Edited version of private advice

Authorisation Number: 1052226677047

Date of advice: 8 March 2024

Ruling

Subject: GST - supply of accommodation

Question

Will the supply of the accommodation provided in the boarding house (the property) by the Trust, qualify as commercial residential accommodation in accordance with subdivision 40-B of the GST Act?

Answer

No. The supply of the accommodation in the boarding house, provided by the Trust, will be an input taxed supply of residential accommodation in accordance with section 40-35 of the GST Act.

This ruling applies for the following periods:

Financial year ending 30 June 2023 to

Financial year ending 30 June 2028.

The scheme commences on:

The date this private ruling is issued

Relevant facts and circumstances

The Trust holds an Australian Business Number (ABN) and is registered for goods and services tax (GST).

The Trust is building a boarding house and is intending to rent out the rooms to tenants.

The construction of the boarding house, commenced in XXXX.

The plans for the premises, provided as part of this private ruling application, show the following:

•         9 separate studio rooms each with an en-suite.

•         There is a sink and cabinetry with multiple power points in each room, but no cooking facilities.

•         The studio rooms are 25.5m² in size except for one which is 30.8m² in size

•         An open plan communal kitchen area with one oven and sink and living room area

•         A small laundry is situated at the end of the living room with a sink and 1 space for a washer/dryer.

You have also stated the following:

•         meals will not be provided to tenants

•         the kitchen located on premises is not set up as a commercial kitchen with multiple ovens and wash-up areas

•         the tenants will enter into a 6 to 12 month lease agreement

•         the services provided as part of the lease agreement will be internet connection and power usage

•         the tenant will not be required to arrange connection to services as this is included in the lease agreement

•         cleaning and laundry services are not included, there is a small laundry on site, or the tenants can choose to use an offsite facility

•         there will be no on-site manger

•         the studio rooms will be advertised for lease via various sites.

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 11-15

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 paragraph 40-35 (2)(a)

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

Reasons for decision

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

a)    you make the supply for consideration; and

b)    the supply is made in the course or furtherance of an enterprise you are carrying on; and

c)    the supply is connected with the indirect tax zone; and

d)    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.

Residential premises

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 (regardless of the term of occupation).

Under paragraph 40-35(1)(a), a supply of residential premises by way of lease, hire or licence is input taxed if the supply is of residential premises (other than a supply of commercial residential or a supply of accommodation in commercial residential provided to an individual by an entity that owns or controls the commercial residential premises).

However, paragraph 40-35(2)(a) provides that a supply is input taxed only to the extent that the premises are to be used predominately for residential accommodation (regardless of the term of accommodation).

The premises that are to be used predominately for residential accommodation (regardless of the term of occupation) is explained in Goods and Services tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5).

Paragraph 9 of GSTR 2012/5 states, that the term 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 states, that to satisfy the definition of residential premises, premises must provide shelter and basis living facilities. Premises that do not have the physical characteristics to provide these are not residential premises to be used predominately for residential accommodation.

The construction plans provided show that once the property is constructed, the studio rooms will have a bathroom, toilet and living area which includes sleeping facilities. There will not be a kitchen as such, however, there will be a sink and cabinetry included in all studio rooms with a number of power outlets. The studio rooms will be suitable and capable of being occupied for residential accommodation. Accordingly, when construction is completed and the Trust has secured leases, we consider the Trust will be making supplies of residential premises to be used predominately for residential accommodation. Paragraph 40-35(1)(a) is partly satisfied. Paragraph 40-35(2)(a) is satisfied.

Paragraph 40-35(1)(a) will only be satisfied if the supply of the premises is not characterised as a supply of commercial residential premises. It is therefore necessary to consider whether the premises you will supply will be commercial residential premises.

Commercial residential premises

Commercial residential premises are defined in section 195-1 and includes:

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

[...]

(f)    anything similar.

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 (GSTR 2012/6)

Paragraphs 10 and 11 of GSTR 2012/6 explain that the objective factors 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 to 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, in the sense that they have sufficient likeness to any of those types of establishments.

Paragraph 12 of GSTR 2012/6 lists the relevant characteristics that are considered to be common to operating hotels, motels, inns, hostels and boarding houses that are relevant, though not determinative, to characterising premises as commercial residential premises:

•         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; and

•         Occupants have the status as guests.

Paragraph 26 to 40 of GSTR 2012/6 set out the features 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 on-site 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 on 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 premise. However, the provision of meals is not an essential feature of a hostel.

Features of a boarding house

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.

At common law, a lease exists where one person contracts to give another a legal right to exclusive possession for a period that is certain. A lease is distinguished from a licence. A lessee obtains an interest in the property, a licensee does not.

Exclusive possession of a bedroom is not enough for a lease if the owner retains general control over the premises as a whole. Whether the owner retains control of the outer door has been held to be a relevant factor to determine whether they have retained dominion and control of the whole premises. An owner or manager living in the premises has also been considered relevant. Several cases have show that this test has been recognised and applied.

In Torrisi v Oliver [1951] VLR 380 the defendants occupied two rooms in the plaintiff's premises, one of which had no door, and they shared the use of the kitchen and other conveniences in common with occupants of other portions of the premises. The plaintiff did not reside on the premises but employed a manager to live there and manage the premises and maintain those parts used in common by the occupants. It was held that the defendants were not lodgers but tenants as they had a right to exclusive possession of their two rooms.

In Commissioner for Fair Trading v Voulon [2002] WASC 229 several premises with similar characteristics were considered. The premises had a key to the front door and a separate Key for each bedroom. The layout of the premises involved a number of bedrooms each occupied by a distinct tenant and common areas such as a kitchen, bathroom and laundry shared by occupants. The occupants were responsible for their own preparation of meals, laundry and cleaning. The landlord claimed to have control and would regularly access premises to check security and conduct inspections. The court characterised the occupants as tenants not lodgers.

Based on the information provided, we consider the studio rooms provided by the Trust in the property, will not display sufficient features of a hotel, motel, inn, hostel or boarding house or anything similar to be characterised as commercial residential premises.

There is no evidence from the information provided that there is a commercial infrastructure to support the commercial operation of the premises at the property. There will be no central management on site and residents will enter into a tenancy lease of 6 to 12 months which will give them the exclusive right to occupy a particular part of the premises in the same way as a tenant to whom a house or an apartment is leased. Board (meals) are not provided.

The nature of the accommodation is more permanent than what is common in hotels, motels, inns, hostels and boarding houses. There is no inherent transience to the nature of the accommodation. Occupants do not have the status of guests. Occupants of the premises will enter into a lease agreement and under Victoria state laws the requirements of the Victorian Residential Tenancy Act 1997 must be met. Therefore, occupants will obtain a right to exclusive occupation of their studio room in the same way as a tenant.

Conclusion

As a consequence, the property is not a hostel nor boarding house or similar to paragraph (a) or (f) of the definition in section 195-1.

The requirements of paragraph 40-35(1)(a) are fully satisfied and the supplies of accommodation will be an input taxed supply of residential accommodation. As the supplies are not taxable supplies under section 9-5, any acquisitions made in relation to the making of those supplies will not be creditable acquisitions to the Trust in accordance with section 11-15.

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