Edited version of your private ruling

Authorisation Number: 1012585603967

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Ruling

Subject: GST and the supply of commercial residential premises

Question 1

Is the supply of short stay accommodation in XX strata titled apartments, by Entity A, a supply of commercial residential premises to guests of the Resort?

Answer

Yes

Question 2

Is Entity A entitled to an input tax credit on the acquisition of the XX strata titled apartments from the vendor, Entity B?

Answer

Yes

Relevant facts and circumstances

1. Introduction

The Resort consists of a Convention Centre, Recreational Facilities and Short Stay Apartments (SSA) and townhouses ("apartments"). There is also a resort reception and full reservations and management system to support the Resort operation.

The SSA consist of a number of separate buildings, apartments and townhouses.

The SSA were strata titled and marketing /sales commenced in relation to the sale of the apartments and townhouses.

Entity A, purchased XX short stay (zoned tourism) strata titled apartments at the Resort.

The vendor was Entity B.

All XX sale contracts in relation to the properties acquired by Entity A were prepared on the same contractual basis.

Entity A is registered for GST.

The Management rights and Caretaking rights for the Resort operation were previously held by Entity C with certain aspects of the operations being carried out by another related entity. The whole of the property is owned by Entity B except for the SSA (11 of which were acquired by Entity A).

The apartments are zoned for tourism and cannot be occupied by the owner or any other party for more than three months in any one year. The owner of an apartment can appoint the Resort Manager (previously Entity C) to manage the unit or the owner can appoint an external agent.

2. Application for ruling

Entity A supplied the following documentation in support of its original ruling application (which was labelled Annexure A) :

· Annexure B - Contract relating to the purchase of one of the apartments at the Resort.

Annexure A to the contract contains the following relevant special conditions of sale:

Clause 1.1 The Seller and Buyer agree that the sale of the Property, being a short stay accommodation residential unit, is a supply of a going concern within the meaning of subdivision 38-J of the GST Act, and the parties intend that the supply will be GST-free.

Clause 4.1 The formation of a binding contract by this contract is subject to the execution of an agreement between the Seller, Entity C and the Resort for the transfer, assignment or novation of all contracts, licences or other agreements relating to the management of the short stay accommodation residential properties on the Strata Plan, the management of the Strata Scheme for the Strata Plan and the licences granted for the use of the facilities on the Strata Plan.

Clause 4.2 The conditions in clause 4.1 of this Annexure are for the sole benefit of the Buyer and can only be waived by the Buyer.

Entity A's representative advised that the XX apartments were not sold as a going concern as outlined in the Contract of Sale.

Each of the XX apartments sold by Entity B was sold as a taxable supply to Entity A.

Entity A has provided copies of the XX tax invoices supplied to Entity A by Entity B.

Clause 4.1 (outlined above) states that the formation of a binding contract is subject to the execution of an Agreement between Entity B, Entity C and the Resort for the transfer, assignment or novation of all contracts, licences or other agreements etc. The Agreement referred to in this clause is the Deed (the contents of the Deed are detailed further on in the facts).

· Annexure C - Copy of the Council Zoning of the properties (being zoned for tourism).

· Annexure D - The Resort Brochure.

· Annexure E - Contract for Sale - purchase of the property by Entity B:

Entity A's representative has advised in an e-mail that the current owner of the Recreational Facilities is Entity B. Every year, Entity D enters into a Licence Agreement with Entity B (the owner) which provides unlimited access to those recreational facilities for the guests staying in the apartments. In addition, other persons, living close by, have been provided with Licence Agreements for the sum of $XX annually.

· Annexure F - Agreement for the Sale of a Business - purchase of the business of restaurant, function centre and short stay accommodation units operated on the land ("the Business") including all stock in trade by Entity B.

This contract was entered into between Entity E as Vendor and Entity B (as purchaser).

3. The Deed of transfer

The Deed was entered into between Entity B, Entity C, Entity A and Entity D.

4. A Supplemental Deed was entered into

A Supplemental Deed to the Deed of Transfer was entered into.

The Supplemental Deed was between Entity B, Entity C, Entity A, Entity D and Entity F.

The Supplemental Deed sought to amend various clauses contained in the original Deed.

5. Facility Licence

Entered into between Entity A and Entity D.

This document provides a Licence to the Strata Owners to use the swimming pool and tennis courts for a fee of $XX per annum.

6. Agreement to Purchase a Business - Entity A

An Agreement to Purchase a Business as annexed to the Supplemental Deed.

In this document Entity A offers to purchase the business or trade name and plant, furniture, fixtures, fittings, chattels, stock in trade and other assets.

A description of the business and assets to be purchased is contained in Clause A .

7. Agreement to Purchase a business - Entity F

Agreement to Purchase a Business as annexed to the Supplemental Deed.

Entity F offers to purchase the business or trade name and plant, furniture, fixtures, fittings, chattels, stock in trade and other assets.

Clause A contains a description of the Business and Assets to be purchased

8. Letter from Representative

In a letter from Entity A's representative, the following additional information and documents were provided: the Transfer of Management rights under the Management Contracts to Entity A from Entity C including all current and valid Letting and Management Agreements for any of the short stay accommodation on the Strata Plan to Entity A:

The following documents and information was provided

(a) Deed of transfer

Annexure A

(b) Supplemental Deed to the Deed of transfer

Annexure F

(c) Business Sale Agreement - Short Stay Accommodation Apartments

Annexure I

(d) Letter of Assignment

Annexure N

(e) Copies of Letting and Management Agreements

Annexure P (incl. a detailed Letting and Management Agreement which accompanies each document)

(f) Caretaking Agreement

Annexure B

(g) Management Rights Agreement

Annexure C

(h) Management Rights Transfer Deed

Annexure J

(i) Management Agreement - Recreational Facilities

Annexure K

(j) Management Agreement - Marina Facilities

Annexure L

(k) Lease - Convention Centre (granted to Entity F)

Annexure G

(l) Grant of the Lease of the Licensed Area with an option to purchase to Entity A.

The Deed of Transfer was amended by the Supplemental Deed. There is to be no lease of the

Licensed Area. Instead ,Entity A was appointed the manager of the Recreational Facilities (Annexure K).

(m) Novation of the Facilities Licence (Recreational) to Entity A

Annexure E

(n) The executed document relating to the sale of the business operating the Convention centre as outlined in Annexure C of the Deed.

Copy of the following attached:

Business Sale Agreement - Convention Centre

Annexure H (sold to Entity F)

(o) Transfer document in respect of the liquor licence relating to the Convention Centre and Short Stay Accommodation.

Copy of the following attached:

Liquor Licence Transfer Approval (transferred to Entity F)

Annexure M

(p) Assignment of Jetty Licence

(q) Assignment of Marina Facilities Licence

A Management Agreement has been entered into between Entity A and Entity B, the land owner, for the management of the Marina Facilities. Please see Annexure L.

(r) Document Appointing Entity A or an entity nominated by Entity A as exclusive manager of the strata company

Copy of the following attached:

Annexure D Strata Management Agreement

(s) A copy of the lease or the assignment of any existing lease of the Convention Centre See (k) above.

(t) Annexure C - Purchase of business by Entity F

Reference is made to Annexure A which is the executed agreement with the Vendor and the Manager.

Attached to that agreement as Annexure C is a draft Business Sale Agreement which at that time stipulated the sale of the goodwill associated with the Restaurant, Convention centre and incorrectly referenced SSA. As set out in the Supplemental Deed to the Deed of Transfer, it is Entity F that is the purchaser of the business and goodwill associated with the Restaurant and Convention Centre. Also referenced in both those Deeds is Entity A which acquires all of the management rights and short stay accommodation rights, associated with the operation of the Resort.

(u) The business interests outlined in Annexure C were sold as a going concern.¹

(v) Annexures A and B of the Deed identify Lot A, Lot B, Lot C, Lot D and Lot E. An explanation of each Lot is as follows:

Lot A Vacant Land

Lot B Five Short Stay Accommodation buildings / apartments and Recreational Facilities

Lot C Annexure A hachured area, Convention / Function / Restaurant / Coffee Shop / Reception and Offices plus associated Car park;

Lot C Annexure A non-hachured area, Boat Ramp and associated Car park

Lot D Vacant land

Lot E Vacant land

(w) Timeline of events

Annexure O

(x) Settlement dates for all apartments

(y) Question: How were the apartments managed from the time of settlement until the transfer of the commercial infrastructure to Entity A? Did Entity C continue to manage the apartments during the intervening period? What consideration did Entity A receive during this period?

Answer: The existing manager, Entity C, continued under its existing management rights. From the timeline (Annexure O) it can be seen that the strata and other management rights were gradually transferred until finally the balance of all management rights, businesses, SSA rights and other settlement items were completed. There was no consideration received by Entity A prior to settlement of any of the rights, other than the net rental proceeds (less management Fees) due to it from the SSA Manager.

(z) Question: There are XX Apartments which are not owned by Entity A. XX of the remaining apartments are listed in the Schedule to the Deed. Will the owners of these apartments enter into a management or lease agreement whereby Entity A will be offering accommodation in these apartments to guests in its own right (that is, making the commercial decisions, setting the tariff etc) or will Entity A only be managing these apartments on behalf of the owner with the owner making the commercial decisions?

Answer: The previous owners had entered into Letting and Management Agreements (LMA's) which have been assigned to Entity A at settlement - Annexure N and P. The new owners entered into fresh LMA's with Entity C which have also been assigned to Entity A at settlement - Annexure N and Annexure P. There are no lease agreements. The commercial decisions, setting of tariffs etc are made by the owners of each apartment. Entity A will only be managing these apartments on behalf of the owners in accordance with the LMA's.

With respect to the remaining XX apartments which were acquired before the Entity A transaction, the owners of those apartments had previously entered into LMA's with Entity C. These LMA's have been assigned to Entity A at settlement. Also included in Annexure P is a copy of the standard terms and conditions relating to each LMA. For each apartment only the reference schedule has been provided, however, the Terms and Conditions have just been included once for ease of reference.

(aa) Question: With regards to central management of the resort, is there a reception on site with someone available at all times to attend to guests? That is, to accept reservations, allocate rooms, receive payments and arrange services?

Answer: There is a separate reception entrance together with offices associated with the SSA management operation. There are experienced receptionists who are available to accept reservations, allocate rooms, receive payments and arrange guest services. Outside of regular reception hours, the restaurant staff is available to provide an in-room beverage and meal service.

(bb) Question: Is there a Manager on site and is there a Managers Apartment?

Answer: There is a duty manager on site during the published hours and who is on-call after hours including weekends. There is no Manager's Apartment.

9. Details contained in Annexures (outlined above)

· Annexure A

Deed of transfer as detailed above.

· Annexure F

Supplemental Deed to the Deed of transfer as detailed above.

· Annexure I

Business Sale Agreement - SSA Apartments as detailed above.

· Annexure N

A document assigning all Letting and Management Agreements from Entity C to Entity A.

· Annexure P

A copy of each apartment's LMA assigned to Entity A and also a copy of the Standard Terms and conditions relevant to each LMA. The contents of each LMA are identical.

· Annexure L

Management Agreement (of Marina Facilities)

Entered into between Entity B and Entity A

Entity B wishes to appoint Entity A to manage the Marina Facilities.

· Annexure K

Management Agreement (of Recreational Facilities)

Entered into between Entity B and Entity A

Situated on the land are recreational facilities which include a swimming pool, a building in which

there is gym equipment and tennis court area.

Entity B wishes to appoint Entity A to manage the Recreational Facilities.

· Annexure J

Management Rights Transfer Deed

Entered into between Entity C and Entity A.

· Annexure B

The Resort Caretaking Agreement .

Entered into between Entity A and the Entity D.

In this Agreement, the Strata Company appoints Entity A, as holder of the Management Rights, to provide the Caretaking Services which include staffing, cleaning, repairs and maintenance, property material and services, gardening, roads, car parks and pathways etc

· Annexure C

The Resort Management Rights Agreement

Entered into between Entity A and the Entity D

In this Agreement, the Strata Company appoints Entity A as the exclusive on-site Manager of the Resort with the authority to offer services including staffing, providing services to participating owners, maintain and staff an office/reception area on -site, keep proper records of all lettings, maintain the Resort Telephone System, allocation of bookings, liaison with the Strata Company.

· Annexure D

Exclusive Appointment to Act as Agent Manager of a Strata Company

Entered into between Entity D and Entity A

In this document, the Strata Company appoints Entity A as exclusive Agent Manager of the Strata Company and the Common Property.

· Annexure N

Letter of assignment of Letting and Management Agreements with owners of the apartments from Entity C to Entity A.

· Annexure P

The Resort Letting and Management Agreement -Exclusive Authority to Act as Managing Agent of Residential Premises for Short Term and Holiday Accommodation (Document containing standard terms and conditions attached to each LMA with owners)

· Annexure G

Lease of the Convention Centre.

Entered into between Entity B (the Lessor) and Entity F (the Lessee)

10. Letter from Representative

Following a request for further information, Entity A's representative provided the following information:

· Historically, Entity C has been the holder of the various management rights in respect of the resort facilities. However, it has been agreed by all relevant parties for the various management rights to be transferred to Entity A and its associate, Entity F, in conjunction with the transfer of the XX apartments in order to enable Entity A to provide commercial residential accommodation to the public.

· Entity A is the relevant entity making the supply of accommodation to guests. There are no lease agreements in place between Entity A and any other managing entity in respect of the apartments.

· Entity A will decide the daily tariff to be charged to guests depending on the season and availability but the rate may not be below that agreed with the owner in the LMA.

· Entity A will be the relevant entity supplying the invoices to guests once the management rights transfer is finalised.

· Annexure A to the Contract of Sale of the apartments stipulates that the Seller and Buyer agree that the property is the supply of a going concern. You have advised that neither of these transactions or any other related transaction, was treated as a supply of a going concern².

· There is no separate management lot or apartment.

· The restaurant and conference facilities are currently owned by Entity B. Historically, these facilities have been managed and leased by Entity C.

· Entity F (an associate controlled by Entity A) will take over these management and lessee roles from Entity C (subject to the pending issue of the relevant liquor licences).

· The current owner of the land and buildings associated with the Recreational Facilities is Entity B. Each year, Entity D enters into a Licence Agreement with Entity B which provides unlimited access to those recreational facilities for the guests staying in the apartments. In addition, other persons, living close by, have been provided with Licence Agreements for the sum of $XX annually.

11. Further e-mail from representative

In a further e-mail dated your representative provided the following additional information:

· Annexure A to the Apartment's Sale Contracts

A condition precedent to the settlement of the property purchase contracts was that an Agreement was entered into relating to the management of the SSA. The agreement was to be entered into with Entity F. However, it was agreed with the vendor that Entity A, the purchaser of XX of the apartments, was to be substituted for Entity F.

· Business Sale Agreement - reference to Short Stay Accommodation

Attached to the Agreement (the Deed) as Annexure C is a draft Business Sale Agreement which at that time stipulated the sale of the goodwill associated with the Restaurant, Convention Centre and incorrectly referenced SSA. It is Entity F that is the purchaser of the business and goodwill associated with the Restaurant and Convention Centre. As set out in the Deed , it is Entity A that is acquiring the management rights and SSA rights, associated with the operation of the Resort.

· There are two separate Business Sale Agreements, one relating Entity F (Restaurant and Convention Centre) and one relating to Entity A (Resort Management and SSA).

12. Teleconference

Entity A's representative provided the following additional information:

· There is no sublease between Entity F and Entity A with regard to the reception and car park under the lease of the area to Entity F. Entity A's representative has advised that one is currently being drafted.

· The Jetty Licence was not assigned to Entity A. Daily control thereof is under the Management Agreement for the Marina Facilities with Entity A.

· Entity A makes the decisions with regard to the daily tariff to be charged to guests. This depends on the season and availability. The daily tariff may not be less than that agreed with the owner in the LMA.

· Mr X is the sole shareholder and director of Entity A and Entity F.

· With regard to the Management Agreements for the Marina Facilities and the Recreational Facilities, the commercial decisions are made by Entity A with respect to, and to the extent of, responsibilities as outlined in the two management agreements..

· With regard to the two Business Sale Agreements, one with Entity F and one with Entity A, the clause in the agreement with Entity F which states that Entity F purchases the goodwill in the SSA apartments, is incorrect and was later deleted. In the Agreement with Entity A, the liquor licence was transferred to Entity F and this clause detailing the transfer of the liquor licence to Entity A is also incorrect.

· There is no letting pool. When and if an owner's apartment is let, the income received is transferred to the owner less charges relating to the occupancy of the apartment.

· Letter of assignment of Letting and Management Agreements with the owners of the apartments, from Entity C to Entity A is not on a letterhead from Entity C. Entity A's representative advises that he drafted the letter which was then signed by the authorised party for Entity C.

· Entity A will issue an invoice to guests in respect of the apartments rented.

· The delay in transferring the licences, agreements etc to Entity A after the transfer of the freehold properties was as a result of the lengthy negotiations with an institution and delays encountered with Entity B, Entity C and its Directors..

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 Section 11-5,

A New Tax System (Goods and Services Tax) Act 1999 Subsection 40-35(1) and

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

Reasons for decision

In this ruling, please note:

· All legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) unless otherwise specified.

· All terms marked by an *asterisk are defined terms in the GST Act.

Question 1

Is the supply of short stay accommodation in 11 strata titled apartments, by Entity A, a supply of commercial residential premises to guests of the Resort?

Section 9-40 provides that you are liable for GST on any taxable supplies that you make.

A supply is a taxable supply if it meets all the requirements of section 9-5. This section states:

You make a taxable supply if: 

(a) you make the supply for *consideration; and

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

(c) the supply is *connected with Australia, and

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

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

In this case, the supply made by Entity A of accommodation in the XX short stay apartments (SSA) at the Resort, would meet the requirements of paragraphs 9-5(a) to 9-5(d).

In addition, the supply is not GST-free under a provision of the GST Act or any other Act.

The issue to be determined in this case, is whether Entity A's supply of accommodation (in the XX SSA) to guests will be an input taxed supply of residential premises. 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 paragraph 40-35(1)(a), 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 predominantly for residential accommodation (regardless of the term of occupation).

The term 'residential premises' is defined in section 195-1. This section states:

Residential premises means 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 occupation or intended occupation) and includes a *floating home.

Goods and Services Tax Ruling GSTR 2012/5, Goods and services tax: residential premises (GSTR 2012/5) provides guidance on the meaning of residential premises.

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.

In this case, the Resort comprises XX apartments (XX of which are owned by Entity A) with two or three bedrooms. These apartments have a full kitchen, a living room and a dining area and are fully equipped. The apartments have the characteristics common to residential premises as they provide the occupants with sleeping accommodation and facilities for day to day living.

Consequently, we consider that these apartments are residential premises.

Accordingly, when the XX SSA are let to guests, Entity A will be making an input taxed supply of residential premises under paragraph 40-35(1)(a) unless it is a supply of accommodation in commercial residential premises and Entity A owns or controls the commercial residential premises.

Goods and Services Tax Ruling GSTR2012/6, Goods and services tax: commercial residential premises (GSTR2012/6) considers how section 9-5, subdivision 40-B and subdivision 40-C apply to supplies of commercial residential premises and supplies of accommodation in commercial residential premises.

Paragraphs 223 and 224of GSTR 2012/6 state:

223.The exception in paragraph 40-35(1)(a) applies to supplies of accommodation in commercial residential premises where the entity that owns or controls the commercial residential premises provides the accommodation to an individual. Different outcomes arise depending upon whether the entity making the supply of accommodation has a sufficient interest in the premises to be characterised as making a supply of accommodation in commercial residential premises.

224. For example, an owner of a single apartment in a building complex will not be able to supply accommodation in commercial residential premises. This characterisation does not change if the owner engages the services of an agent to make the supply of accommodation, regardless of whether the agent has entered into similar agreements with other owners of individual apartments within the apartment complex so as to operate as an on-site agent. However, an entity that leases apartments in a building complex together with commercial infrastructure will be able to operate the premises so as to supply accommodation in commercial residential premises. It is therefore necessary to establish whether an entity is acting in the capacity of an agent or principal to establish the correct treatment of the supply of accommodation.

Consequently, in order to determine the GST classification of your supplies of the XX SSA, we need to consider whether your supply of the apartments falls within the scope of commercial residential premises.

Commercial residential premises are defined in section 195-1 to include, amongst 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).

Paragraph 12 of GSTR 2012/6 lists the following characteristics that have been identified as being common to a hotel, motel, inn, hostel or boarding house and which can be used to assist in recognising premises that are similar to these establishments: 

· commercial intention

· multiple occupancy

· holding out to the public

· accommodation is the main purpose

· central management

· management offers accommodation in its own right

· services offered, and

· status of guests.

In this case, we accept that the Resort is similar to a hotel as the premises reflect the characteristics outlined in paragraph 12 of GSTR 2012/6. It is evident from the Deed and the website that the premises are operated in a businesslike manner with the capacity to provide accommodation to multiple, unrelated guests in the XX SSA which form part of the Resort.

The website for the resort details the accommodation types provided at the resort, the Leisure Facilities and the Dining Options available to guests. Consequently you are offering accommodation to the Public. More specifically:

· Accommodation is the one of the main purposes of the resort in conjunction with the provision of various facilities, services and dining options.

· Entity A have further advised that the premises have central management to accept reservations, allocate rooms, receive payments and perform or arrange services.

Paragraph 24 of GSTR 2012/6 states that accommodation in a hotel is supplied by the operator of the hotel in its own right and not in the capacity of agent for a third party.

Entity A has purchased XX apartments and will lease these apartments to guests in its own right.

Further, paragraph 25 of GSTR 2012/6 states that when determining whether premises are, or are similar to, a hotel, motel or inn, it is necessary to consider the premises in its entirety. It is not sufficient to only consider the features of part of the premises, such as an individual room, in which accommodation is provided.

Paragraphs 95 through 98 of GSTR 2012/6 discusses separately titled rooms, apartments, cottages or villas and provides that in addition to living accommodation areas, premises that are commercial residential premises include commercial infrastructure to support the commercial operation of the premises. Paragraph 98 of GSTR 2012/6 states in part that a supply by sale or lease of strata titled rooms, apartments, cottages or villas without sufficient commercial infrastructure such as reception areas, dining and bar areas, meeting/function areas, kitchens, laundry facilities, storage areas and car parks 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.

Paragrapg 197 of GSTR 2012/6 states that this position is supported by the following observation made by Emmett J in the Full Federal Court decision of South Steyne FFC:

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.

Paragraphs 102-107 of GSTR 2012/6 provide an example dealing with supplies of residential premises and commercial residential premises and states:

102. Nile Developers also constructs a building complex that consists of 120 apartment rooms, and commercial infrastructure consisting of a large reception area,management offices, a bar and restaurant and conference facilities on the ground floor, and underground parking. The building is specifically designed to operate as a hotel. Upon completion Nile Developers strata titles the building.

103. Nile Developers enters into individual leases over 90 strata titled rooms and the commercial infrastructure with Cloud Pty Ltd (Cloud). Cloud combines the 90 rooms and commercial infrastructure to supply accommodation in commercial residential premises.

104. Nile Developers sells the remaining 30 rooms to individuals.

105. Supplies by way of lease of each of the 90 strata titled rooms by Nile Developers to Cloud are input taxed supplies of residential premises under subsection 40-35(1 ).The supply by way of lease of the commercial infrastructure is a taxable supply under section 9-5.

106. The sales of the 30 rooms by Nile Developers to the individuals are taxable supplies of new residential premises under section 9-5.¹⁰ If an individual subsequently leases their room to Cloud, the supply by way of lease is an input taxed supply of residential premises to be used predominantly for residential accommodation.

107. Supplies of accommodation made by Cloud to guests are taxable supplies of accommodation provided to individuals by the operator of commercial residential premises under section 9-5.

In this case, each contract for sale of an apartment by Entity B to Entity A, contains clause 4.1 in Annexure A to the contract.

Clause 4.1 provides that the formation of a binding contract (in respect of the sale) is subject to the execution of an Agreement between Entity B, Entity C and the Resort for the transfer, assignment or novation of all contracts, licences or other agreements relating to the management of the short stay accommodation residential properties on the Strata Plan, the management of the Strata Scheme for the Strata Plan and the licences granted for the use of the facilities on the Strata Plan.

In order to give effect to this clause, a Deed was entered into between Entity B, Entity C, Entity A and the Strata Owners.

In the Original Deed, Entity B and Entity C agree to effect transfer, assignment and novation of Management Contracts and Licences to Entity A. A Supplemental Deed was entered into and a number of these subclauses were replaced and outlined the transfer, assignment and novation of the following agreements. In summary, this included:

· The transfer and assignment, by Entity C, of the Management Rights under the Management Contracts to Entity A.

· The transfer and assignment of Caretaking and/or Management rights to the Marina Facilities and the Recreational Facilities, by Entity B or Entity C, to Entity A. The Management Agreements in respect of the Recreational and Marina Facilities.

· The sale of the business operating the SSA by Entity B to Entity A.

· The sale of the Management Rights by Entity B to Entity A.

· To novate the Facilities Licence to Entity A.

The following additional Agreements were concluded with Entity A:

· Appointment of Entity A as exclusive manager of the Strata Company in substitution of Entity C.

· Assignment of all current and valid Letting and Management Agreements to Entity A.

The following Agreements were entered into with Entity F (an associate of Entity A):

· Lease of the Convention Centre by Entity B to Entity F.

· Transfer of Liquor Licence Approval from Entity B to Entity F.

· Sale of the business operating the Convention Centre to Entity F.

In an e-mail, Entity A's representative confirmed that the settlement of the purchase would comprise two separate Business Sale Agreements, one relating to the sale of the business operating the Restaurant and Convention Centre to Entity F and one relating to the Resort Management and SSA business to Entity A.

Based on the information outlined above, we consider that Entity A will be making a supply of accommodation in commercial residential premises for the following reasons:

1. Entity A will be supplying accommodation in XX apartments in its own right; and

2. Entity A controls the commercial infrastructure to support the commercial operation of the premises in terms of the agreements and licences transferred, assigned and novated under the Supplemental Deed.

The infrastructure and agreements relating to the operation of the Convention Centre and Restaurant are a separate business enterprise and do not impact on the operation and control of the SSA business and infrastructure.

In summary, Entity A will not be making input taxed supplies of residential premises under paragraph 40-35(1)(a), as Entity A is supplying the 11 apartments in its own right and have control of sufficient commercial infrastructure. We consider Entity A's supply is of accommodation in commercial residential premises.

Accordingly, Entity A satisfies all the requirements of section 9-5 and will be making taxable supplies of commercial residential premises in respect of the XX apartments acquired by Entity A.

Question 2

Is Entity A entitled to an input tax credit on the acquisition of the XX strata titled apartments from the vendor Entity B?

Under section 11-20, a taxpayer is entitled to input tax credits for any 'creditable acquisition' they make. Section 11-5 contains the requirements for an acquisition to be a creditable acquisition. This section states:

You make a creditable acquisition if:

(a) you acquire anything solely or partly for a *creditable purpose; and

(b) the supply of the thing to you is a *taxable supply; and

(c) you provide, or are liable to provide, *consideration for the supply; and

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

Paragraph 11-5(a) requires that, for an acquisition to be a creditable acquisition, the acquisition must be solely or partly for a 'creditable purpose .The meaning of creditable purpose is contained in section 11-15:

1. You acquire a thing for a creditable purpose to the extent that you acquire it in *carrying on your *enterprise.

2. However, you do not acquire the thing for a creditable purpose to the extent that:

a) the acquisition relates to making supplies that would be *input taxed; or

b) the acquisition is of a private or domestic nature.

In this case, Entity A has acquired the XX strata titled apartments in carrying on an enterprise of the provision of resort style accommodation. As outlined earlier under Question 1, Entity A is supplying accommodation in commercial residential premises and therefore did not acquire the 11 apartments to make supplies that would be input taxed.

Paragraph 11-5(b) requires that the supply of the thing, for which an input tax credit is claimed, be a taxable supply.

Attached to each contract of sale is Annexure A which sets out the Special Conditions of the Contract for Sale and Purchase of the properties, which are incorporated into the Contract.

Clause 1 deals with GST. In particular, Clause 1.1 states:

The Seller and the Buyer agree that the sale of the Property , being a short stay accommodation residential unit, is a supply of a going concern within the meaning of subdivision 38-J of the GST Act, and the parties intend that the supply will be GST-free.

Following a request for further information, Entity A's representative advised that none of the XX Apartments sold by Entity B to Entity A were treated as a supply of a going concern. A tax invoice was issued by Entity B to Entity A in respect of the sale of each apartment showing the amount of GST payable.

We consider these factors would indicate the supply of each apartment to Entity A was a taxable supply.

The remaining two requirements of section 11-5 are also satisfied as Entity A has provided consideration for the supply of the apartments by Entity B to Entity A and Entity A is registered for GST.

Accordingly, Entity A is entitled to an input tax credit on the acquisition of the XX strata titled apartments from the vendor, Entity B, providing the supply of the XX apartments by Entity B to Entity A is a taxable supply.

¹ The business interests referred to are the sale of the Short Stay Accommodation Business to Entity A and the sale of the Convention Centre and Restaurant business to Entity F.

² For the sake of the clarification, it is noted that the related transactions do not include the sale of the Short Stay Accommodation business to Entity A and the Convention Centre and Restaurant business to Entity F

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