Edited version of your private ruling

Authorisation Number: 1012114390964

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Ruling

Subject: GST and supply of accommodation in serviced apartments

Question

1. Is your supply of accommodation in the serviced apartments situated in Australia, an input taxed supply of accommodation in residential premises?

2. Is your supply of additional goods and services to guests of the serviced apartments also input taxed?

Answer

1. Yes. Your supply of accommodation in the serviced apartments situated in Australia is an input taxed supply of accommodation in residential premises.

2. No. Your supply of additional goods and services to guests of the serviced apartments on a user pays basis, is not input taxed. With the exception of the food supplies (such as bread and milk) that are GST-free, the supplies will be taxable supplies.

Relevant facts and circumstances

· You, Entity A, are registered for GST.

· You supply accommodation in an apartment complex situated in Australia.

· The accommodation is in relation to XX apartments out of a total of approximately XXX apartments at that address.

· You supply serviced apartment accommodation to the general public. This includes business travellers, corporate clients, holiday goers and families (occupants).

· The occupants can stay for any period of time. There is no minimum period.

· You are not the owner of the apartments that are used to supply accommodation to the occupants.

· You enter into a lease under the relevant State residential tenancy laws with individual apartment owners. The lease is drawn up between you and the managing agent of the apartment (acting on behalf of the owner). The lease gives you the rights and responsibilities of a tenant under a standard residential tenancy lease.

· There are no other agreements between you and the owners of the apartments. The owners of the relevant apartments understand and have agreed that the apartments can be used to provide short term residential accommodation. Communication between you and the owners has been done through real estate agents.

· You do not have control of, or responsibility for cleaning and maintaining the common areas. This is the responsibility of the owners' corporation.

· The building does not have a pool or gym.

· There is no separate agreement between you and the owners' corporation. You have the right of access to common areas in accordance with the residential tenancy agreement and it this right that you pass to occupants of the apartments. Landlords are aware that you are using their apartments to supply short term accommodation. This has been communicated to the landlords through real estate agents.

· You licence the apartments to the occupants in your own right and not as an agent of any third party.

· You have a reception office on site that operates for specified periods on specified days.

· The occupants can only check in and out at reception during the operating hours.

· Occupants also have access to a manager during reception operating hours for issues such as loss of keys or theft.

· Services provided by you to the occupants in addition to the supply of accommodation in the apartments are:

o Cleaning services - weekly cleaning services are included in the tariff and include changing dirty linen and the dressing of beds. Daily cleaning, daily change of towels & bed sheets and additional toilet paper may be provided for additional consideration;

o Fully furnished apartments- including cooking facilities, cutlery, hair dryer, iron and ironing board;

o Luggage storage- guests may store luggage at reception which is located onsite;

o Car parking vouchers;

o Maintenance, management and supervision- any maintenance work required within an apartment (such as plumbing repairs, or replacement of furnishings) is solely your responsibility;

o 24 hour emergency contact number- your staff are available 24 hours a day in case of emergencies. For non-emergencies, occupants call an outside office hours number and a message is taken and a member of staff returns the call the next business day;

o Breakfast for an additional fee- there is no commercial kitchen, café or kiosk in the building. The breakfast sold is breakfast supplies and typically consists of milk, cereal and juice. As such the breakfast supplies do not require preparation or cooking. The breakfast supplies are not delivered and are generally picked up by guests from reception;

o Additional car parking for an additional fee;

o Broadband internet available from a third party provider for an additional fee;

o Dry cleaning for an additional fee;

o Fax charges for an additional fee;

o Additional toilet paper for an additional fee.

· For all additional services that are supplied on a user pays basis from third party providers, the agreement is between the occupants and third party service providers and does not involve you. The only arrangement that differs is in relation to parking where you purchase parking coupons which you then sell to your guests. The parking coupons are then able to be used by the guests directly with the parking operator.

· You advertise through the internet, television, flyers and direct marketing to businesses.

· You acquire utilities such as electricity and gas in your own right. The use of these utilities by the occupants is included as part of the tariff for the accommodation. There is no additional charge for the use of any utilities.

· There are no regulatory requirements that are currently specified in relation to the operation of this serviced apartment business.

· You commenced operating the accommodation business from these premises from a specified date.

· From that date to another specified date, you charged GST in relation to the supply of accommodation. GST was not charged in relation to your supply of accommodation from a particular date onwards.

· Input tax credits have only been claimed for acquisitions made during a specified period on the assumption that the supply of accommodation was taxable. Input tax credits have not been claimed in relation to acquisitions made from a specified date on the basis that the supply of accommodation may not be taxable.

· A copy of the supporting documentation was provided in support of this application:

o Standard terms and conditions

o Guest registration card which includes:

· the arrival and departure dates,

· room number

· rate

· number of guests (and children)

· payment method

· driving licence number and car registration

· guest signature

o A copy of a lease agreement between you and a landlord:

The agreement is made under the relevant State residential tenancy laws.

o Insurance policy invoices:

The class of insurance is described as 'commercial'.

A description of the premises was also obtained from your website.

Your tax advisor has made the following contentions in relation to this private ruling request:

· Your activities are done on a commercial basis that possess the characteristics of a business.

· Accommodation is the main purpose.

· As you operate XX apartments located at this address, you meet the multiple occupancy test.

· While the terms and conditions and the registration card are silent on whether guests have exclusive possession, the guests do enjoy a certain level of exclusive possession. Entry by you into the apartments is generally limited to cleaning and maintenance of the apartment which generally has to be agreed to by the guests. The guests are also entitled to have a reasonable expectation of privacy. Therefore, the occupants have the status of tenants rather than guests.

· You advertise the apartments to the public and therefore hold the premises out to the public as offering accommodation.

· While you operate a reception on the premises, the management of the premises is through your central office at a specified location where you manage all bookings and maintenance of all apartments. The central office manages the reservations, payments, maintenance, cleaning and arranging of services for the guests.

· You only have control over the individual apartments and do not have control over the common areas. You have a right to use the common areas which you are able to pass on to your guests, but you do not have responsibility for cleaning or maintaining these areas as this is the responsibility of the owners' corporation.

· The level of services provided by you falls short of the services normally provided in relation to a hotel or motel.

· Other than the limited breakfast rations that can be ordered and picked up from reception, you do not provide any food to guests.

· The services provided by you for additional consideration are normally included in the tariff for accommodation supplied by hotels or motels. In your case, services such as daily cleaning, daily change of towels and bed sheets and additional toilet paper are subject to an additional charge.

· Although you do not own the apartments, as tenant you have the exclusive possession and control of each apartment to offer accommodation in your own right as part of your serviced apartment business.

· As per paragraph 243 of GSTR 2011/D2 the supply of a number of hotel rooms without the hotel infrastructure cannot be characterised as commercial residential premises. Likewise the supply of a number of individual apartments without the supply of the common property and required infrastructure cannot be said to be a supply of commercial residential premises. Therefore, the supply of accommodation made by you in the serviced apartments is input taxed.

· Your tax advisor further submits that the supply of the 'additional services' (user pays) where the guests have an agreement with you and not a third party provider, is also input taxed as it is incidental to your supply of the accommodation. This includes things such as additional cleaning services or breakfast supplies. Your tax advisor considers that these additional services are incidental on the basis that it would not be usual for the guests to acquire these additional services if they were not acquiring accommodation services from you. In addition, one of the reasons that you offer these additional services is to make the main supply of accommodation more attractive to your guests. As such, they consider that the additional services support the enjoyment of the dominant supply, which is the supply of accommodation.

Relevant legislative provisions

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

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), supplies of accommodation in residential premises is input taxed under section 40-35, whereas supplies of accommodation in commercial residential premises are generally subject to GST.

The issue to be determined in this case, is whether the supplies made by you, of accommodation in the specified serviced apartments, have characteristics that align with the class of premises that are residential premises or that of commercial residential premises.

Input taxed supplies of accommodation in residential premises

Section 40-35 states:

(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); or

(b) the supply is of *commercial accommodation and Division 87 (which is about long-term accommodation in commercial premises) would apply to the supply but for a choice made by the supplier under section 87-25.

(1) 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.

· The term 'residential premises' is defined in section 195-1 to mean 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 the occupation or intended occupation) and includes a *floating home.'

[note: the terms marked with an * are defined in section 195-1 of the GST Act.]

The definition states that the premises must be capable of occupation as a residence. The physical characteristics common to 'residential premises' is that they provide the occupants with sleeping accommodation and at least some of the basic facilities for day to day living. These characteristics will be inherent in the design and fabrication of the premises, which typically include areas for sleeping, eating and bathing. However, these things do not need to be arranged in a manner that is similar to a conventional house or apartment.

The serviced apartments are self contained and all contain a bedroom(s), kitchen, bathroom and living rooms and are clearly residential premises. However, as the apartments are being aggregated and let out by you (in your own right) it is relevant to consider whether the supply has the character of commercial residential premises. As to this extent, the supply would be excluded from the input taxed treatment provided by section 40-35.

Commercial residential premises

Draft Goods and Services Tax Ruling 2012/D1 'Goods and services tax: residential premises and commercial residential premises' provides the Commissioner's preliminary and considered view about how Subdivision 40-B, 40-C and Division 87 apply to supplies of residential premises, commercial residential premises and accommodation in commercial residential premises. The principles outlined in GSTR 2012/D1 have been applied in addressing the issues raised.

'Commercial residential premises' is defined in section 195-1 to include (amongst other things):

(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 terms hotel, motel, inn, hostel and boarding house are not defined in the GST Act and take their ordinary meaning. The Macquarie Dictionary 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 1. A supervised place of accommodation, usually supplying board and lodging provided at a comparatively low cost, as one for students, nurses, or the like. 2. [cross reference] Youth hostel: a simple lodging place for your travellers.

Boarding house

A place, usually a home, at which board and lodging are provided.

Hostel 1. A supervised place of accommodation, usually supplying board and lodging provided at a comparatively low cost, as one for students, nurses, or the like. 2. [cross reference] Youth hostel: a simple lodging place for your travellers.

Boarding house

A place, usually a home, at which board and lodging are provided.

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, rather than with premises of another kind.

Paragraph 181 of GSTR 2012/D1 lists the following eight characteristics that are considered to be common to operating hotels, motels, inns, hostels and boarding houses:

· commercial intention

· accommodation is the main purpose

· multiple occupancy

· occupants have the status of guests

· holding out to the public

· central management

· provision of, or arrangement for, services, and

· management offers accommodation in its own right.

GSTR 2012/D1 explains that in the statutory context discussed in paragraphs 49 and 174 to 177 of this draft ruling, it is necessary that the accommodation in the premises be provided to individuals who have the status of a guest in order to satisfy paragraph (a) or (f) of the definition of commercial residential premises. Other than this characteristic, it is not a requirement for all of the remaining operating characteristics to be present. Rather, it is necessary to weigh up each of the other characteristics and any additional factors to determine whether the overall characteristics of the premises align with that of commercial residential premises.

Commercial residential premises are designed to provide accommodation as their main purpose and are held out to the public as offering accommodation and related services to guests. They offer accommodation on such a scale to be operating on a commercial basis or in a business-like manner. The size of the premises or the scale of the activity and their ability to provide for multiple occupancy, is usually indicative of a commercial operation.

This class of premises usually has central management to accept reservations, allocate rooms, receive payments and arrange or provide services to guests. Usually there is an operator or manager present, or offsite who is readily accessible to manage the accommodation and arrange for and provide services.

In commercial residential premises, the manager exercises a greater degree of control over the premises than arises with rented residential premises. When hiring a room in a hotel, a guest accepts that management retains general control over it, including the right to enter without, or with limited notice. [This is in direct contrast to the rights held by a tenant under a residential tenancy agreement, which allows the tenant (subject to certain conditions) to restrict the landlord's or owner's entry to the premises.]

An important feature of 'commercial residential premises' is that it provides accommodation to guests, or a 'transient or floating' class of occupants who for varying periods are away from their home. While the length of stay does not govern whether the accommodation is provided in commercial residential premises, this type of accommodation is where people typically go to with a view to moving on from in due course.

Establishments such as hotels, motels, inns, hostels and boarding houses provide accommodation together with services and facilities. In addition to living accommodation areas, premises that are commercial residential premises include commercial infrastructure to support the commercial operation of the premises and to provide the requisite level of services to cater for the transient nature of guests. This infrastructure includes (but is not limited to) reception areas, dining and bar areas, meeting/function rooms, kitchens, laundry facilities, storage areas and car parks.

The kinds of services typically provided to guests include regular cleaning (for example, daily or weekly), food service (such as room service or a restaurant), the use of a telephone, television and internet, laundry services and other services such as taxi and tour bookings. The tariff usually reflects the standard and range of services and facilities provided and usually includes utilities such as electricity, gas, heating and air-conditioning.

In this case, the premises were not built or designed as a hotel, motel, inn, hostel or boarding house and do not have the commercial infrastructure (such as a café, restaurant or commercial kitchen or commercial laundry) typical of such establishments. Therefore the premises do not fall within the scope of paragraph (a) of the definition of commercial residential premises.

In determining whether the premises are 'similar' to a hotel, motel, inn, hostel or boarding house, it is necessary to consider whether the operation brings the premises within the scope of paragraph (f) of the definition.

While the operation of the accommodation business has some features in common with establishments that are commercial residential premises, on balance the premises do not display sufficient characteristics to make it 'similar' to commercial residential premises. We acknowledge that you have control of a sufficient number of apartments (through the lease entered into with individual owners) to be able to aggregate them, offer accommodation on a multiple occupancy basis and operate the premises on a commercial scale. However, although there is an onsite reception, the premises do not contain the commercial infrastructure to allow for the premises to be operated in a way that makes it 'similar' to establishments that are commercial residential premises.

The apartments are self contained and operated in a manner where the occupants are self sufficient during their period of stay. There are no daily cleaning services, daily change of towels or bed sheets provided as part of the tariff for the accommodation. Rather, these are additional services that are available on a user pays basis. Entry into the apartments is generally limited to cleaning and maintenance which generally has to be agreed to by the occupants. The occupants of the apartments are not provided with meals- only breakfast rations are available to be ordered and picked up from the onsite reception. Further there is no commercial kitchen facility, café, or restaurant that allows for meals to be prepared for, or provided to occupants of the apartments. Other 'additional services' are available on a user pays basis, however the agreements are between the occupants and third party providers- you are not party to these arrangements.

We consider that on balance, the physical characteristics and operation of the premises are not consistent with the class of establishments that are commercial residential premises (as described in paragraph (a) of the definition) or premises that are similar to such establishments (as provided by paragraph (f) of the definition). Accordingly, your supply of accommodation in the serviced apartments is not a supply of commercial residential premises. Rather, you are making an input taxed supply of accommodation in residential premises under section 40-35. As a consequence you will not be liable for GST on the supply of the accommodation and will not be entitled to claim any input tax credits for acquisitions made in relation to making these input taxed supplies.

Additional services provided by you on a user pays basis

A supply may be characterised as consisting of one or more things or parts, or may be regarded commercially distinct in its own right or as having several identifiable parts.

Where you make a supply that is identifiable as having more than one part and each part is taxable, you do not need to apportion the consideration for the supply. Similarly, if all of the parts of a supply are non-taxable or input taxed, GST is not payable on any part of the supply. However, where the supply is a combination of separately identifiable taxable and non-taxable parts, then the supplier will need to identify the taxable part of the supply in order to apportion the consideration to work out the GST payable on that taxable part.

Goods and Services Tax Ruling GSTR 2001/8 provides guidance on apportioning the consideration for a supply that includes taxable and non-taxable parts.

Paragraph 55 of GSTR 2001/8 explains that some supplies include parts that do not need to be separately recognised for GST purposes. We refer to these supplies as composite supplies as they are essentially the provision of one thing, despite the fact that they may include subordinate parts that complement the dominant part of the supply and are integral, ancillary or incidental to the supply.

A part of a supply will be integral, ancillary or incidental to a supply where it is insignificant in value or function, or merely contributes to, or complements the use or enjoyment of the dominant part of the supply. Indicators that a part may be integral, ancillary or incidental include:

· you would reasonably conclude that it is a means of better enjoying the dominant thing supplied, rather than constituting for customers an aim in itself; or

· it represents a marginal proportion of the total value of the package compared to the dominant part; or

· it is necessary or contributes to the supply as a whole, but cannot be identified as the dominant part of the supply; or

· it contributes to the proper performance of the contract to supply the dominant part.

In this case, the 'additional services' provided by you to the occupants of the serviced apartments are available on a user pays basis. They are ascribed a separate identity and value distinct from the tariff for the accommodation, and are services that the occupant can select at their discretion. While these services may enhance the accommodation experience, they do not form an integral or incidental part of accommodation provided to the occupants of the apartments. Rather, these services are additional to and distinct from the accommodation itself. The fact that the services are only offered to guests of the serviced apartments does not make them 'integral, ancillary or incidental to' the supply of the accommodation.

This is illustrated in example 4 at paragraph 72 of GSTR 2001/8 which states:

72. Rory is a student who lodges in a university's residential college. The college provides full board by way of a furnished room and meals. The college charges an all-inclusive fee for the board. The furnishing merely forms part of the amenity of the room and is integral to its supply. However, neither the room nor meals are integral, ancillary or incidental to each other. This is a mixed supply of input taxed residential premises and meals that are taxable. The college needs to work out its liability for the taxable part of the supply by apportioning the fee between the room and the meals.

The above example may be contrasted with Example 11 in paragraph 79 of GSTR 2001/8:

79. the Heart Hospital provides GST-free hospital treatment. During hospital stays, patients are provided with the use of newspapers and television sets. No extra charges are made for the provision of these goods. They are merely incidental and ancillary to the composite supply of hospital treatment.

Applying the above principles and for the reasons already outlined, we consider that the 'additional services' provided by you to occupants of the apartments on a user pays basis are not an incidental, ancillary or integral part of the input taxed supply of the accommodation. The supply of these services will be taxable (where all of the conditions of a taxable supply are met) except to the extent, if any, that the supplies are GST-free (for example, food supplies such as bread and milk).

Further information regarding the GST classification of 'food' is contained in the Detailed Food List and the GST Food Guide which are available from our website: www.ato.gov.au

Further issues for you to consider

Where you have incorrectly characterised or reported your supplies, you will be required to rectify this in accordance with the rules for correcting GST mistakes and relevant time limits.