section of the building is currently vacant and you advise that there are no plans to tenant this area. The space is currently used as storage for items such as spare beds, mattresses, ovens, chairs, fridges etc. This area also includes a workshop area. The tenancy agreements entered into with the residents do not provide for access to this area by the tenants.

The ground and mezzanine floors do not provide the characteristics of shelter and basic living facilities such as bedrooms, bathroom and kitchen, nor is the area to be used by the tenants in conjunction with the accommodation. As such this area does not satisfy the definition of residential premises as this area is not occupied as a residence, or for residential accommodation, or is intended and capable of being occupied as a residence or for residential accommodation.

Levels 1 - 5 and rooftop

Levels 1 - 5 contain shelter and basic living facilities in the form of bedrooms, bathroom, kitchen, living areas and laundry. This area satisfies the definition of residential premises as it is occupied as a residence, or for residential accommodation, or is intended and capable of being occupied as a residence or for residential accommodation.

In regard to the roof area, the tenancy agreements entered into with the residents provide for residents' access to this area. We consider the supply of residential accommodation to be the dominant component of the supply where the facilities on the roof are used for the better enjoyment of the residential apartment. As such the supply of the accommodation together with the right to access the roof area is considered to be a composite supply of residential premises in line with the principles in paragraphs 16 and 17 of GSTR 2012/5 as discussed above.

The next issue to consider is whether the residential premises are 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.

Commercial residential premises are defined in section 195-1 of the GST Act to include, among other things:

However, it does not include premises to the extent that they are used to provide accommodation to students in connection with an *education institution that is not a *school.

In the first instance, in addressing the exclusion above, 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 definition of 'commercial residential premises' encompasses similar establishments or establishments that exhibit characteristics that place them on a similar footing to hotels, motels, inns, hostels and boarding houses. Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises (GSTR 2012/6) provides the Tax Office view of the characteristics 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.

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]:

[50] The test to be applied for the purpose of determining whether the Urbanest premises are commercial residential premises involves asking whether the Urbanest premises is a hotel, motel, inn, hostel or boarding house or whether it is similar to - in the sense that it has a likeness or resemblance to - any of those types of establishment. The application of this test necessarily raises questions of fact involving matters of impression and degree.

Based on the facts provided we do not consider your premises to have similar characteristics to that of a hotel, motel or inn, however we will consider if it is similar to a hostel or boarding house.

Paragraphs 26 to 40 of GSTR 2012/06 provide the following features which are typical of hostels and boarding houses.

Hostels

The term 'hostel' includes premises that can be described as a hostel, a hotel or inn and also includes a supervised place of accommodation usually supplying board and lodging provided at a comparatively low cost.

The physical characteristics of a hostel, or premises similar to a hostel ay include a commercial kitchen where meals are prepared, a communal area suitable for a dining area for occupants, and a communal laundry.

Hostels are typically centrally managed by an on-site manager who manages the accommodation and arranges or provides services. The feature that a hostel, or premises similar to a hostel, be a supervised place of accommodation can be evident where occupants can raise queries and concerns pertaining to the management of the premises with an on-site manager.

Hostels have the capacity to supply accommodation for multiple occupancies where such accommodation may be provided either in a dormitory environment or in separate bedrooms.

Accommodation may be supplied within a hostel to occupants as the occupant's principal place of residence.

Occupants of a hostel may be provided meals by the operator of the premises. However, the provision of meals is not an essential feature of a hostel.

In this case the premises are designed to supply accommodation at a comparatively low cost where the premises contain communal kitchen, dining and laundry areas similar to a hostel. However the premises differ from a typical hostel in that the premises are not supervised by an on-site manager presence, you have advised that a person is contactable by phone in the event of any queries/concerns regarding the premises. In addition, whilst not an essential feature of a hostel, you do not provide any food, meals or drinks to the occupants.

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.

Boarding houses

A boarding house, as the name suggests, is a dwelling at which board and lodging are provided to guests or residents. As discussed above, you do not provide any food, meals or drinks to the occupants/residents.

Paragraph 184 of GSTR 2012/6 discusses the provision of meals, or lack of, when considering the meaning of the term 'boarding house' and sites Re Karmel & Co Pty Ltd (as trustee for Urbanski Property Trust) v. FC of T [2004] AATA 481 (Karmel) where the Tribunal held that the premises in question were not a boarding house because the property owner was not required to provide meals to the occupants.

Given the above, we consider that while the premises in question have some of the characteristics of a hostel, the supply of the accommodation is lacking the associated on-site management and supervision which is required to centrally mange the day to day operation of the premises. It is therefore considered that the premises are neither a hostel or boarding house, nor similar to a hostel or boarding house for GST purposes.

In conclusion we consider that you will be making an input taxed supply of accommodation in residential premises and GST will not be applicable to the supply.

Further issues for you to consider

However, in the case you engage someone to manage the premises and they reside on-site (in the vacant 'manager's residence), such action would bring the premises into a class similar to a hostel (as per example 6 and 7 of GSTR 2012/6). If so, you will need to consider whether you are then required to register for GST and whether you have a GST liability in regard to your supplies.

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