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Authorisation Number: 1012477940955

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Ruling

Subject: GST and Commercial residential premises.

Question 1

Is the lease of the Premises a taxable supply of commercial residential premises as defined in the GST Act.

Answer

Yes. The lease of the Premises is a taxable supply of commercial residential premises as defined in the GST Act.

Relevant facts and circumstances

You are registered with an ABN. You applied for a private ruling in regard to the site located at a specified address (the Site).

You are a non resident. You have applied to the Australian Tax Office to be registered for GST on a specified date.

You received relevant approvals..

The construction consists of a multistorey student accommodation building with x amount of accommodation units, a manager’s residence, public theatre, lobby, foyer, theatre rooms, ancillary administration facilities, café and Laundromat (the Premises).

On completion, you leased the Premises for a set term to a Lessee. The lease commenced on specified date.

The purpose of the Premises as per the Approval is to provide accommodation to students enrolled in a University or other tertiary educational facility in Australia.

Physical aspects of the Premises

In adherence to the Approval, the constructed premises consist of multi levels, which include:

· a managers apartment

· car and bicycle parking, public theatres, toilets, waste, plant and storage rooms

· x accommodation units, each unit comprises:

o x lockable bed-room suites, furnished with bed, study desk, air-conditioning and storage space

o x baths

o a communal fully equipped kitchen and furnished living area.

The common areas in the building include:

· reception and administration office

· cafeteria

· coin operated laundry

· communal kitchen

· recreation deck

· television areas

· designated group study/presentation area

· library, with study areas and individual study booths with internet access meeting/presentation areas

· bike storage room

· car and bike parking.

You have advised that residents of the building will have a single card that is used for access to the buildings, units and elevator.

Day to Day operation and Use of the Premises

The Premises will house students from tertiary institutions.

The cost of the accommodation is wrapped up in the tuition fees.

The reception desk in the premises provides services to the students such as check-in and check-out, maintenance requests, parcel deliveries, reservations and monitoring of local phone calls. There is at least one service person always on the premises.

You have provided a copy of the Housing Handbook which provides information to residents on residential policies.

DEVELOPMENT

The Approval was subject to the conditions in the Schedules which provide the regulatory basis for the occupation and operation of the Site. You provided a copy of the Approval and Schedules.

LEASE

You entered into a lease for the Site, pursuant to an agreement for lease dated on a specified date. You provided the terms of the lease.

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 Subsection 40-35(1).

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

Reasons for decision

You are liable for goods and services tax (GST) on any taxable supply that you make.

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

(a) you make the supply for consideration,

(b) the supply is made in the course or furtherance of an enterprise you carry on,

(c) the supply is connected with Australia, and

(d) you are registered, or required to be registered for GST.

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

 In this case, you are carrying on a leasing enterprise of a property in Australia, for consideration. At the time you entered in to the lease arrangement you were not registered for GST, however you have recently applied for GST registration with an effective date commencing at the time of the lease. You will therefore meet the requirements of section 9-5.

There is nothing that would make your supply fall within the GST-free provisions contained in Division 38 of the GST Act. However, it still needs to be determined if your supply of property by way of lease is input taxed.

Input taxed supplies of accommodation in residential premises

A supply of premises by way of lease, hire or license is input taxed under subsection 40-35(1) of the GST Act if:

(a) the supply is of residential premises (other than 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); or

 (b) the supply is of commercial accommodation and Division 87 (which is about long-term accommodation in commercial premises) would apply to the supply but for a choice made by the supplier under section 87-25.

Residential premises is defined in section 195-1 of the GST Act as land or a building that:

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

b) 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.

Guidance on whether premises are considered residential premises is provided in Goods and Services Tax Ruling 2012/5 Goods and Services Tax: residential premises (GSTR 2012/5).

Paragraphs 9,10 and 15 of GSTR 2012/5 highlight 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 states:

To satisfy the definition of residential premises, premises must provide shelter and basic living facilities. Premises that do not have the physical characteristics to provide these are not residential premises to be used predominantly for residential accommodation.

Further to this, paragraph 77 of GSTR 2012/5 states:

The premises may be in any number of forms, including detatched 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 this case the premises comprise a multistorey building containing x accommodation units, managers residence, common and public areas consisting of reception, administration office, cafeteria, laundry and communal kitchen etc. Within each accommodation unit there are x separate furnished rooms. Each unit has a communal fully equipped kitchen, furnished living area, one and half bathrooms, air-conditioning and storage space.

The Premises have been constructed for the permitted use of providing residential accommodation to students and staff. The accommodation units possess the physical characteristics to provide sleeping accommodation and facilities for day-to-day living such as a bedroom, bathroom and kitchen. As such it is considered that the units are capable of being occupied as a residence and will satisfy the definition of residential premises.

Next, it is necessary to determine whether the units together with the other parts of the premises together as a whole have the characteristics of commercial residential premises.

Commercial residential premises

A supply of commercial residential premises is specifically excluded from the input taxed treatment provided by section 40-35 of the GST Act. Supplies of commercial residential premises are subject to GST.

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

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

(b)   …..

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

However, the definition expressly excludes premises to the extent that they are used to provide accommodation to students in connection with an education institution that is not a school.

Exclusion

On the facts provided, the development of the site was subject to the conditions provided in the Approval and Schedules, with a clause restricting the accommodation portion of the building in its use. The restrictions provide that the building can only be used to provide residential accommodation to students. Students being defined as a person enrolled in a university or other tertiary educational facility in Australia.

However the exclusion contained in the definition of commercial residential premises applies to the extent that the supply of accommodation is provided to the students. In this instance the supply in question is that of a single ‘lease’ of the whole of Premises to a Lessee, not the supply of accommodation to students.

It is therefore necessary to consider whether the ‘Premises’ in question fall within the definition of Commercial residential premises.

Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises (GSTR 2012/6) sets out the Tax Office view of the characteristics of commercial residential premises.

As the terms in paragraph (a) of the definition are not defined within the GST Act, they therefore take their ordinary meanings in context. The Macquarie Dictionary (Macquarie) provides the following definitions:

Hotel a building in which accommodation and food, and alcoholic drinks are available

Motel a roadside hotel which provides accommodation for travellers in self-contained, serviced units, with parking for their vehicles.

Inn a small hotel that provides lodging, food etc., for travellers and others

Hostel a supervised place of accommodation, usually supplying board and lodging provided at a comparatively low cost, as one for students, nurses, etc.

Boarding house a dwelling in which lodging is provided to paying residents who share common facilities such as a kitchen, laundry, living room, etc.

In there 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).

Therefore while a premises may not squarely fall in to a class of establishment under paragraph (a) of the definition, it may still have sufficient features to be characterised as commercial residential premises.

In your case you developed the Site for the purpose of providing a building which could accommodate the student’s of a University. You entered into a single lease agreement with Lessee for the developed site with a specified commencement date.

To assist in characterising premises that are not operating at the time of supply we refer to paragraph 86 to 88 GSTR 2012/6 which provides that premises may be classified by their overall physical character, considered with other objective characteristics.

Paragraph 87 provides that where premises have been newly constructed and not yet operated the following evidence may objectively indicate whether premises are a hotel, motel, inn, hostel or boarding house:

· the premises' physical characteristics,

· architectural plans and drawings,

· contractual documentation that provides evidence of how the premises will be used in the future, or

· council or other government planning and zoning restrictions and approvals and permissions.

In your ruling application you have provided a copy of the development Approval containing the approved use and physical aspects of the Premises. You have also provided a copy of the Lease Agreement and details on the proposed use of the premises by the lessee.

In regards to the zoning restrictions, the Approval states:

The accommodation portion of the building may only be used for residential accommodation for students as hereinafter defined and not otherwise as residential accommodation, or as serviced apartments, private hotel, boarding house, tourist or backpackers’ accommodation and the like.

Based on this restriction imposed by the Authority in the Approval, it is considered that the Premises in question can not meet the requirements of a ‘hotel, motel, inn or boarding house’. However it is possible that the Premises may fall into the definition of a hostel or something similar to a hostel.

Paragraph 58 of GSTR 2012/6 provides an example where a supply of whole premises to be used for student accommodation would meet the requirements of commercial residential premises.

Example 6

58. King Accommodation constructs premises that have been designed to provide low cost accommodation to students (occupants ). The premises predominantly consist of shared accommodation rooms configured so that occupants share kitchenettes and living facilities. The premises also include studio apartments which include self-contained kitchenettes and living facilities. The premises have a reception desk. The premises contain facilities for a coin operated laundry, and recreational areas. The premises do not contain a kitchen, restaurant or dining room for the preparation or service of meals to occupants. The premises have been built on land that is zoned for student accommodation by the local planning authority.

59. King Accommodation leases the premises to King Operator. Under the terms of the lease, King Operator will operate the premises by supplying accommodation to students. In supplying accommodation to students, King Operator will have on-site management to centrally manage the premises through which occupants can raise queries and concerns pertaining to the management of the premises.

60. In characterising the supply made by way of lease of the premises made by King Accommodation to King Operator, it is relevant to consider the physical characteristics of the premises. These demonstrate that the premises were designed to provide low cost accommodation to students. Further, the contractual documentation and the local planning authority permissions objectively show that King Operator will operate the premises to supply low-cost accommodation to students.

61. The physical characteristics together with the contractual documentation and planning permissions show that the premises are, or are at least sufficiently similar to, a hostel. King Accommodation therefore makes a taxable supply of commercial residential premises to King Operator.

In comparing the above example to the facts of this case, the Premises have been designed and approved by an Authority to provide accommodation to students and comprise:

· a reception area,

· x shared accommodation units, with communal kitchen and living facilities;

· a coin operated laundry, television areas, recreational area and cafeteria.

· a managers apartment. The Approval provides that a care taker/manager must be contactable for any emergencies 24 hours a day.

Further, permitted use under the terms of the lease to the Lessee is as student and residential accommodation with ancillary classrooms and offices.

While there is no direct reference in the documentation on whether the cost of the accommodation is considered low cost, you have provided that the accommodation fees will be wrapped up in the tuition fees paid by the students.

Further to this you have provided a copy of the Housing Handbook which provides information to the residents on residential policies. You have also provided that the Lessee will provide services to the students, such as check-in and check-out, maintenance requests, parcel deliveries, reservations and monitoring of local phone calls.

On comparison, there is little difference between the premises as outlined in Example 6, and the Premises which are the subject of this ruling. We consider based on the physical characteristics of the Premises together with the proposed use, that the Premises are a hostel or at least similar to a hostel.

As such, we agree with your contentions that the Premises are commercial residential premises as defined in section 195-1 of the GST Act. As you meet the requirements of section 9-5 of the GST Act, the lease of the Premises to the Lessee will be a taxable supply of commercial residential premises.

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