Edited version of your private ruling

Authorisation Number: 1012590621468

Ruling

Subject: Goods and services tax (GST) and residential premises

Question

Will you be making a taxable supply of accommodation in commercial residential premises when you let out your units?

Answer

No.

Relevant facts and circumstances

The Trustee (You) is not registered for GST.

You own X, Y bedroom units, in a Z unit residential apartment block located in Australia.

There is a separate lock and key for the building, each unit and each bedroom.

Each unit is fully furnished with a vacuum cleaner, has a kitchen and a laundry equipped with a washing machine and a dryer, and a balcony clothes line.

A third party owns and operates motels including Lodge A (lodge) located near your units.

You have a verbal agreement with the third party whereby excess guests and those seeking a lower daily rate (which you offer) than the motels are provided accommodation in your units. Some of these guests become repeat customers.

You pay the lodge a percentage of the daily rate on all accommodation provided in your units. Once a month, the lodge calculates the amount owed and you are invoiced for the amount owing.

The lodge provides the following services:

· Offers accommodation and takes bookings. They may refuse any guest at their discretion.

· Greets guests, completes check-in and receives payment. Guests fill out a unit accommodation form and provide payment details on arrival. This documentation is separate to the guest register of the lodge.

· Holds and allocates keys.

· Advises your spouse of bookings made and departures.

Each bedroom in a unit is let separately. Each guest has access to the bedroom(s) they let and the remainder of the unit with exception of the other bedroom which will be locked if it is not occupied by another guest. Guests unknown to each other can individually let a bedroom in a unit and share the common areas of the unit.

Single room hire is more prevalent than double room hire. Stays can range from overnight to several weeks.

Most guests are met at the lodge by your spouse and taken to the units. This is done to familiarise the guest with the location and operation of the units. If a guest is a returning guest, they are not always met by your spouse as they are familiar with the location and operation of the units.

Housekeeping duties are performed by your spouse and mainly follow the departure of a guest. These are:

· cleaning of rooms/unit, washing of linen and towels and making of beds

· restocking of linen, towels, cleaning supplies, and breakfast items, and

· ensuring all equipment is in place and working, replacing broken items and arranging repairs / maintenance as required.

During a long term stay your spouse may restock linen and depending on circumstances, clean the unit.

Your spouse responds to requests for local information including shops, banking, and transport.

Currently guests are required to wash linen used during their stay and before departure. Some do and some don't. A linen cupboard stocked with linen and towels is available for guests use in each unit.

Telephones (local calls) were provided in each unit with guests using a call log which was handed in at departure and a flat rate per call was charged. These phones were all removed due to lack of use by guests who carry mobile phones.

The units are not advertised.

There is no access to food onsite. Coffee, tea, sugar and cereals are provided at the beginning of the guests stay and are not restocked.

You are considering implementing the following changes to your operation to change their nature from residential premises to commercial residential premises:

· You will advertise in the local newspapers of the main town's from which your guests come from.

· Guests will not be required to clean the linen on their departure.

· Long stay guests will be provided with weekly cleaning of the room/unit, dirty linen will be removed weekly, or earlier depending on whether the housekeeper needs to attend to the unit, and restocking of breakfast and other supplies as required.

· Guests will be able to replenish breakfast supplies (milk, bread, tea/coffee, juice, sugar, cereal, butter and spreads) either from the housekeeper or by collecting supplies at the lodge.

· Guests can purchase frozen meals and deserts at the reception counter of the lodge.

You are not planning to enter into a new agreement or contract with the lodge.

You are not involved in any other enterprise.

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 9-40,

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

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

Reasons for decision

Summary

Your premises are not 'commercial residential premises' as defined in section 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) as the premises are not a hotel, motel, inn, hostel or boarding house, or anything similar to these, despite the proposed changes to your current operation.

The premises are 'residential premises to be used predominantly for residential accommodation' and any supplies of accommodation in the premises would be input taxed under section 40-35 of the GST Act.

Detailed reasoning

In this ruling, please note:

· All legislative references are to the GST Act unless stated otherwise.

· All terms marked by an asterisk are a defined term in the GST Act unless stated otherwise.

· All reference materials referred to are available on the Australian Taxation Office website www.ato.gov.au

You must pay the GST payable on any taxable supply that you make.

Section 9-5 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 that 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 your case, you are proposing to make changes to the operation of your leasing enterprise so that you may be considered to be making a supply of commercial residential premises.

The issue to be decided is whether your supply of accommodation under the proposed operational changes is an input taxed supply of residential premises or a taxable supply of commercial 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.

Residential rent

Subsection 40-35 states:

(1) A supply of premises that is by way of lease, hire or licence (including a renewal or extension of a lease, hire or licence) is input taxed 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

…

(2) However:

(a) the supply is input taxed only to the extent that the premises are to be used predominantly for residential accommodation (regardless of the term of occupation); and

…

We must establish if your premises are 'residential premises'. '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 the occupation or intended occupation) …

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

Paragraphs 9 and 15 of GSTR 2012/5 state:

9. The requirement in sections 40-35, 40-65 and 40-70 that premises be 'residential premises to be used predominantly for residential accommodation (regardless of the term of occupation)' 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.

15. 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. ^…

Your units have all the physical characteristics necessary to satisfy the definition of residential premises to be used predominantly for residential accommodation.

However, it is necessary to determine if the premises are commercial residential premises.

'Commercial residential premises' means:

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

…

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

…

Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises (GSTR 2012/6), outlines the characteristics of commercial residential premises.

The terms 'hotel', 'motel', 'inn', 'hostel' and 'boarding house' are not defined in the GST Act and therefore take on their ordinary meaning.

Paragraph 141 of GSTR 2012/6 provides the following definitions from the Macquarie Dictionary 5th Edition (Macquarie), the Oxford English Dictionary 2nd and 3rd editions (OED) and the Shorter Oxford English Dictionary 5th Edition (SOED):

Hotel

· a building in which accommodation and food, and alcoholic drinks are available. (Macquarie)

· building or establishment where travellers or tourists are provided with overnight accommodation, meals and other services. (OED)

· an establishment, esp. of a comfortable or luxurious kind, where paying visitors are provided with accommodation, meals and other services. (SOED)

Motel

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

· a hotel catering primarily for motorists; spec . on comprising self-contained accommodation with adjacent parking space. (OED)

Inn

· a small hotel that provides lodging, food, etc., for travellers and others. (Macquarie)

· a public house providing accommodation, refreshments, etc., for payment, esp. for travellers. Now also, a public house serving alcoholic liquor for consumption on the premises, whether providing accommodation or not. (SOED)

Hostel

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

· a public house of lodging and entertainment for strangers and travellers; an inn, a hotel. (OED)

· a house of residence for students at a university or on a course, esp. at a non-residential college, or for some other special class of people. (SOED)

Boarding House

· a dwelling in which lodging is provided to paying residents who share common facilities such as a kitchen, laundry, living room, etc. (Macquarie)

· a dwelling, usually a private house, in which board and lodging are provided for payment. (Macquarie)

· a house offering board and lodging for paying guests. (SOED)

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). This is referred to in Paragraph 147 of GSTR 2012/6, which states:

147. In determining whether premises satisfied either paragraph (a) or (f) of the definition of commercial residential premises, Nicholas J stated in ECC Southbank:

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 are a hotel, motel or inn, or anything similar to those establishments. However, we will consider if your premises are similar to a hostel or boarding house.

Hostels

Paragraphs 26 to 35 of GSTR 2012/6 provide features which are typical of hostels:

Features of hostels

26. The term 'hostel' includes premises that can be described as a hostel, a hotel or inn. …

27. The term 'hostel' also includes a supervised place of accommodation usually supplying board and lodging provided at a comparatively low cost.

28. The physical characteristics of a hostel, or premises similar to a hostel, reflect that the premises are designed to supply accommodation at a comparatively low cost to the occupants. Physical characteristics may include a commercial kitchen where meals are prepared, a communal area suitable for a dining area for occupants, and a communal laundry.

29. 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.

30. Hostels provide accommodation for a commercial purpose. …

31. Hostels have the capacity to supply accommodation for multiple occupancies.

32. Accommodation in hostels may be provided either in a dormitory environment or in separate bedrooms.

33. Accommodation may be supplied within a hostel to occupants as the occupant's principal place of residence. It is not necessary for accommodation in the premises to be limited to guests who need or desire accommodation while away for business or pleasure.

34. The operator of the hostel supplies the accommodation in its own right and not in the capacity of agent for a third party. …

35. 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.

Your premises do not have the physical characteristics of premises similar to a hostel to reflect a design to supply comparatively low cost accommodation. Each unit has a kitchen and laundry. The premises are not supervised by an onsite manager and as such occupants would have to raise queries and concerns with the housekeeper by telephone or with the separately located lodge.

Boarding Houses

Paragraphs 36 to 40 of GSTR 2012/6 provide features which are typical of a boarding house:

Features of boarding houses

36. A boarding house is a dwelling at which board and lodging are provided to guests or residents.

37. A boarding house provides accommodation for a commercial purpose. ...

38. A boarding house has the capacity to supply accommodation for multiple occupancies.

39. While the term 'boarding house' indicates that the premises ordinarily consist of a single dwelling, premises are not precluded from being a boarding house where the premises consists of a building with an additional stand alone structure in which board (meals), or lodging, or both, is provided. However, premises are not a boarding house where the premises consist of a central building used as a communal dining/meeting area with a number of independent living units.

40. A boarding house may provide accommodation to occupants as the occupant's principal place of residence. It is not necessary for accommodation in the premises to be limited to guests who need or desire accommodation while away for business or pleasure.

Paragraph 184 of GSTR 2012/6 considers the provision of meals when considering the meaning of term 'boarding house' by reference to Re Karmel & Co Pty Ltd (as trustee for Urbanski Property Trust) v. FC of T [2004] AATA 481 (Karmel). The Tribunal held the premises were not a boarding house because the property owner was not required to provide meals to the occupants.

You do not provide meals (board) to the occupants.

Based on the facts provided, we do not consider the premises are a hostel or boarding house, or anything similar to those establishments. The supply of the accommodation is lacking the associated on-site management and supervision which is required to manage the day to day operation of the premises and no meals are provided to the occupants.

From the above analysis, we consider your premises do not satisfy the meaning of commercial residential premises. Therefore, as determined earlier in this ruling, your premises satisfy the definition of residential premises to be used predominantly for residential accommodation. Your supply of the premises will be input taxed.

In conclusion, we consider that you would be making an input taxed supply of accommodation in residential premises. If you were registered for GST, you would not be making a taxable supply and GST would not be applicable to the supply.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).