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Ruling

Subject: GST and supply of accommodation

Question 1

Are you liable for GST in respect of the supply of accommodation to guests who stay at the resort?

Answer 1

Yes

Question 2

Are you liable for GST in relation to the supply of agency services and housekeeping services to the lessor or the sublessors of the villa units?

Answer 2

No. In light of the answer to question 1, this question does not need to be addressed

Relevant facts and circumstances

You were appointed as Receivers and Managers of company X ('X').

Prior to your appointment X was conducting an enterprise of supplying accommodation to travellers at a resort. You have continued the enterprise of X up until the current date in the same manner that it was operated prior to your appointment.

Your tax agent supplied the following information in relation to X:

X is registered for GST and it conducts an enterprise of managing and operating a resort.

A related entity, Y is the owner of the resort.

Y initially granted a long term lease of the land on which the villa units are situated and a separate lease for the common areas to X. Under the lease agreement for the villas, the lessor was entitled to assign its rights entitlements and obligations to another, subject to certain conditions.

Y progressively assigned the long term leases in respect of a number of the villa units to investors (referred to in the agreements as villa owners) by executing a sub lease agreement between it and the 'villa owners'. The long term sub leases correspond with the end of the lease by Y to you. The sub leases of the villas under the long term leases to the 'villa owners' are conditional on the 'villa owners' granting a sub-lease of the villa units to X.

X leases a certain number of the villas owned by Y and subleases the remaining villas from the sublessors.

The resort comprises individual villa units and entertainment and common areas for the use of the guests. The villas contain bedrooms, kitchens, bathrooms and laundries.

The services that are available to guests are provided through employees and subcontractors under Xs control. Resort management is located on site on a 24 hours basis however a 3^rd party 24 hour hotline is also available to all guests who require assistance or additional services. Cleaning services are performed once per guest stay and are provided by onsite staff on a full time basis. Guests do not receive daily cleaning of their villas. Additional services such as linen laundering are outsourced by the resort.

A copy of a sample 'villa owner' statement was supplied. These monthly statements show the allocation of guest rentals to each villa along with the associated deductions, cleaning, management fees and any applicable rebates. The statement reflects that services are provided to the 'villa owners' with GST charged on the supply of the 'commission' and the 'cleaning' services. The charges for the accommodation are treated as non taxable consideration because X considers that it collect this fee as agent for the 'villa owners'. Therefore GST is not charged on the accommodation fee paid by the guest.

Copies of the following agreements were supplied:

A. The Lease from Y (lessor) to X (lessee) of the land on which the villa units are situated, dated 1 July 2005;

B. The Lease from Y (lessor) to X (lessee) of that part of the property comprising the common areas of the site; and

C. A standard sub-lease of a villa between the sublessor and X as the sublessee.

Your tax agent has advised that there are no other agreements or documents held in relation to the arrangements between the lessor and the sublessors of the villa units.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 40-35

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

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5

A New Tax System (Goods and Services Tax) Act 1999 Division 58.

Reasons for decision

Question 1

You were appointed as Receiver and Manager to company X.

The GST payable on taxable supplies made by a Receiver Manager (RM) during their term of appointment is dealt with under Division 58 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

The effect of Division 58 of the GST Act is that you, as representative of an incapacitated entity are liable for GST in respect of taxable supplies which are taken to have been made by the incapacitated entity from the date of your appointment until your period of responsibility ends.

Under section 9-5 of the GST Act, an entity makes a taxable supply if:

· it is for consideration

· the supply is made in the course or furtherance of their enterprise

· the supply is connected with Australia, and

· the entity is registered or required to be registered.

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

The supplies of accommodation at the resort are made for consideration in the course or furtherance of the enterprise, the supply is connected with Australia and both you and X are required to be registered under the GST Act. Therefore, the supply of accommodation will be a taxable supply and thus, subject to GST unless the supply is GST-free, input taxed or the supply is not being made by you or X.

In X's factual situation, there are no provisions in the GST Act that will make their supply of accommodation, GST-free.

Input taxed means that there is no GST payable on the supply and there is no entitlement to an input tax credit for anything acquired to make the supply.

Under subsection 40-35(1) of the GST Act, 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 an entity that owns or controls the commercial residential premises) is input taxed.

The definition of residential premises in section 195-1 of the GST Act refers to land or a building that is occupied as a residence, or for residential accommodation, or is intended and capable of being occupied as a residence or for residential accommodation (regardless of the term of occupation), and includes a floating home.

Goods and Services Tax Ruling GSTR 2000/20 (GSTR 2000/20) deals with commercial residential premises. Paragraph 26 of GSTR 2000/20 provides that the physical characteristics common to residential premises are premises that provide the occupants with sleeping accommodation and at least some basic facilities for day to day living. As the villa units in the resort contain bedrooms, bathrooms and a kitchen, these premises meet the definition of residential premises.

However, as a supply of commercial residential premises is specifically excluded from the input taxed treatment provided by section 40-35 of the GST Act, we will consider whether you are making a supply of commercial residential premises when you supply accommodation.

Commercial residential premises are defined in section 195-1 of the GST Act to include, among 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).

This definition encompasses similar establishments or establishments that exhibit characteristics that place them on a similar footing to hotels, inns and boarding houses. 

Paragraph 52 of GSTR 2000/20 provides that:

… an individual unit only takes on the character of commercial residential premises when it is aggregated with others and run by an entity who as acquired the interests necessary to let the rooms in its own right rather than on behalf of the owners, in the same manner as a hotel, motel, inn or hostel.

Entity X acquired a number of villas through leasehold agreements with both entity Y and with individual leaseholders and aggregated them together so as to supply accommodation to guests in the resort.

Paragraph 78 of GSTR 2000/20 provides that:

Paragraph (f) of the definition provides that residential premises that are 'similar' to hotels, motels, inns, hostels or boarding houses are also commercial residential premises. The interpretative issue surrounding the definition of commercial residential premises is centred on what things are sufficiently 'similar' to hotels, motels, inns, hostels and boarding houses to be caught by paragraph (f).

Paragraph 83 of GSTR 2000/20 lists the main characteristics that have been identified by the courts as being common to a hotel, motel, inn, hostel or boarding house. The characteristics are: 

1. commercial intention

2. multiple occupancy

3. holding out to the public

4. accommodation is the main purpose

5. central management

6. management offers accommodation in its own right

7. services offered, and

8. status of guests.  

Premises that are similar to a hotel, motel, inn, hostel or boarding house will, by their nature, demonstrate all eight of the characteristics to some degree and present an overall impression that it is commercial residential premises. 

Based on the information provided, the resort would satisfy most of the characteristics listed at paragraph 83 in GSTR 2000/20. That is 1 to 5 and 7 and 8;

· the resort is operated on a commercial basis

· there is multiple occupancy as there are XX villas available for rental

· the resort is being held out, via advertising, to the public as providing accommodation to travellers

· the provision of accommodation is the main purpose

· there is central management as the resort contains management on site on a 24 hour basis.

· services that are similar to those provided in resort style accommodation are offered to the occupants, and

· the occupants have the status of guests.  

However, characteristic 6 which requires that management offers accommodation in its own right requires consideration. Consideration will be given to the question of whether X has sufficient control over the resort as a whole and will be letting out the villas in its own right, rather than as an agent for the lessor and the sublessor of the villa units.

Paragraph 104 of GSTR 2000/20 explains that the question of whether or not management has control over the premises is of particular relevance to strata titled premises. This may be examined by looking at whose right is being conferred when a room is let to a guest. Management controls premises if it holds a lease or licence or other right to occupation and itself confers rights to occupation upon the guest.

An agreement that allows management to let the premises on the owner's behalf is not the same. Instead, this indicates that management is conferring the owner's right to occupancy as their agent.

In deciding whether X has the requisite degree of control over the resort, it is necessary to examine the true relationship between it and the lessor and sublessors of the villa units. Whether an entity is an agent is a question of fact and in determining the relationship, it is necessary to determine if the agent's acts are its own or the principals, having regard to the whole arrangement.  

The lease and sublease agreements that X has entered into in relation to the lease of the villa units and the common areas of the resort, clearly show that it is not acting as agent. These agreements give X the necessary degree of control over the villas to enable it to provide the villas for accommodation in its own right and not as agent. 

The followings facts indicate that X has the capacity to offer accommodation in the villas as if they were its own: 

· X has control over all villas at the resort and the common areas of the resort

· X sets the tariffs, terms and conditions of the rental

· the unit owners retain no control over the day to day letting or occupation of the apartments

· X advertises the apartments collectively as part of a resort together with the services generally associated with a hotel or motel of a similar rating.  

It is considered that under the lease and sublease agreements that X entered into and it continues to operate under, it is conferring its rights to the guests and is not acting as agent. Therefore, it is considered that X has sufficient control over the units to be offering them to the public in its own right rather than as an agent of the lessor or the sublessors. In your capacity as Receiver and Manager you continue to have control of the premises as a whole.

Although your tax agent contends that the practical arrangements are that of an agency arrangement, an examination of the agreements clearly show that the lessor and sublessors of the villa units have granted X a lease over their premises to allow X to operate the letting business in respect of the resort and that the letting of the villas is made by X. On the facts provided, we consider that X confers the right to let the accommodation to the guests.

In light of your tax agent's contentions, further consideration was given to the characteristics of an agency relationship. Goods and Services Tax Ruling GSTR 2000/37 discusses the general law in relation to agency relationships. Paragraph 11 of GSTR 2000/37 states: 

For commercial law purposes, an agent is a person who is authorised, either expressly or impliedly, by a principal to act for that principal so as to create or affect legal relations between the principal and third parties.  

According to paragraph 15 of GSTR 2000/37 when an agent uses his or her authority to act for a principal, then any act done on behalf of that principal is an act of the principal. This means that where an entity acts in the capacity of an agent, the principal is liable for GST on any taxable supplies made through the agent and it is the principal that is entitled to input tax credits on any creditable acquisitions made through the agent. 

Paragraph 28 of GSTR 2000/37 provides factors which indicate that an agency relationship exists. Although no single factor by itself is determinative, the following factors may show that an agency relationship exists: 

· any description of you as an agent, having authority to act for another party, in an agreement (expressed or implied) between you and the other party

· any exercise of the authority that you are given to enter into legal relations with a third party

· whether you bear any significant commercial risk

· whether you act in your own name

· whether you are remunerated for your services by way of commissions and whether you are entitled to keep any part of your remuneration secret from another party, and

· whether you decide the price of things that you might sell to third parties

The review of these factors adds further support to the finding that an agency relationship does not exist because:

X is not described as an agent

X is not given authority to act as an agent for the lessor and the sublessors of the villa units.

X bears a significant commercial risk in supplying the accommodation.

X decides the price of the letting fee which is paid by guests.

When these factors are considered in conjunction with the characteristics of an agency relationship and with regard to the rights which are conferred to X under the lease and sublease agreements, these factors are not sufficient to create an agency relationship.

These factors do not alter the rights that have been conferred upon X under the agreements. The lease and sublease agreements entitle X to provide the accommodation at the resort in its own right.

For the purposes of the GST Act, X and not the lessor or the sublessors of the villa units, are considered to be supplying the accommodation at the resort.

As all of the characteristics of commercial residential accommodation in a hotel, motel, inn, hostel or boarding house, as listed in paragraph 83 of GSTR 2000/20 have been satisfied, Xs supply of the accommodation of the villas at the resort constitutes commercial residential premises.  

As stated previously, subsection 40-35(1) of the GST Act provides that the 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 not input taxed.  

Therefore, as the supply of accommodation is being made by X and all of the other requirements of section 9-5 of the GST Act are satisfied, the supply is a taxable supply to guests who stay at the resort. Accordingly you as Receivers and Managers are liable for the GST that is payable on the supplies.

Question 2

In light of the answer to question 1, this question does not need to be addressed. We have determined in question 1 that X is not acting as an agent in relation to the supply of accommodation because it is providing the accommodation as a principal in its own right. On the basis of the answer to question 1, X is not supplying agency or housekeeping services to the lessor or the sublessors of the villa units.