Edited version of private advice

Authorisation Number: 1051744745676

Date of advice: 25 August 2020

Ruling

Subject: GST and property

Question 1

Will Entity A make a taxable supply of accommodation in commercial residential premises, pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), in providing accommodation to students and young professionals at the Property?

Answer

Yes. The supply will be a taxable supply unless a choice is made under section 87-25 of the GST Act.

Question 2

If the Entity A is considered to be making a taxable supply of accommodation in commercial residential premises, will the supply fall within the scope of Section 87-5 of the GST Act with a 50% concession applied to GST charged.

Answer

Yes. Provided no choice is made under Section 87-25 of the GST Act not to apply the concessional GST treatment in calculating the GST payable on the supplies (and treat the supplies as input taxed)

This ruling applies for the following period - GST

1/09/2020 - 21/08/2024

The scheme commences on

16 June 2017

Relevant facts and circumstances

Entity A purchased land on XXYYYY (the Property/Premises), to construct residential units for sale.

Entity A is registered for GST. The Directors of Entity A have experience in the student accommodation sector.

You provided a history of the site from purchase in YYYY

·         Purchased as a development site in YYYY.

·         Planning and Development Approvals submitted and worked through over a X month period for residential units with some commercial product on ground floor. First approval from council issued XXYYYY

·         Changed plans submitted to council and approved XXYYYY (for existing approval)

·         Development marketed, however presale levels not achieved to be able to seek funding for construction.

·         No construction has commenced.

·         Given current market conditions company has decided to change development into student / rooming accommodation.

·         New plans drawn up with DA to be submitted to council after confirmation of GST status.

The development is within X kms of a choice of university education providers but not located within the grounds of any educational institution.

Although Entity A originally acquired the Property to develop and sell residential units they have now decided to let the units to students and young professionals.

The proposed development will incorporate a mix of purpose-built student accommodation and accommodation to suit long-term rooming agreements for young professionals.

It is proposed that the development will consist of X apartments in a dual key configuration which will yield X lettable bedrooms. There will be X commercial tenancies and X recreation areas to incorporate a common study area, gym and a potential coffee-shop. The current proposal is a redraft of an earlier submission for development approval and will be resubmitted to Council.

The apartments will be self-contained furnished tenancies including a bed, kitchenette, en-suite bathroom and TV desk. Each dual key 'set' has a shared laundry with washing machine and dryer in a small lobby.

An onsite caretaker and manager will supervise and manage the facility.

Tenancy Agreements / Rooming Agreements

Only rooming agreements will be entered into. Standard Residential Tenancy Agreements can't be entered into as they will not meet the definition of a dwelling due to shared laundries and other facilities.

Costs Covered under Rooming Agreements

The following costs will be included in the amount paid for occupying the room:

·         Electricity

·         Water

·         Hot Water (gas)

·         Internet

·         Air Conditioning

·         Furniture (ie they are furnished rooms)

·         Appliances (fridges and Microwaves + cooking)

All rooms will be offered under the same terms regardless if the occupier is a student or young professional.

Typical length of occupancy will either be for 26 or 52 weeks dependent on the student's study requirements or young professionals' decision to commit to a fixed term agreement.

More than 90% of the individual stays will be for a period of 28 days or more.

Sample floor plans and the Entity B Management proposal have been provided in support of this ruling application.

In XXYYYY, Entity A engaged Entity B to submit a management proposal to manage the proposed accommodation. Entity B is a specialist management company that works in association with universities and health care providers to offer rooming accommodation to students and young professionals throughout the area.

Entity B will manage the Property as agent for Entity A and will enter into rooming agreements with tenants for terms generally greater than 28 days on behalf of Entity A.

Entity B will be responsible for marketing the property to ensure maximum occupancy for the full calendar year. Their website will list the property should availability come to hand in conjunction with various other channels through the university and student associations. Entity A will also market to young professionals within the CBD.

GST will be claimed on the input tax credits associated with the construction and operation of the facility. The entity will not be making a choice pursuant to section 87-25 of the GST Act to treat the supplies of accommodation as input taxed.

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 Section 40-35

A New Tax System (Goods and Services Tax) Act 1999 Section 87-5

A New Tax System (Goods and Services Tax) Act 1999 Section 87-2

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

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

Question 1

Will Entity A make a taxable supply of accommodation in Commercial Residential premises, pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), in providing accommodation to students and young professionals at the Premises?

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

Section 9-5 provides that you make a taxable supply if:

·         you make the supply for consideration; and

·         the supply is made in the course or furtherance of an enterprise that you carry on; and

·         the supply is connected with the indirect tax zone (Australia); and

·         you are registered or required to be registered for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

You meet the positive requirements of section 9-5 and your supplies are not GST free. Therefore, your supplies of accommodation will be taxable unless the supplies are 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 the entity that owns or controls the commercial residential premises) is input taxed.

Under subsection 40-35(2), the supply is input taxed only 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 to be occupied, and is capable of being occupied as a residence or for residential accommodation (regardless of the term of occupation or intended occupation).

Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) outlines the characteristics of residential premises.

Paragraph 9 of GSTR 2012/5 explains that the requirement in section 40-35 that premises be 'residential premises to be used predominately 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. Further, paragraph 15 of GSTR 2012/5 states that to satisfy the definition of residential premises, premises must provide shelter and basic living facilities.

In your case, the apartments satisfy the definition of 'residential premises' as the apartments provide shelter and basic living facilities.

We will now consider whether the supply of accommodation in your premises meets the exemption found in section 40-35 to the input taxed treatment of a supply of accommodation.

Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises (GSTR 2012/6) sets out the ATO view on how GST applies to supplies of commercial residential premises and supplies of accommodation in commercial residential premises.

Paragraph 8 of GSTR 2012/6 states that a supply by way of sale or lease of commercial residential premises is a taxable supply. A supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises is also a taxable supply.

In your case, the supply of accommodation to students and young professionals at the Premises involves a number of parties (you, Entity B and the third-party occupant).

Who is supplying the accommodation?

In your case, we need to determine whether the rights conferred under the proposed management agreement you plan to enter into with Entity B, indicate that an agency relationship does exist (as expressly stated) in relation to the supply of the accommodation in each apartment. Alternatively, whether the rights conferred on Entity B under the proposed management agreement are sufficient to enable Entity B to supply the accommodation in each apartment in their own right.

Having regard to the guidance in paragraphs 28 and 32 of Goods and Services Tax Ruling GSTR 2000/37 Goods and services tax: agency relationships and the application of the law (GSTR 2000/37), paragraphs 223 to 227 of GSTR 2012/6 and considering the arrangement in its entirety including the language and terminology used in the proposed management agreement, we consider that there is a principal and agent arrangement between you and Entity B.

That is, Entity B is marketing, leasing, and managing the apartments in their capacity as your agent and do not have the degree of control over the premises necessary to be considered to be supplying the accommodation to residents in their own right.

Given you are the entity making the supply of accommodation to the residents through an agent (Entity B), the next issue to consider is whether your supplies of accommodation to residents fall within the exception in paragraph 40-35(1)(a), being a supply of accommodation in commercial residential premises.

Commercial residential premises are 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).

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.

As stated in paragraphs 140 and 141 of GSTR 2012/6, the terms hotel, motel, inn, hostel and boarding house are not defined in the GST Act and therefore take their ordinary meaning in context. The Macquarie Dictionary 5^th Edition provides the following definitions:

Hotel a building in which accommodation and food, and alcoholic drinks are available.

Motel a roadside hotel which provides accommodation for travellers in self-contained, serviced units, with parking for their vehicles.

Inn a small hotel that provides lodging, food etc., for travellers and others

Hostel a supervised place of accommodation, usually supplying board and lodging provided at a comparatively low cost, as one for students, nurses, etc.

Boarding house a dwelling in which lodging is provided to paying residents who share common facilities such as a kitchen, laundry, living room, etc.

a dwelling, usually a private house, in which board and lodging are provided for payment.

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.

Paragraphs 10 and 11 of GSTR 2012/6 provide that the tests to be applied in determining whether premises fall within either paragraph (a) or (f) of the definition of 'commercial residential premises' necessarily raise questions of fact involving matters of impression and degree which include consideration of the overall physical character of the premises together with how the premises are operated.

Paragraph 25 of GSTR 2012/6 states 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. It is not sufficient to only consider the features of part of the premises, such as an individual room, in which accommodation is provided.

An observation made by Emmett J at in the Full Federal Court decision of South Steyne Hotel Pty Ltd v. Federal Commissioner of Taxation FCAFC 155 supports this contention:

A hotel, motel, inn, hostel or boarding house consists of more than the rooms or apartments that are occupied by guests. It must also of necessity include common areas such as reception areas, dining areas, car parks and the like, such as were the subject of the management lot. The supply that consisted only of the rooms or apartments or accommodation units in a hotel complex is not, without those other areas, the supply of commercial residential premises.

Paragraph 12 of GSTR 2012/6 identifies a number of characteristics common to those exhibited by 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 of guests.

In your case, the premises are not currently operating but are still in the planning stage. Paragraphs 86 and 87 of GSTR 2012/6 provide the following guidance:

Characterising premises that are not operating

86. Premises may be characterised under paragraphs (a) or (f) of the definition of commercial residential premises when they are not operating. Premises that are not being operated at the time of supply may be classified by their overall physical character, considered with other objective characteristics.

87. Evidence that may objectively indicate whether premises are a hotel, motel, inn, hostel or boarding house includes:

* the premises' physical characteristics,

* architectural plans and drawings,

* contractual documentation that provides evidence of how the premises will be used in the future, or

* council or other government planning and zoning restrictions and approvals and permissions

These types of evidence may be relevant where the premises have been newly constructed and not yet operated...

The 'premises' to be considered relate to your intended supply of accommodation to students and young professionals at the Premises.

Paragraphs 26 to 40 of GSTR 2012/6 provide the following detail on the characteristics of hostels and boarding houses:

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.

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.

There are a number of similarities between your Premises and the description of boarding houses and hostels. Based on the description of these types of premises in GSTR 2012/6, the premises mostly closely resemble the physical characteristics of a hostel/boarding house. This has been based on the documentation supplied in relation to your ruling request detailing the planned physical and operating characteristics of the premises:

The relevant documents provide that there will be X apartments in a dual key configuration which will yield X furnished lettable rooms including a bed, kitchenette, en-suite bathroom, TV and desk. Each dual key 'set' has a shared laundry with washing machine and dryer in a small lobby.

There will be X commercial tenancies and X recreation areas incorporating common study area, gym and potential coffee shop.

Entity B will manage the Property as agent for Entity A and will enter into rooming agreements with tenants for terms generally greater than 28 days. The tenancy rooming agreements will include electricity, water, hot water, broadband internet, cleaning of common areas and on-site managers. The rent paid by the tenants covers all of the usage costs.

An onsite caretaker and manger will supervise and manage the facility.

Typical length of occupancy will be either for 26 or 52 weeks dependent on the student's study requirements or young professionals' decision to commit to a fixed term tenancy. More than 90% of the individual stays will be for a period of 28 days or more.

Further, in considering the description of these types of premises in GSTR 2012/6, the premises most closely match the physical description of a hostel/boarding house as the Premises and arrangement reflect:

·         Commercial intention

The Property will be operated by Entity A in a business-like manner as the purpose of the Property will be to earn a profit by providing accommodation to students and young professionals working in nearby employment hubs.

·         Multiple occupancy

The Property will have approximately 48 rooms so the Property will clearly be able to provide occupancy to a large number of unrelated people in separate rooms.

·         Holding out to the public

The Property will be available to the public and will be marketed to a significant segment of the public, namely tertiary students and young professionals.

·         Accommodation is the main purpose

The main purpose of the Property is to provide accommodation under rooming agreements.

·         Central management

Entity B on behalf of Entity A, will act as the central management for the Property. Entity B will operate a reception, will organise maintenance, cleaning and security of the Property and will organise for an onsite manager for after-hours requests.

·         Occupants have the status as guests

The students may or may not have their principal place of residence elsewhere and this would depend on their own personal circumstances. A student who stays for a semester may (or may not) maintain their principal place of residence elsewhere during that period. Conversely, a student or young professional may stay for years, and not maintain any other principal place of residence during that period.

Conclusion

Based on the information you have provided and as discussed above, we consider the Premises most closely resemble a hostel or boarding house.

However, unlike a hostel or boarding house, you have advised that the rooming agreements entered into between Entity B and the students or young professionals will be for relatively longer periods than those of a hostel or boarding house. Such written rooming agreements are not usually the norm in hostels and boarding houses.

For this reason, we do not consider the premises to fall within paragraph (a) of the definition of commercial residential premises in section 195-1. However, as the premises physical characteristics closely resemble those of a hostel or boarding house, we consider it falls within paragraph (f) of that definition. The physical characteristics of the premises indicate that it has been constructed for the provision of supervised accommodation to students and young professionals. Consequently, we consider that the premises are commercial residential premises.

Your supplies of accommodation to students and young professionals will therefore be supplies of accommodation in commercial residential premises. You further do not intend to use the premises to provide accommodation to students in connection with an education institution that is not a school[1].

With reference to subparagraph 40-35(1)(a), as you own the premises and control its operation and management via Entity B as your agent, there is a "supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises." Your supply of accommodation will therefore not be input taxed but a taxable supply.

Question 2

If the Entity B is considered to be making a taxable supply of accommodation in commercial residential premises, will the supply fall within the scope of Section 87-5 of theGST Actwith a 50% concession applied to GST charged.

Division 87 deals with long-term stays in commercial residential premises which are given a lower value than would otherwise apply, reducing the amount of GST payable.

Section 87-5 provides that:

The value of a taxable supply of commercial accommodation that:

(a)  is provided in commercial residential premises that are predominantly for long-term accommodation; and

(b)  is provided to an individual as long-term accommodation;

is 50%, or such other percentage as is specified in the regulations, of what would be the price of the supply if this Division did not apply.

Commercial accommodation is defined in section 87-15 to mean 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.

You have advised that the charges for electricity, gas, telephone and internet, cleaning of common areas and on-site management is included in the tariff they are charged. Further, we have already established in Question 1 that the premises are commercial residential premises. We therefore consider that you will be providing commercial accommodation.

Subsection 87-20(1) provides the meaning of 'long term accommodation':

Long-term accommodation is provided to an individual if *commercial accommodation is provided, for a continuous period of 28 days or more, in the same premises:

(a)  to that individual alone; or

(b)  to that individual, together with one or more other individuals who:

i.      are also provided with that commercial accommodation; and

ii.     are not provided with it at their own expense (whether incurred directly or indirectly).

The term predominantly for long-term accommodation is defined in subsection 87-20(3) which provides that commercial residential premises are predominantly for long-term accommodation if at least 70% of the individuals who are provided with commercial accommodation in the premises are provided with commercial accommodation as long term accommodation.

You have advised that the typical length of occupancy is either 26 or 52 weeks dependant on the students study requirements or young professionals' decision to commit to a fixed term agreement. More than 90% of the individual stays will be for a period of 28 days or more. The accommodation you will provide will therefore be long term commercial accommodation.

Consequently, the value of your supplies of accommodation in the facility will be 50%, or such other percentage as is specified in the regulations, of what would be the price of the supply if Division 87 did not apply.

[1] GSTR 2012/6 Paragraphs 215 to 217

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