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This edited version has been archived due to the length of time since original publication.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

Authorisation Number: 1051278746918

Date of advice: 5 September 2017

Ruling

Subject: Goods and Services Tax (GST) and commercial residential premises

Question

Is your supply of accommodation a taxable supply of accommodation in commercial residential premises for the purposes of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No, your supply is not a taxable supply of accommodation in commercial residential premises for the purposes of section 9-5 of the GST Act. It is an input taxed supply of residential premises.

Relevant facts and circumstances

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 Subsection 11-15(2)

A New Tax System (Goods and Services Tax) Act 1999 Section 11-20

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

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

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

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

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

In this ruling:

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

Under section 9-5, 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. Emphasis added

The primary issue in this case is whether your supply of the apartments (property) through leasing or letting out of the property would be an input taxed supply of residential accommodation. 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.

Input taxed

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.

Under subsection 40-35(2) of the GST Act, the supply will only be input taxed to the extent that the premises are to be used predominately for residential accommodation (regardless of the term of occupation).

It is common ground that you supply accommodation and that accommodation is in premises that satisfy the definition of residential premises. The issue to be determined is whether those premises are commercial residential premises.

Commercial residential premises and accommodation

‘Commercial residential premises’ is defined in section 195-1 of the GST Act to include (amongst other things):

The Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises (GSTR 2012/6) provides the Australian Tax Office (ATO) 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. Paragraphs 140-141 of GSTR 2012/6 list the ordinary meanings of the terms and referred to the Macquarie Dictionary (Macquarie) which provides the following definitions:

Paragraph 10 and 11 of GSTR 2012/6 explains that the objective factors that are relevant to characterising premises under paragraph (a) or (f) of the definition include the overall physical character of the premises and how the premises are operated. The test to apply for paragraph (a) of the definition is whether the premises are a hotel, motel, inn, hostel or boarding house and the test for applying paragraph (f) is whether the premises are similar to these types of premise, in the sense that they have sufficient likeness or resemblance to any of those types of establishments.

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]:

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

Based on the definitions in paragraph 141 of GSTR 2012/6, a hotel motel or inn is a building or establishment from which accommodation and other services or facilities are supplied.

The accommodation that you supply is not from a single building or establishment as the accommodation is situated in XX separate buildings. Relevantly, paragraphs 95 and 96 of GSTR 2012/6 provides guidance in respect of separately titled apartments that are not located within the same building.

Paragraphs 95 and 96 of GSTR 2012/6 states:

You supply accommodation from separate buildings that are not co-located and you provide services to guests from an off-site office. As the accommodation and the infrastructure to provide services is not located within a single building or from buildings that are situated on adjoining or abutting land, these premises cannot be characterised as a hotel motel or inn or sufficiently similar to a hotel, motel or inn. Accordingly, the premises from which you supply the accommodation does not satisfy the definition of commercial residential premises under paragraph (a) or (f) of section 195-1.

In your case, we consider that you are not making a supply of accommodation in commercial residential premises provided to an individual by an entity that owns or controls the commercial residential premises. Consequently your supply is an input taxed supply of residential premises when you lease the properties to guests pursuant to section 40-35.Therefore, the leasing of your properties (in this case residential apartments) is not a taxable supply under section 9-5.You are entitled to an input tax credit for any creditable acquisition that you make (refer to section 11-20). However, in your case, any acquisitions that relate to making input tax supplies such as input taxed residential rent are not for a creditable purpose (see subsection 11-15(2)). Hence, you are not able to claim input tax credits for the costs incurred in relation to making input taxed supplies under section 11-20.


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