Edited version of private advice

Authorisation Number: 1052351359489

Date of advice: 28 April 2025

Ruling

Subject: GST - property - commercial residential premises

Question 1

Is the historic building redevelopment located at the Property, commercial residential premises within the meaning of section 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No.

Question 2

Is the development of the new buildings located at the Property, commercial residential premises within the meaning of section 195-1 of the GST Act?

Answer

No.

This ruling applies for the following period:

DD.MM.YYYY

The scheme commenced on:

DD.MM.YYYY

Relevant facts and circumstances

You are an Australian private company incorporated on the relevant date.

You are not registered for GST. You are redeveloping an historic building located at the Property, and the land on which it is situated.

In addition to your ownership of the Property, you have a range of other investments that generate passive income, such as relevant investments.

Redevelopment of the Property

The historic building at the Property is being redeveloped into accommodation suites, while a second development will consist of new buildings constructed at the same site.

The historic building presently contains relevant facilities which will be removed when this floor is converted to a bedroom suite.

When previously used as previous use, the historic building consisted of relevant areas and rooms.

Both the historic building and the new buildings will be made available for short-stay holiday rental accommodation.

•   Post development site plan

•   Post development historic building accommodation plans (Suite 1)

•   Post development new buildings

•   Post development new buildings

•   The historic building

The historic building will offer short-stay accommodation in the historic building suites that will include facilities and amenities.

Occupants will be able to book any number of the suites in the historic building on a per night basis.

Physical characteristics of the historic building

Relevant infrastructure runs from the ground floor to the upper levels, accessed on each floor by a lobby.

The historic building relevantly numbered floor suite has 2 levels and consists of a combined bedroom and sitting room area on the relevantly numbered floor with an ensuite bathroom.

The relevantly numbered floor of the historic building suite consists of a combined bedroom and sitting room area with an adjoining ensuite bathroom.

The relevantly numbered floor of the historic building suite consists of a combined bedroom and sitting room area with an adjoining ensuite bathroom.

The relevantly numbered floor of the historic building consists of a TV/living room plus a powder room off the lobby entrance to this level. The relevantly numbered floor is furnished with seating and a television screen. The TV/living room can be used by all occupants of the historic building suites.

The relevantly numbered floor of the historic building consists of a communal kitchen, dining and lounge area containing a commercial kitchen suited to curated chef experiences and catering, dining settings and a communal lounge area.

This shared-access floor will be available for use of all occupants of the suites and will be designed to take advantage of the historic building's views.

No kitchen or laundry facilities will be provided in any of the suites, and no communal laundry facilities will be provided in the historic building.

The following amenities will be provided for use by occupants of each suite, and are included in the daily tariff:

•   iron

•   hairdryer

•   device chargers

•   bathrobes.

•   tissues

•   shampoo

•   conditioner

•   shower caps

•   coffee and tea

•   fruit basket (or similar)

•   Wi-Fi internet service and/or pay TV.

All occupants of the historic building will also have shared access to the landscaped grounds of the Property (shared with the occupants of the new buildings).

Vehicle parking will be limited to relevant number unallocated spaces shared between the historic building suites and the new buildings. One parking space will be disability accessible.

The historic building will not be separately titled to the new buildings.

Operational characteristics of the historic building

Reading material outlining the management services and tours that are available broadly will be provided to occupants. This will include a range of chef options, guided personal tours and other offerings that will be able to be arranged privately or via the management service.

The historic building will not offer meals with the accommodation. However, occupants of the historic building suites can utilise the communal kitchen themselves or hire external chefs to use the kitchen on their behalf. The maximum occupancy for each historic building suite will be 2 people.

The anticipated average occupancy period of each suite will be for stays of 2-4 nights.

Many of the operational aspects of the historic building are still in the early planning stages; however, the proposed operations are detailed under 'General operational characteristics', below.

New buildings

The new buildings will likewise offer short-stay accommodation.

Occupants will be able to book any number of the new buildings on a per night basis.

Physical characteristics of the new buildings

Relevant number of the new buildings will each contain living areas on the ground floor plus relevant number bedrooms and a bathroom on the upper level.

One new building will be disability accessible and will include a lift between the ground floor and upper level. It will only have one bedroom but will otherwise be configured similarly to the other new buildings.

Kitchenette facilities in each new building will include a small fridge, a microwave, and limited utensils.

Each of the new buildings will provide laundry facilities in the form of a compact combination washer/drier.

The following amenities will be provided for use by occupants of each new building and are included in the tariff:

•   iron

•   hairdryer

•   device chargers

•   bathrobes.

•   tissues

•   shampoo

•   conditioner

•   shower caps

•   coffee and tea

•   fruit basket (or similar)

•   Wi-Fi internet service and/or pay TV.

There will be no common facilities apart from shared access to the landscaped grounds of the Property (shared with the occupants of the historic building).

New building occupants will not have access to the historic building communal facilities.

No additional communal facilities will be provided.

Vehicle parking will be limited to the relevant number unallocated spaces shared between the new buildings and the suites at the historic building.

The new buildings will not be separately titled, and the new buildings will not be separately titled from the historic building.

Operational characteristics of the new buildings

Magazine style tourism material will be provided in the new buildings so that occupants can see what amenities are in the area.

Some reading material outlining the services and tours that are available broadly will be provided to occupants. This will include a range of guided personal tours and other offerings that will be able to be arranged privately, or via the management service.

The maximum occupancy for each new building will be x people.

The anticipated average occupancy period of each new building will be for short stays of 2-4 nights.

The new buildings will not offer meals with the accommodation.

Many of the operational aspects of the new buildings are still in the early planning stages; however, the proposed operation is detailed under 'General operational characteristics', below.

General operational characteristics - both developments

General operational aspects of both the historic building and the new buildings at the Property will be as follows:

•   An online booking system will set out reservation, booking and short-stay occupation terms and conditions.

•   No bond will be payable upon occupation.

•   No holiday rental agreements (or similar) will be used.

•   Utilities will be included in daily tariffs.

•   There will be no onsite service desk, on-site manager, or onsite concierge and the location of an offsite external management service provider (management service) in relation to the Property has not yet been confirmed.

•   Occupants will raise queries with, or report issues that arise to, the management service which will be contactable via telephone or online and via an app which you will develop.

•   The suites at the historic building and the new buildings will be cleaned between occupants.

•   No separate charge will apply for cleaning services upon occupants vacating the accommodation.

•   Details of any other parties whose services will be engaged in relation to accommodation activities, and the frequency and time these might involve, are still being finalised. Budgets for resources and associated functions will be prepared as the development proceeds to completion.

•   Your existing website is still under development. Advertising and a more comprehensive website will be prepared in due course in consultation with your marketing partner/consultant.

•   The accommodation will be advertised via multiple sources as determined by your marketing partner/consultant, and will likely include a variety of sources, partners and travel agents specialising in high-end tourism and experiential travel.

The enterprise

You will conduct the short-term leasing enterprise at the Property via the management service you engage.

The management service will greet occupants on-site when guests arrive.

The management service will coordinate bookings, cleaning, maintenance, gardening, and other general operations, as well as offers of various customised services, including inhouse chefs, winery tours, and local food and beverage packages.

Accommodation at the Property will be arranged via a variety of booking platforms, selected higher end travel agents, and experiential companies.

Accommodation at the Property will be marketed to a worldwide audience, with marketing designed to attract higher-end travellers. A professional marketing organisation has been engaged to manage and plan the marketing and public relations relating to the accommodation at the Property.

The Property will be available for events use, such as conferences and weddings.

Reasons for decision

Detailed reasoning

Taxable supply

Section 9-5 provides that 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 that you carry on; and

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

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

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

In this case, your supply of accommodation at the Property will be made for consideration (payment of a daily tariff) and will take place in Australia, in satisfaction of subsections 9-5(a) and (c).

It is uncontroversial that the supply will be made in the course or furtherance of an enterprise that you carry on, satisfying subsection 9-5(b).

As you are not registered for GST, it remains to be determined whether your supply of accommodation at the Property will be GST-free or input-taxed, or whether it will be taxable, and you might therefore be required to be registered for GST.

The circumstances in which a supply is GST-free or input taxed are found in Divisions 38 and 40 respectively.

Division 38 contains no provisions under which your supply of accommodation at the Property would be GST-free.

Accordingly, we will now consider whether your supply of accommodation at the Property will be input taxed residential premises or commercial residential premises pursuant to Division 40.

Residential premises

Residential premises is defined in section 195-1 as land or a building that:

(a)   is occupied as a residence or for residential accommodation; or

(b)   is intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation;

(regardless of the term of occupation) and includes a floating home.

The Commissioner's view on whether premises are considered residential premises is provided in Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises.

The terms 'residence' and 'residential accommodation' are not defined in the GST Act and each term takes its ordinary meaning in context.

Paragraphs 9 and 10 of GSTR 2012/5 explain the single test that examines the physical characteristics of the property to determine the premises' suitability and capability for residential accommodation, as follows:

9. The requirement in sections 40-35, 40-65 and 40-70 that premises be 'residential premises to be used predominantly for residential accommodation (regardless of the term of occupation)' 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.

10. The requirement for residential premises to be used predominantly for residential accommodation does not require an examination of the subjective intention of, or use by, any particular person. Premises that display physical characteristics evidencing their suitability and capability to provide residential accommodation are residential premises even if they are used for a purpose other than to provide residential accommodation (for example, where the premises are used as a business office).

Paragraphs 14 to 24 of GSTR 2012/5 discuss the requirements of shelter, basic living facilities, and that premises must be fit for human habitation.

15. To satisfy the definition of residential premises, premises must provide shelter and basic living facilities. Premises that do not have the physical characteristics to provide these are not residential premises to be used predominantly for residential accommodation.

...

20. Premises must be fit for human habitation in order to be suitable for, and capable of, being occupied as a residence or for residential accommodation. An objective consideration of the relevant facts and circumstances determines whether residential premises are fit for human habitation. Residential premises are not fit for human habitation when they are in a dilapidated condition which prevents them being occupied for residential accommodation.

Based on the information you supplied, the Property provides habitable shelter and basic living facilities in the form of bedrooms, bathrooms, and kitchen facilities, dining areas and living areas.

The architectural plans and drawings for the historic building and the new buildings and provided with your application, demonstrate that the Property is fit for human habitation, and that it is intended to be occupied and is capable of being occupied as residential accommodation.

In this case, both the historic building and the new buildings have the physical characteristics suitable and capable of providing the basic living facilities to be used for residential accommodation and satisfy as residential premises to be used predominantly for residential accommodation (regardless of the term of occupation). Considering the above, the Property satisfies the definition of 'residential premises.

We will now examine whether the historic building suites or the new buildings will meet the section 195-1 definition of commercial residential premises.

Commercial residential premises

Commercial residential premises are 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).

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.

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 (GSTR 2012/6) sets out the ATO view on how GST applies to supplies of commercial residential premises and to accommodation in commercial residential premises.

Paragraph 9 of GSTR 2012/6 provides that the individual terms hotel, motel, inn, hostel, and boarding house in paragraph (a) of the definition are not defined in the GST Act and therefore take their ordinary meanings in context.

The Macquarie Dictionary 5th 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 all share the common attribute of providing accommodation to guests.

Paragraph 143 of GSTR 2012/6 provides that while paragraph (f) extends the scope of the definition, its operation is limited to premises that have some or all the characteristics of both residential premises and one of the classes of premises listed in paragraphs (a) to (e) of the definition.

Paragraph 145 of GSTR 2012/6 provides that premises that fall within paragraph (f) may be described as something other than those premises listed in paragraphs (a) to (e), for example, a 'resort' or 'serviced apartments'. These premises are commercial residential premises if they are used in a particular way.

Premises that are 'similar' to establishments that are commercial residential premises must have sufficient characteristics in common with the class of premises described.

Paragraph 11 of GSTR 2012/6 provides in this regard:

Characteristics of operating hotels, motels, inns, hostels, boarding houses or similar premises

11. 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.[1]

In this case, you took possession of the Property at a time when there were no occupants residing at the Property and no accommodation business was operating.

Paragraphs 86 and 87 of GSTR 2012/6 provide, in respect of characterising premises that are not operating:

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. Where these indicators reveal that the premises have been specifically constructed for a different purpose (for example, to be used as a retirement village), or not designed as a hotel, motel, inn, hostel, boarding house or similar premises, the non-operating premises are not commercial residential premises.

Physical and design characteristics of the property

You have provided copies of pre- and post-development plans and architectural drawings of the Property.

The Property will have the following physical and design characteristics when completed:

Suite 1 is a multi-storey historic building, and will comprise:

•   relevant number suites, each with a bed, a private sitting area, and a private bathroom;

•   a communal TV/living area;

•   a communal kitchen, dining, and lounge area;

•   relevant part of building which is not accessible to occupants of the building.

The second development consists of new buildings each comprising:

•   relevant numbers bedrooms;

•   a bathroom;

•   a kitchenette;

•   a dining area;

•   a lounge/living area; and

•   laundry facilities.

Paragraph 12 of GSTR 2012/6 sets out some common characteristics of hotels, motels, inns, hostels, boarding houses, or similar premises. These are:

•   Commercial intention: The premises are operated on a commercial basis or in a business-like manner even if they are operated by a non-profit body.

In this case, the Property will be operated on a commercial basis, in a business-like manner.

•   Multiple occupancy: The premises have the capacity to provide accommodation to multiple, unrelated guests or occupants at once in separate rooms, or in a dormitory.

In this case, the accommodation at the Property will be capable of being rented to multiple, unrelated occupants in separate suites.

•   Holding out to the public: The premises offer accommodation to the public or a segment of the public.

In this case, while the accommodation at the Property will be marketed towards attracting higher end travellers, it will nonetheless be available for rent by the general public at large.

•   Accommodation is the main purpose: Providing accommodation is the main purpose of the premises.

In this case, it is uncontroversial that the provision of accommodation will be the main purpose of the Property. Each historic building suite and each new building will be fully furnished and comprised of bedrooms, living areas, and private bathrooms.

•   Central management: The premises have central management to accept reservations, allocate rooms, receive payments, and perform or arrange services. This can be provided through facilities on-site or off-site.

In this case, there will be central management of leasing accommodation at the Property via the off-site, external management service, which will be responsible for accepting reservations, allocating rooms, receiving payments, and performing or arranging other general management-related services.

•   Management offers accommodation in its own right: The entity operating the premises supplies accommodation in its own right rather than as an agent.

In this case, you will not offer accommodation in your own right, but through an external management service.

•   Provision of, or arrangement for, services: Management provides guests and residents with some services and facilities or arranges for third parties to provide them.

In this case, you will not directly provide guests at the Property with any services. There will be no reception desk, restaurant or bar at the Property, and you will not offer room service, food, laundering services, wake-up calls, or any other services. However, the management service you engage will be able to arrange for third parties to provide various outsourced services at the request of guests.

•   Occupants have status as guests: Predominantly, the occupants are travellers who have their principal place of residence elsewhere. The occupants do not usually enjoy an exclusive right to occupy any particular part of the premises in the same way as a tenant.

In this case, occupants of the Property will have the status of guests. The occupants will occupy the suites on a temporary basis, before returning to their principal place of residence elsewhere. The occupants will not enjoy an exclusive right to occupy any part of the premises like, for example, a tenant to whom an apartment is let on a longer-term basis. The occupants will not have any long-term letting arrangement, but rather be charged at a daily rate multiplied by the number of days of occupancy.

Furthermore, GSTR 2012/6 contains additional specific physical and design characteristics that particular categories of premises typically exhibit, as follows.

Hotels, motels, and inns

Paragraphs 13 to 25 of GSTR 2012/6 describe features that are typical of hotels, motels, and inns.

Specifically in relation to hotels, GSTR 2012/6 provides at paragraphs 21 and 22:

21. Hotels usually have a reception desk to handle the requirements of both management and guests, particularly when guests check in or check out of the establishment. Hotels may also offer concierge services either at the reception desk or at a separate concierge's desk.

22. Hotels do not normally provide shared accommodation to guests in the sense of having a number of unrelated guests sharing a kitchen and living facilities.

In this case, the Property has no reception desk, concierge desk or similar infrastructure from which reception or concierge services will be operated. Further, unrelated historical building guests may share communal facilities provided in the TV/living room and/or the kitchen, dining and lounge area.

Some other differences between 'hotels, motels, and inns', or similar premises, and the Property are set out below:

•   Hotels usually offer meals to guests. They will usually have a kitchen where meals are prepared for guests. The premises will usually include a restaurant or a dining room for guests.

In this case, although there is a communal kitchen and dining area in the historical building, the Property does not provide meals and has no restaurant. It also has no bar, or other infrastructure capable of providing alcoholic drinks. The new buildings are self-contained and have no access to the historical building communal kitchen and dining area.

•   A motel is a particular type of hotel that primarily caters to the needs of motorists seeking serviced roadside accommodation, with parking for their vehicles.

In this case, the Property is not directly serviced in the sense that commercial motels are serviced and does not have designated car parking spaces for each of the historic building suites or for each new building, indicating that it will not primarily cater to the needs of motorists seeking roadside accommodation.

•   An inn is a small hotel at which board (meals) and lodging (accommodation) are provided to travellers. Inns usually offer meals to guests. They will usually have a kitchen where meals are prepared for guests. The premises will usually include a restaurant or a dining room for guests.

In this case, the Property offers lodging but not meals, and has no restaurant, bar or any other infrastructure capable of providing food and alcoholic drinks, as inns commonly do.

On balance, based on its overall physical characteristics, the premises does not have the commercial infrastructure of a hotel, motel or inn. As these basic design characteristics are lacking, we will not examine these categories further.

Hostels

Paragraphs 26 to 35 of GSTR 2012/6 describe features which are typical of hostels.

It is not in contention whether the Property is similar to a hostel and based on its overall physical characteristics, the Property is not a hostel or similar to this type of commercial residential premises.

Boarding houses

Paragraphs 36 to 40 of GSTR 2012/6 describe features which are typical of boarding houses.

It is not in contention whether the Property is similar to a boarding house, and based on its overall physical characteristics, the Property is not a boarding house or similar to this type of commercial residential premises.

Overall impression

Paragraph 41 of GSTR 2012/6 provides (in part):

41. Ultimately, whether premises are commercial residential premises is a matter of overall impression involving the weighing up of all relevant factors. ...

Paragraph 193 of GSTR 2012/6 notes that there is a relationship between residential premises and some commercial residential premises in the GST Act. In some cases, there may be an overlap in that some premises which fit within the definition of residential premises also fit within the definition of commercial residential premises.

However, paragraph 95 of GSTR 2012/6 states:

95. In addition to living accommodation areas, premises that are commercial residential premises include commercial infrastructure to support the commercial operation of the premises. This infrastructure may include (but is not limited to) reception areas, dining and bar areas, meeting/function areas, kitchens, laundry facilities, storage areas and car parks. This infrastructure is used to provide services to occupants. Premises described in paragraph (a) and similar premises under paragraph (f) of the definition contain some or all of these areas to some degree.

In your case, you are supplying accommodation to guests in the historical building suites and new buildings with no infrastructure or services such as a restaurant or bar, meals, room service, commercial laundry facilities or on-site reception desk.

Accordingly, having weighed up all relevant factors including the physical and operating characteristics of the lease of the premises, and the lack of sufficient commercial infrastructure supplied, we have determined that the Property will not meet the requirements of commercial residential premises as defined in section 195-1.

That is, your supply of rental accommodation at the Property is not a taxable supply under section 9-5 and GST is not payable on the supply.

Therefore, your supply of rental accommodation at the Property will be an input taxed supply of residential premises to be used predominantly for residential accommodation, as determined earlier in this ruling and as provided by section 40-35, detailed below.

40-35 Residential rent

(1) A supply of premises that is by way of lease, hire or licence (including a renewal or extension of a lease, hire or licence) is input taxed if:

(a) the supply is of residential premises (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);

...

(2) However:

(a) the supply is input taxed only to the extent that the premises are to be used predominantly for residential accommodation (regardless of the term of occupation); and

(b) the supply is not input taxed under this section if the lease, hire or licence, or the renewal or extension of a lease, hire or licence, is a long-term lease.

Conclusion

The application of all the factors referenced above indicate that the Property is not a hotel, motel, inn, hostel, boarding house (per paragraph (a)) or similar to these types of premises (per paragraph (f)).

Based on the facts in this case, your supply of any accommodation at the Property will be an input-taxed supply of rental accommodation in residential premises pursuant to section 40-35.

[1] See ECC Southbank Pty Ltd as Trustee for Nest Southbank Unit Trust v Commissioner of Taxation [2012] FCA 795 (ECC) at [50].

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).