Edited version of your written advice

Authorisation Number: 1051204796119

Date of advice: 20 March 2017

Ruling

Subject: Goods and services tax and property

Question

Are you making a taxable supply of accommodation in commercial residential premises, under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when you lease accommodation at specified address to specified entity?

Answer

Yes, you are making a taxable supply of accommodation in commercial residential premises, under section 9-5 of the GST Act, when you lease accommodation at specified address to specified entity.

Relevant facts and circumstances

1. You, specified entity, own a property located at specified address. You are registered for GST.

2. The property has been renovated to suit student accommodation. There are in total specified number rooms in the buildings. Each room has a kitchenette and ensuite/bathroom. In addition, each room is fully furnished with a bed, microwave, and desk. All linen and other amenities are provided by the students that occupy the residence. The only communal facilities are a shared laundry and a courtyard. There is no on-site manager.

3. Specified entity has leased the entire property from you. You made the supply in the course or furtherance of your leasing enterprise. You leased the property to the specified entity for consideration. The specified entity operates a school.

4. The specified entity sub-leases the individual rooms to their students.

5. The specified entity pays a rental fee for the entire property. This rental fee includes the occupation of all rooms for use as student accommodation. Furnishing of rooms, utilities and the cleaning of common areas is provided by you in accordance with the relevant lease agreement.

6. A government permit is in place. The permit was obtained to convert the premises into a multi-unit dwelling that can be used for student accommodation.

7. The original lease to the school was executed in specified date.

8. There is no written agreement between the specified entity and you pursuant to subsection 153-50(1) of the GST Act.

9. There is no agency agreement between the specified entity and you.

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 Subdivision 40-B

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

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

A New Tax System (Goods and Services Tax) Act 1999 Section 40-35(2)(a)

A New Tax System (Goods and Services Tax) Act 1999 Subdivision 40-C

A New Tax System (Goods and Services Tax) Act 1999 Division 87

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

Reasons for decision

In this reasoning, unless otherwise stated,

● all legislative references are to the GST Act

● all reference materials referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au

● all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act

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

Section 9-5 provides that 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 that you carry on

(c) the supply is connected with the Indirect Tax Zone (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.

The issue in this case is whether the supply of the property by way of lease, hire or licence is an input taxed supply of residential premises. Input taxed means that GST is not payable on the supply and there is no entitlement to input tax credits for anything acquired to make the supply.

Under subsection 40-35(1), 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 the entity that owns or controls the commercial residential premises) is input taxed.

Under subparagraph 40-35(2)(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).

'Residential premises' is defined in section 195-1 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.

Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises, provides guidance on what is considered to be residential premises to be used predominantly for residential accommodation for the purposes of section 40-35.

The requirement in section 40-35 that premises be 'residential premises to be used predominantly for residential accommodation' 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 9 of GSTR 2012/5).

Further, paragraph 15 of GSTR 2012/5 provides that premises must provide shelter and basic living facilities.

Based on the information provided, we consider that the Premises from which the accommodation is supplied, satisfies the definition of 'residential premises' under section 195-1.

Relevantly your supply of the premises will not be an input taxed supply where it is a supply of 'commercial residential premises'.

The definition of commercial residential premises is central to the interpretation of Subdivision 40-B and 40-C , as it provides a point of demarcation between the supplies of residential premises that are input taxed and supplies of commercial residential premises that are subject to GST.

The term 'commercial residential premises' is defined in section 195-1 to mean:

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

(b) premises used to provide accommodation in connection with a school or

(c) …

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

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 your case, the Premises will be leased to the specified entity. Specified entity operates a school and subleases the individual rooms to their students.

Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises provides the ATO view of the characteristics of commercial residential premises.

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

● commercial intention

● multiple occupancy

● holding out to the public

● accommodation is the main purpose

● central management

● management offers accommodation in its own right

● provision of, or arrangement for, services, and

● occupants have the status of guests.

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

Features of hostels and boarding houses are described in paragraphs 26 to 35 of GSTR 2012/6. These paragraphs are reproduced below:

Features of hostels

26. The term 'hostel' includes premises that can be described as a hostel, a hotel or inn. The features of hotels and inns identified at paragraphs 13 to 25 of this Ruling are relevant to these types of premises.

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. Non-profit entities can also operate commercial residential premises. For example, various non-profit organisations operate hostels in a business-like manner.

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. The arrangement between the parties will reveal whether there is an agent-principal relationship.

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.

Of particular relevance to your situation, is example 6 contained in paragraphs 58 to 61 of GSTR 2012/6. Once again, these paragraphs have been reproduced here for ease of reference:

Example 6 - supply of whole premises to be used for student accommodation

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.

On specified date, you supplied the premises to specified entity under a lease. The lease stated specifically that the permitted use of the premises was for student accommodation.

The physical characteristics of your premises together with the relevant contracts provide support for the view that the premises are, or are at least sufficiently similar to, a hostel. You therefore make a taxable supply of commercial residential premises to specified entity.

The definition of commercial residential premises as contained in section 195-1 contains the following exclusion:

…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.

You do not use the premises to provide accommodation to students. You are merely making a supply by way of lease of the premises to specified entity. Therefore, the exclusion does not apply to your supply.

We note for your information that long-term stays in commercial residential premises are given a lower value than would otherwise apply. This is the result of satisfying Division 87. If a taxpayer satisfies Division 87 then a reduced amount of GST is payable on the supply of commercial accommodation. Division 87 is satisfied, if among other things, the relevant taxpayer provides commercial accommodation to an individual.

However, in your situation you do not provide commercial accommodation to an individual. Instead you provide commercial accommodation to specified entity. Accordingly, you do not satisfy Division 87.

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