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Edited version of your written advice

Authorisation Number: 1051293581424

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You cannot rely on this edited version in your tax affairs. You can only rely on the advice that we have given to you or to someone acting on your behalf.

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Date of advice: 18 October 2017

Ruling

Subject: GST and supply of accommodation

Question 1

Is Property A, either in isolation or in combination with the other properties in question, commercial residential premises such that the owner is making taxable supplies in the event they are registered or required to be registered for GST?

Answer

Yes

Question 2

Is Property B, either in isolation or in combination with the other properties in question, commercial residential premises such that the owner is making taxable supplies in the event they are registered or required to be registered for GST?

Answer

Yes

Question 3

Is Property C, either in isolation or in combination with the other properties in question, commercial residential premises such that the owners are making taxable supplies in the event they are registered or required to be registered for GST?

Answer

No

Question 4

Is Property D, either in isolation or in combination with the other properties in question, commercial residential premises such that the owners are making taxable supplies in the event they are registered or required to be registered for GST?

Answer

No

Relevant facts and circumstances

X is not registered for GST.

Y is registered for GST and carries on an enterprise of primary production.

The partnership of X and Y is not registered for GST

Property A

X owns Property A which consists of X buildings. Y of the buildings each contain Y conjoined studio apartments with the Z building housing the reception area and a XY apartment.

The studio apartments are fully self-contained and offer the following features:

The XY apartment is a X bedroom house accommodating up to YY people and offers the following features:

The XY apartment is situated above the reception area and has a separate entrance to the reception area.

Reception is open from 8:30am to 6pm however is not continually manned. There is usually someone on-site each day between 8:30am and 11am carrying out laundry and cleaning functions although for the remainder of the day, whilst not on-site, guests are able to contact you by phone for any queries. All guests are provided with a keycode to access their accommodation on arrival if management is not on-site at the time.

Guests are provided with a welcome letter detailing local attractions, eating options, etc.

There is no provision of meals or breakfast.

Property B

X owns Property B which is a self-contained Y-bedroom cottage and is located on the adjacent block to Property A on a separate title.

Property B is marketed as part of the Property A facility, although it is also advertised on its own through various websites. Property B offers the following features:

The Reception area that caters to guests of Property A also provides the same services to guests of Property B.

There is no provision of meals or breakfast.

Property C

X and Y own Property C as tenants in common. The Property contains XY Y bedroom self-contained cottages. Property C is also marketed as part of the Property A facility, although also advertised on its own through various websites.

Property C does not contain any infrastructure to support the commercial activities of the premises.

Property C shares a partial common boundary (rear) with Property A. The primary access to Property C is via a separate entrance to Property A. There is also a driveway that allows small vehicles to access Property C from Property A.

Property C offers the following features:

There is no provision of meals or breakfast.

Property D

X and Y jointly own Property D. Property D is a two bedroom, one bathroom cottage offering the following features:

There is no provision of meals or breakfast.

Property D is advertised through various websites.

The above properties (Property A, Property B, Property C and Property D) are managed and operated by a related management entity being ABC Pty Ltd as trustee for the X Family Trust (trading as ABC). All future references to the Tourism Operator will be a reference to ABC.

The Tourism Operator is in the business of operating and managing short term accommodation premises including the check-in/check-out services of approximately ZZ properties. The Tourism Operator manages the properties on behalf of various property owners including X and Y.

The reception area located on Property A is utilised for services for all properties managed by the Tourism Operator.

X entered into an agreement with the Tourism Operator in regard to Property B.

X and Y entered into an agreement with the Tourism Operator in regard to Property C.

Both agreements (Management Agreements) provide that the Tourism Operator agrees to carry out the duties to manage and maintain the relevant property as detailed in Schedule 1 to the agreement.

The Owners of the properties make the supplies of the accommodation in their own right. The Tourism Operator acts as an agent on behalf of the property owners.

The Owners have not entered into a lease/licence in regard to the properties.

The relevant property owners agree to pay fees to the Tourism Operator as detailed in Schedule 2 to Management Agreements.

Schedule 1 and Schedule 2 of the Management Agreements contain identical roles and responsibilities of the parties including:

Tourism Operator Maintenance Duties

Tourism Operator Management Duties

Schedule 2 of the Management Agreements provides that the property owner shall pay the Tourism Operator forty percent (XZ%) of all income net of any third party fees in respect of the maintenance duties.

Income and expenses from each property are treated completely separately and monies are held in trust to be paid out to the respective property owners on the departure of guests.

X has entered into a similar Management Agreement in regard to the property located at Property A.

X and Y have entered into a similar Management Agreement in regard to Property D.

Relevant legislative provisions

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

Section 9-5

Section 9-40

Section 23-5

Section 25-1

Section 40-35

Subsection 40-35(1)

Subsection 188-10(1)

Section 188-15

Section 188-20

Section 195-1

Reasons for decision

Note: In this reasoning, unless otherwise stated,

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

Section 9-5 provides 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.

The primary issue in this case is whether your supply of accommodation is an input taxed supply. 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.

In the case your supplies are found not to be input taxed, a secondary issue will be whether there is a requirement to be registered for GST.

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 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 predominately for residential accommodation (regardless of the term of occupation).

The definition of residential premises in section 195-1 refers to land or a building that is occupied as a residence, or for residential accommodation, or is intended and capable of being occupied as a residence or for residential accommodation (regardless of the term of occupation).

Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises provides the ATO view of the characteristics of residential premises.

Paragraph 9 of GSTR 2012/5 explains that the requirement that the residential premises are to be used predominately for residential accommodation in section 40-35 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 15 of GSTR 2012/5 continues by stating that to satisfy the definition of residential premises, premises must provide shelter and basic living facilities.

In this case all of the properties in question will satisfy the definition of ‘residential premises’ as the premises provide shelter and basic living facilities.

The next step is to consider whether the properties, either in isolation or combined also fall within the scope of being ‘commercial residential premises’. Commercial residential premises are defined in section 195-1 to include, amongst other things:

The definition of ‘commercial residential premises’ encompasses similar establishments or establishments that exhibit characteristics that place them on a similar footing to hotels, motels, inns, hostels and boarding houses. 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.

The terms hotel, motel, inn, hostel and boarding house are not defined in the GST Act and take their ordinary meaning. The Macquarie Dictionary 5th Edition provides the following definitions:

In their 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).

Premises that are ‘similar’ to establishments that are commercial residential premises must have sufficient characteristics in common with the class of premises described. In addition to the physical characteristics of the premises, paragraph 12 of GSTR 2012/6 lists the following eight characteristics that are considered to be common to operating hotels, motels, inns, hostels and boarding houses:

Paragraph 10 of GSTR provides that objective factors are relevant to characterising premises as falling within either paragraph (a) or (f) of the definition include the overall physical character of the premises and how the premises are operated. Where these objective factors do not give a clear characterisation, the following may also be considered:

Paragraph 25 of GSTR 2012/6 provides 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. Paragraph 41 of GSTR 2012/6 states in part that ultimately, whether premises are commercial residential premises is a matter of overall impression involving the weighing up of all relevant factors.

The tests to be applied are whether the premises are a hotel, motel, inn, hostel or boarding house, or whether the premises are similar to these types of premises, in the sense that they have a sufficient likeness or resemblance to any of these types of establishments. These tests necessarily raise questions of fact involving matters of impression and degree.

Question 1

Is Property A, either in isolation or in combination with the other properties in question, commercial residential premises such that the owner are making taxable supplies in the event they are registered or required to be registered for GST?

Property A exhibits all of the characteristics of commercial residential premises as listed in paragraph 12 of GSTR 2012/6 to some extent.

Given the facts provided we consider the premises in question bear the closest resemblance to a ‘hotel’ or motel. Paragraphs 13 through 25 of GSTR 2012/6 describe the features typical of hotels. In considering those features the following is noted:

As discussed above, when determining whether premises are, or are similar to, a hotel, motel or inn, it is necessary to consider the premises in its entirety and include the overall physical character of the premises and how the premises are operated.

In this case, weighing up all the relevant factors as discussed above, we consider that the premises exhibit sufficient characteristics typically inherent to a hotel or motel to be classified as being similar enough to these types of establishments under paragraph (f) of the definition of ‘commercial residential premises’ at section 195-1.

As such, your supplies of accommodation in the premises are not input taxed.

GST registration

As your supplies of accommodation are not input taxed, the next issue to consider, given you are not registered for GST, is whether you are required to be registered.

Section 23-5 provides that you are required to register for GST if you carry on an enterprise and your GST turnover meets the registration turnover threshold (currently $75,000). Please note you may voluntarily register for GST if you carry on an enterprise and your GST turnover is below the $75,000 threshold.

In this case, you carry on an enterprise of supplying accommodation. The next question to consider is whether your turnover meets the GST registration turnover threshold.

Subsection 188-10(1) of the GST Act provides that your GST turnover will meet the registration turnover threshold if:

Your current GST turnover at a time during a particular month is the sum of the values of all the supplies that you have made, or are likely to make, during the 12 months ending at the end of that month (section 188-15).

Your projected GST turnover at a time during a particular month is the sum of the values of all the supplies that you have made, or are likely to make, during that month and the next 11 months (section 188-20).

Certain supplies are disregarded when calculating you current and projected GST turnover including:

Your supplies of accommodation will not fall within the exclusions above and as such the value of your supplies of accommodation will be included in the calculation of your current and projected GST turnover.

As you are not registered for GST, you are required to monitor your turnover on a month to month basis and apply for GST registration within 21 days after becoming required to be registered in accordance with section 25-1.

If you are required to be registered for GST (or voluntarily register for GST), your supplies of accommodation in commercial residential premises will be a taxable supply.

Question 2

Is Property B, either in isolation or in combination with the other properties in question, commercial residential premises such that the owner is making taxable supplies in the event they are registered or required to be registered for GST?

It has previously been established that Property B satisfies the definition of residential premises. As such we need to consider whether this property also falls within the definition of commercial residential premises.

Property B exhibits all of the characteristics of commercial residential premises as listed in paragraph 12 of GSTR 2012/6 to some extent. The premises are also operated in association and in the same manner as the adjoining property (Property A).

Paragraph 96 of GSTR 2012/6 provides that separately titled rooms, apartments, or adjacent cottages or villas located on adjoining or abutting land can be combined with sufficient commercial infrastructure so that, as a whole, it can be operated similarly to a hotel, motel, inn, or hostel. Supplies of accommodation in premises operated in this way are supplies of accommodation in commercial residential premises.

We consider that the application of paragraph 96 of GSTR 2012/6 will apply in this instance resulting in treating the supplies of accommodation provided on the combined adjoining properties of Property A and Property B as being supplies of accommodation in commercial residential premises. We consider the reasons as described above with reference to Property A will apply equally in regard to this property.

As such, your supplies of accommodation in the premises are not input taxed.

As discussed above, if you are registered or required to be registered for GST, your supplies of accommodation in commercial residential premises will be a taxable supply.

Question 3

Is Property C, either in isolation or in combination with the other properties in question, commercial residential premises such that the owners are making taxable supplies in the event they are registered or required to be registered for GST?

In regard to Property C, in the first instance we need to determine the entity that is making the supply of the accommodation. Section 9-5 refers to ‘you’ make a taxable supply if ‘you’ make the supply for consideration, etc.

Section 195-1 defines ’you’ as applying to entities generally unless its application is expressly limited by a provision of the GST Act. Section 9-5 makes no such limitation and as such the reference to ‘you’ in section 9-5 will apply to entities in general.

Section 184-1 provides that an ‘entity’ includes a partnership.

A partnership is defined in section 195-1 of the GST Act by reference to the definition of 'partnership' in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997). That definition states:

The second limb of paragraph (a) of the definition includes as a partnership an association of persons (other than a company or a limited partnership) 'in receipt of ordinary income or statutory income jointly'. We refer to this type of partnership as a tax law partnership.

Goods and Services Tax Ruling GSTR 2004/6 Goods and services tax: tax law partnerships and co-owners of property considers how the GST Act applies to transactions involving tax law partnerships.

Paragraph 25 of GSTR 2004/6 provides that to be in receipt of income jointly, it is not necessary to have actually received the income. We consider that there is receipt of income jointly if there is a joint entitlement to income. Under the terms of the management agreement with the Tourism Operator, the owners have a joint entitlement to income in respect to rentals collected in a given month.

This concept is continued at paragraph 27 of GSTR 2004/6 stating that the expression 'in receipt of ordinary income...jointly' suggests that two or more persons have commenced an activity which gives rise to, or will give rise to, a right or entitlement to receive jointly an amount or payment of a revenue nature.

Paragraphs 40 and 41 of GSTR 2004/6 the joint acquisition of property:

Given the above, we consider the supply of the accommodation at Property C is made by the tax law partnership of X and Y.

It has been established above that Property C satisfies the definition of residential premises. As such we need to consider whether the property also falls within the definition of commercial residential premises.

Property C exhibits the characteristics of commercial residential premises as listed in paragraph 12 of GSTR 2012/6 to some extent. The premises are also operated in association and in the same manner as the two adjoining properties (Property A and Property B). However as this property is owned by a different entity (the tax law partnership) than the adjoining properties (owned by X), the GST classification of any supplies made in relation to this property is required to be considered in the context of the entity making the supplies (the tax law partnership).

Given the above, it is necessary to consider whether the supplies of accommodation made at Property C are made in the types of premises defined as commercial residential premises or similar premises.

Paragraph 95 of GSTR 2012/6 discusses that in addition to living accommodation areas, premises that are commercial residential premises include commercial infrastructure to support the commercial operation of the premises. Such infrastructure may include reception areas, dining and bar areas, kitchen, laundry facilities, storage areas and car parks. Such infrastructure is used to provide services to occupants.

In this instance, Property C does not contain any infrastructure to support the commercial activities of the premises. The property consists solely of two 2-bedroom self-contained cottages.

As such, we do not consider the premises to be commercial residential premises. Therefore your (the tax law partnership) supplies of accommodation are input taxed supplies pursuant to section 40-35.

Question 4

Is Property D, either in isolation or in combination with the other properties in question, commercial residential premises such that the owners are making taxable supplies in the event they are registered or required to be registered for GST?

Likewise, for the reasons discussed above, with reference to paragraph 41 of GSTR 2004/6, in regard to Property C, we consider any supply of accommodation at Property D is made by the tax law partnership of X and Y.

Also as discussed above, the property satisfies the definition of residential premises and as such we need to consider whether the property also falls within the definition of commercial residential premises.

A primary characteristic of commercial residential premises is the capacity to provide accommodation to multiple, unrelated guests or residents at once (multiple occupancy). Paragraphs 156 to 158 of GSTR 2012/6 discusses that the issue of ‘multiple occupancy’ has been addressed in a number of judicial cases.

In South Steyne Hotel Pty Ltd v. Federal Commissioner of Taxation (South Steyne), Stone J at [44] commented:

On appeal to the Full Federal Court, Emmett J noted at [27] in South Steyne Hotel Pty Ltd v. Federal Commissioner of Taxation (South Steyne FFC):

Emmett J continued noting at [28] and [29]:

Therefore, we do not consider the supply of the single house (Property D) to fall within the definition of commercial residential premises. The supply of the premises by way of lease, hire or licence will be an input taxed supply of residential premises made by the tax law partnership. Furthermore, the premises do not contain the infrastructure to support the commercial activities of the premises.


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