Edited version of private advice

Authorisation Number: 1051550513382

Date of advice: 22 July 2019

Ruling

Subject: Supply of property

Question

Was your supply of the property (the Premises) an input taxed supply pursuant to section 40-65 of the A New Tax System (Goods and Services Tax) Act 1999?

Answer

Yes

Relevant facts and circumstances

You are registered for GST.

You sold the property located in Australia.

You have provided a copy of the Contract for Sale.

The Premises consists of XX single furnished rooms, XX shared bathrooms, one kitchen, one laundry, a shared garden area and XX car spaces at the rear of the property. You have provided a floor plan.

XX of the rooms have kitchenettes, additionally one room has a kitchen with an oven.

The rooms are furnished with a bed, sheets, pillows, blankets, wardrobe and other furniture such as a desk or a table.

The shared kitchen has a commercial oven, XX stove tops and XX dining tables.

The shared laundry has a commercial washing machine and dryer.

Electricity, gas, water and Wi-Fi are provided to residents of the Premises.

No meals are provided.

Permission for pets is on a case by case basis. A previous resident had XX.

There is no reception. There is no supervisor or on-site manager.

One of your directors does the general maintenance of the Premises or works with tradespersons when required. They can be contacted by residents regarding maintenance.

The rooms are advertised in various locations.

The common areas of the Premises are cleaned XX days a week by commercial cleaners.

At the time of sale there were XX residents in the Premises.

A real estate agent is engaged to show the rooms, organise occupancy agreements and collect the payments, which range from $XX - $XX per week.

The rooms are let under a standard occupancy agreement for general boarding houses between you and the resident. You have provided a sample agreement.

Residents are provided with the mobile phone number and email address of the managing real estate agent. Requests for repairs are sent in writing by email to the agent and if urgent they can call the mobile phone number. The residents also have the mobile phone number of the director.

The real estate agent inspects the physical condition of the room at the end of each occupancy.

The average duration of the stay of residential is between XX months and XX years. The length of the stay of the residents is between XX months and XX years.

Residents of the Premises are usually XYZ. Occasionally, a person from a rural area or interstate working in XX stays in the Premises.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 40-65

Reasons for decision

In this reasoning,

·  unless otherwise stated, 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 40-65 provides that sales of residential premises are input taxed (ie there is no requirement to pay GST or entitlement to claim GST credits) to the extent the property is residential premises to be used predominantly for residential accommodation. However, the supply is not input taxed to the extent that the residential premises are 'commercial residential premises'.

The Premises have the elements of shelter and basic living facilities required to satisfy the definition of 'residential premises' in section 195-1 as outlined in paragraphs 9 and 15 of Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises.

However, we need to consider whether the supply of the Premises is a supply of commercial residential premises as this would exclude the supply from the input taxed treatment provided by section 40-65.

The term 'commercial residential premises' is defined in section 195-1 to include amongst other things:

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

(b) ...

...

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

Guidance on whether premises are characterised as commercial residential premises is provided in Goods and Services Tax Ruling GSTR 2012/6 Goods and service tax: commercial residential premises.

Paragraph 11 of GSTR 2012/6 explains that:

The tests to be applied are whether the premises are a hotel, motel, inn, hostel or boarding house for the purposes of paragraph (a), 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 for the purposes of paragraph (f). These tests necessarily raise questions of fact involving matters of impression and degree.

It is considered that your Premises do not meet the description of hotel, motel or inn or something similar to those types of premises as set out in GSTR 2012/6. Of relevance is whether the Premises are a hostel, boarding house or something similar.

The Premises were operating when sold. Objective factors relevant to characterising premises that fall within either paragraph (a) or (f) of the definition include the overall physical character and how the premises are operated. A comparison will be made to the features of hostels and boarding houses as set out in paragraphs 26 to 40 of GSTR 2012/6.

Paragraphs 26 to 35 of GSTR 2012/6 state:

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.

In your case, the physical characteristics of the Premises, including communal kitchen, dining, laundry and bathroom facilities reflect a design to supply accommodation at a comparatively low cost. However, there is no reception and the operation of the Premises did not include supervision or onsite management.

As discussed above, in determining whether the premises are a hostel or something similar, it is a question of fact involving matters of impression and degree. Consequently, on balance, we do not consider the Premises to be a hostel or something similar to a hostel.

Paragraphs 36 to 40 of GSTR 2012/6 state:

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

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.

In your case, the physical characteristics of the Premises include a kitchen with a commercial oven, XX stove tops and XX dining tables. However, it is a shared kitchen and the operation of the Premises did not include the provision of board (meals) to residents.

As discussed above, in determining whether the premises are a boarding house or something similar, it is a question of fact involving matters of impression and degree. Consequently, on balance, we do not consider the Premises to be a boarding house or something similar to a boarding house.

Further, paragraphs 41 and 42 of GSTR 2012/6 outline a list of factors that may indicate that premises are not a hotel, motel, inn, hostel, boarding house or similar premises:

(a) the operator and occupant agree for accommodation to be supplied for a periodic term (which may be for a period of months or years at a time), such as in a residential lease;

(b) the operator and occupant document the condition of the premises under a written contract before the accommodation is initially supplied and when the occupant ceases to occupy premises;

(c) the operator has the right to impose a cleaning fee on the occupant when the occupant ceases to occupy the premises;

(d) the occupant is permitted, subject to the terms of the lease or licence, to alter the part of the premises occupied by the occupant, such as by attaching hanging devices on a wall;

(e) the occupant is permitted, subject to the terms of the lease or licence, to keep pets in the premises;

(f) the occupant must separately arrange and pay for the connection of a telephone, electricity, or gas service;

(g) the occupant is responsible for the cleaning and minor maintenance of the premises, such as changing light bulbs in their room;

(h) the premises are unfurnished; and

(i) the right to occupy the residential premises is supplied to the occupant in exchange for the occupant loaning an amount to the operator together with other fees. See Example 1 at paragraph 43 of this Ruling.

42. The absence of the features set out in paragraph 41 of this Ruling does not, of itself, mean that premises are, or are similar to, a hotel, motel, inn, hostel, or boarding house. Similarly, the presence of some of these factors does not necessarily mean that the premises are not commercial residential premises. As stated at paragraph 11 of this Ruling, determining whether premises fall within either paragraph (a) or (f) of the definition involves matters of impression and degree.

In this case, your operation of the Premises involved the supply of furnished accommodation under a tenancy-type arrangement through a real estate agent. There are insufficient aspects of the arrangement to support the view that the supplies made fall within the character of commercial residential premises for the purposes of the GST Act.

Conclusion

We do not consider the Premises are commercial residential premises as outlined in GSTR 2012/6.

Therefore, your supply of the Premises is an input taxed supply in accordance with section 40-65.

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