Edited version of your written advice

Authorisation Number: 1051391689087

Date of advice: 28 June 2018

Ruling

Subject: GST and commercial residential premises

Question

Are you entitled to input tax credits for the construction, maintenance and operation of the Premises under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes.

Relevant facts and circumstances

You are registered for GST.

You are in the process of developing the Premises (the Property) to provide accommodation for the workforce involved in a Project.

Physical Characteristics of the Property

The Property contains a number of prefabricated buildings which consist of bedrooms, each with an ensuite, plus a common kitchen/lounge area. There is also a communal laundry.

The plan for the site is to construct multiple buildings.

Construction commenced after development consent was granted in early 20XX. The first workers are expected to occupy the property in early 20XX.

The accommodation on the Property is only intended to be on site for the duration of the Project and you intend for the buildings to be removed from the Property on completion.

The duration of stays will depend on the workers employment contract. However it is expected that should a worker have family visit, they will need to find alternative accommodation.

Leasing arrangements and status of the workers

The Property will be leased to companies involved in the Project.

All leases entered into by you will be with Employers. It is not expected that you will lease directly to workers.

At this stage, Entity B has entered into a lease with you.

Entity B’s external workforce are predominately Drive-In, Drive-Out, it is anticipated workers will arrive at their accommodation on Sunday night and depart Friday afternoon.

The purpose of the Property is temporary accommodation for workers.

You have provided a sample of your agreement.

The agreements will be with the companies employing the individual workers (as opposed to the individual workers themselves).

As per the agreement, the client acknowledges receipt of a copy of the Village Rules, which govern the expected behaviour of occupants whilst at the Premises. The client must ensure that all personnel fully and duly comply with the Village Rules.

Where requested by the client, the Property will include the provision of additional associated services such as linen and weekly cleans.

You have engaged Entity C, an external third party who will manage the day-to-day operations of the Property. They will collect the rent, advertise the property and undertake regular inspections. You have entered into a Management Agreement. You have provided a copy of this agreement.

Rental income is expected to be approximately $X plus GST per room/per week.

The Premises have been furnished with bedding, cupboards, desks, chairs, lounge furniture, televisions air conditioning and kitchen utensils.

Occupants are not permitted to alter the Premises or keep pets.

The utilities are connected by you and included in the fee payable. Telephone services are not provided.

You have provided a copy of the Village Rules for the Premises.

At least 70% of the employers will be provided with accommodation for a continuous period of 28 days or more.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 9-70

A New Tax System (Goods and Services Tax) Act 1999 Section 11-5

A New Tax System (Goods and Services Tax) Act 1999 Section 11-15

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 Division 87

Reasons for decision

In this reasoning, please note:

● all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

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

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

Section 11-20 states that you are entitled to an input tax credit (GST credit) for any creditable acquisition that you make.

Section 11-5 provides that you make a creditable acquisition if all of the following criteria are satisfied:

(a) you acquire anything solely or partly for a creditable purpose (ie to the extent you acquire the thing in carrying on your enterprise except to the extent the acquisition relates to making input taxed supplies or is of a private or domestic nature)

(b) the supply to you was a taxable supply

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

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

The relevant issue here is whether your construction, maintenance and operation of the Premises is for a creditable purpose.

Section 40-35 provides that a supply of premises by license is input taxed if the supply is of residential premises, other than a supply of accommodation in commercial residential premises.

The Premises satisfy the definition of ‘residential premises’ in section 195-1. This is because they provide shelter and basic living facilities as outlined in paragraphs 9 and 15 of Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises.

Your supply of accommodation in the Premises will be input taxed unless the premises satisfy the definition of ‘commercial residential premises’.

Commercial residential premises

The term ‘commercial residential premises’ is defined in section 195-1, in part, as:

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

…

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

…

The definition of ‘commercial residential premises’ encompasses establishments similar to, 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 Premises consists of a number of prefabricated buildings which consist of bedrooms, each with an ensuite, plus a common kitchen/lounge area. The plan for the site is to construct multiple buildings.

Paragraph 12 of GSTR 2012/6 lists the following eight characteristics 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

● occupants have status as guests.

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

Example 10, paragraphs 70-77 of GSTR 2012/6, provides an example of camp-style accommodation which is commercial residential premises as it is operated in a way that is similar to a hotel.

In your case, similar to example 10:

● The Premises will be operated on a commercial basis and will have capacity to provide multiple occupancy accommodation to workers (through their employer). Its main purpose is to service the need for accommodation by employers employing a significant number of employees working on the Project.

● You are holding out to a segment of the public, being the entities engaged in the Project (employers).

● The Premises have been furnished with bedding, cupboards, desks, chairs, lounge furniture, televisions air conditioning and kitchen utensils. They are designed to provide living accommodation and are residential premises to be used predominantly for residential accommodation.

● You have appointed an external third party who will manage the day-to-day operations of the Property, including collecting the rent, advertising the property and undertaking regular inspections. You have control over the Premises and provide the accommodation to the employers.

● The occupants will have the status of guests as they will be predominantly Drive-In Drive-Out workers and have their principle place of residence elsewhere.

● Guests must abide by ‘Village Rules’, which govern the expected behaviour of occupants whilst at the Premises.

● There are restrictions on guest alteration to the Premises and keeping of pets similar to what may be expected in hotels.

On balance, the Premises will be operated in a way that is sufficiently similar to a hotel and the Premises will fall within paragraph (f) of the definition of commercial residential premises.

Your supply of the premises by license to the employers will be a supply of accommodation in commercial residential premises.

Short term stays

Short term stays (27 days or less) will be taxed at the normal GST rate of 10% of their value pursuant to section 9-70.

Long-term accommodation in commercial residential premises

As most of the licenses will be granted for a minimum of three months, it is necessary to consider Division 87.

Division 87 reduces the amount of GST payable on a taxable supply, where the supply provided is a supply of long-term accommodation in commercial residential premises.

Section 87-5 provides that the value of a taxable supply of commercial accommodation is 50% (or such other percentage specified in the regulations) as would otherwise be the case where the commercial accommodation:

● is provided in commercial residential premises that are predominately for long-term accommodation, and

● is provided to an individual as long term accommodation.

Section 87-15 defines ‘commercial accommodation’ as the right to occupy the whole or any part of commercial residential premises including, if it is provided as part of the right so to occupy, the supply of:

● cleaning and maintenance

● electricity, gas, air-conditioning or heating, or

● telephone, television, radio or any other similar thing.

Commercial accommodation is considered long-term if the accommodation is for a continuous period of 28 days or more. (subsection 87-20(1))

Commercial residential premises are predominately for long-term accommodation if at least 70% of the individuals who are provided with commercial accommodation in the premises are provided with accommodation for a continuous period of 28 days or more. (subsection 87-20(3))

Goods and Services Tax Ruling GSTR 2012/7 Goods and services tax: long-term accommodation in commercial residential premises provides further guidance on this issue.

Paragraph 40 of GSTR 2012/7 explains that a taxable supply of commercial accommodation may be provided to an individual in cases where that individual is not the recipient of the supply. This allows corporate entities acquiring long-term accommodation for their employees to benefit from the concessionary treatment of long-term accommodation.

In your case, at least 70% of the employers will be provided with accommodation for a continuous period of 28 days or more.

Given the above, these supplies of accommodation will be supplies of long-term commercial accommodation in commercial residential premises that are predominately for long-term accommodation. The GST on such supplies will be calculated in accordance with section 87-5.

Section 87-25 gives a supplier of such commercial accommodation with the option of not applying the concessional provisions of Division 87, thereby treating the supplies of commercial accommodation as input taxed pursuant to paragraph 40-35(1)(b). You will not elect to make the choice available under section 87-25.

Therefore, these supplies of accommodation will be taxable supplies of commercial accommodation in commercial residential premises, with GST calculated in accordance with section 87-5.

Accordingly, your acquisitions for the construction, maintenance and operation of the Premises will be for a creditable purpose. Where the other requirements of section 11-5 are satisfied, your acquisitions will be creditable acquisitions and you will be entitled to GST credits on those acquisitions.

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