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Ruling

Subject: GST and residential premises

Question

Is your supply of accommodation in the serviced apartments an input taxed supply of accommodation in residential premises?

Answer

No, your supply of accommodation is not an input taxed supply of accommodation in residential premises. Where the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 are satisfied, you will be making a taxable supply of accommodation in commercial residential premises.

Relevant facts

· You are registered for GST.

· You own the property at a specified location.

· You obtained a planning permit in regard to the property which allows for the use and development of the land for the purpose of 'office and dwellings or serviced apartments'.

· You constructed a building on the property.

· The premises consist of a basement level car park and a number of additional levels.

· The ground level contains commercial retail shops.

· The remaining levels contain self-contained serviced apartments.

· The building was constructed with the intention that the apartments would be sold as individual residential premises to owner occupiers or investors.

· The building has an on-site reception office that operates on average amount of hours each day, seven days a week.

· The building does not have an in house restaurant, bar, commercial laundry facilities, meeting or function rooms, pool or gym.

· The ground floor retail shops are leased to entities conducting their own business activities from the premises.

· The apartments include one, two and three bedroom apartments.

· The apartments are fully furnished.

· Each apartment contains a private full-size kitchen (containing an oven, cook top, fridge/freezer, microwave and dishwasher), laundry (containing a washing machine and dryer) living room and in some instances a study area.

· You have been operating the serviced apartments since a specified date.

· You supply the apartments for accommodation to the general public including business travellers, corporate clients, holiday goers and families.

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

· You do not impose a requirement that your clients stay for a minimum or maximum period of time.

· You do enforce a 'no party policy'.

· Your clients enjoy a certain level of exclusive possession in that your access to the apartments is generally limited to cleaning and maintenance of the apartment at a time or times agreed to by the client.

· The tariff charged for the accommodation includes weekly cleaning of the apartment and all utilities such as electricity and gas.

· Other services provided for an additional fee include daily cleaning of the apartment and a daily change of towels and bed sheets.

· You do not provide any food or cooked meals to your clients.

· You provide the following additional services to your clients:

o free secure onsite parking;

o telephone (charges are payable by your clients);

o luggage storage.

· Other services such as wireless internet, dry cleaning and newspapers are also available on request for an additional charge.

· Apartments are normally cleaned on a weekly basis however your clients may request more frequent cleaning services for an additional charge.

· The booking process calculates the price of the accommodation by multiplying a daily rate by the number of days of occupancy.

Your tax representative acknowledges the following:

· You conduct your activities on a commercial basis and in a business like manner.

· The main purpose is to provide accommodation in the form of self-contained apartments.

· The supply of the accommodation is on a multiple occupancy basis.

· You hold out the apartments to the general public as premises that will receive customers who are willing and able to pay for accommodation and that will accept reservations to let fully furnished, self-contained accommodation.

· You exhibit a basic level of central management and control of the premises through your on site reception. You contend that your level of central management and control is below that expected at a hotel, motel or similar establishment.

· You also contend that the level of services you provide to your clients is below that generally provided by a hotel, motel or similar establishment.

· You provide the accommodation in your own right and not as an agent for another party.

Relevant legislative provisions

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

Section 9-5

Subdivision 40-B

Section 40-35

Paragraph 40-35(1)(a)

Subdivision 40-C

Section 195-1

Reasons for 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 your supplies 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.

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

Note: Asterisked terms are defined in section 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 (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.

In this case the serviced apartments are self contained and all contain a bedroom(s), kitchen, bathroom and living areas and are clearly residential premises. However, as the apartments are being aggregated it is relevant to consider whether the supply has the character 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. As to this extent, the supply would be excluded from the input taxed treatment provided by section 40-35 of the GST Act.

Commercial residential premises

Goods and Services Tax Ruling 2012/6 'Goods and services tax: commercial residential premises' provides the Commissioner's considered view about how Subdivision 40-B, 40-C and section 9-5 apply to supplies of commercial residential premises and accommodation in commercial residential premises. The principles outlined in GSTR 2012/6 have been applied in addressing the issues raised.

'Commercial residential premises' is defined in section 195-1 of the GST Act 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 (Macquarie) 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.

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.

Paragraph 12 of GSTR 2012/6 lists the following eight characteristics that are considered to be common to 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, and

· occupants have the status of guests.

Paragraph 41 of GSTR 2012/6 states that ultimately, in determining whether premises are commercial residential premises is a matter of overall impression involving the weighing up of all relevant factors.

Paragraph 10 of GSTR 2012/6 provides that this includes an examination of the physical character of the premises and how the premises are being operated having regard to the characteristics listed above. Where such an examination does not provide a clear characterisation other factors may be considered including:

· contractual documentation evidencing current or future use, and

· government zoning and planning approvals and permissions.

In this case, the premises in question were not constructed to be a hotel, motel, inn, hostel or boarding house, the purpose was to provide commercial retail shops, and sell the individual apartments. Therefore the premises do not fall squarely within the scope of paragraph (a) of the definition of commercial residential premises.

However, since constructing the premises you have changed your intention and operated the premises to provide serviced apartment accommodation. We therefore need to consider whether the physical character of the premises, together with the operation, bring the premises within the scope of paragraph (f) of the definition of commercial residential premises to be 'similar' to a hotel, motel, inn, hostel or boarding house.

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 (a) to (e), for example, a 'resort' or 'serviced apartments'. These premises are commercial residential premises if they are used in a particular way.

The issue of whether premises were 'commercial residential premises' was examined in ECC Southbank Pty Ltd as trustee for Nest Southbank Unit Trust & Anor v Commissioner of Taxation [2012] FCA 795 (ECC Southbank). Nicholas J stated in ECC Southbank at [50]:

[50] The test to be applied for the purpose of determining whether the Urbanest premises are commercial residential premises involves asking whether the Urbanest premises is a hotel, motel, inn, hostel or boarding house or whether it is similar to - in the sense that it has a likeness or resemblance to - any of those types of establishment. The application of this test necessarily raises questions of fact involving matters of impression and degree.

Based on the facts provided we do not consider your premises to have similar characteristics to that of a hostel or boarding house, however we will consider if it is similar to a hotel, motel or inn.

Paragraphs 13 to 25 of GSTR 2012/06 provide the following features which are typical of hotels, motels and inns.

A motel is a particular type of hotel that primarily caters to the needs of motorists seeking roadside accommodation. An inn is a small hotel at which board (meals) and lodging are provided to travellers. Subject to those qualifications, the following features of hotels are equally relevant to motels and inns:

· Hotels provide accommodation for a commercial purpose.

· Hotels have the capacity to provide for multiple occupancy.

· Hotels usually offer meals to guests and usually have a kitchen where meals are prepared for guests. The premises usually include a restaurant or dining room for guests. A motel need not necessarily have a dining room, but guests of the motel may still be provided meals.

· Rooms are invariably furnished.

· Linen and towels are usually supplied. The rooms are usually cleaned and serviced by staff on a daily basis, with the costs of these services being included in the tariff.

· Predominantly, guests of hotels are travellers who ordinarily have their principal place of residence elsewhere, and who need or desire accommodation while away for business or pleasure.

· Guests of hotels do not enjoy an exclusive right to occupy any particular part of the premises in the same way as a tenant to whom a house or apartment is let. Nor does a guest of a hotel usually let a room for a term. The guest is usually charged at a daily rate multiplied by the number of days of occupancy.

· Hotels usually have a reception desk to handle the requirements of both management and guests. Hotels may offer concierge services at either the reception desk or at a separate desk.

· A hotel is centrally managed by the operator, having at least one person present, or offsite but readily accessible to manage the accommodation and arrange for and provide services.

· Accommodation in a Hotel is supplied by the operator of the hotel in its own right and not in the capacity of an agent for a third party.

In regarding the similarities and differences between the characteristics of hotels, motels, inns, and those features provided at the premises in question, the following observations are provided:

· The configuration of your premises is similar to that contained in your typical hotel or motel, the apartments being fully furnished for the guests' immediate use.

· You supply serviced apartment accommodation to the general public including business travellers, corporate clients, and holiday goers. The nature of these clients would indicate they are in a class who ordinarily have their principal place of residence elsewhere and who need or desire accommodation while away for business or pleasure.

· Your guests are supplied with linen and towels, and the tariff charged includes weekly cleaning and all utilities such as electricity and gas. Your guests can request daily cleaning and change of towels and linen for an additional charge,

· The booking process on your website calculates the price of the accommodation in accordance with a daily rate multiplied by the number of days of occupancy.

· You provide free secure onsite parking to your guests.

· There is a reception desk on site to handle the requirements of both management and guests, particularly when guests check in or check out of the establishment. From the reception desk you offer other services such as dry cleaning, wireless internet, newspapers, luggage storage, mail and courier services, late check out and express checkout.

· You do not act as an agent for a third party, you own the building and have been operating the serviced apartments since a specified date.

You contend that the level of services you provide to your clients is below that generally provided by a hotel, motel or similar establishment. You do not provide a 24 hour, 7 days a week reception, you do not provide a commercial laundry facility, nor do you provide any type of food services to your customers.

Whilst we agree that the infrastructure to provide meals or the provision of meals via a 3^rd party is an indication of a premises being similar to commercials residential premises, the level of services may vary between establishments.

Nicholas J addressed this issue in the ECC Southbank decision and stated at [70]:

[70]… It is true that in comparison with some other types of establishment referred to in the relevant definition, the level of services provided in addition to accommodation may seem slight. But the services provided by staff to residents through the reception desk are by no means insignificant and, should be considered together with all other relevant matters.

In this case, while you do not provide meals, your guests have access to a number of services through your reception desk which are directly comparable the services offered by a hotel, motel or inn, such as additional cleaning, towels, dry cleaning, newspapers, wireless internet, etc.

Further to this, paragraph 41 of GSTR 2012/6 provides a list of factors that may indicate that premises are not a hotel, motel, inn, hostel or boarding house including:

· the operator and occupant agree for accommodation to be supplied for a periodic term (which may be for a period of months or years at a time), such as in a residential lease;

· the operator and occupant document the condition of the premises under a written contract before the accommodation is initially supplied and when the occupant ceases to occupy premises;

· the operator has the right to impose a cleaning fee on the occupant when the occupant ceases to occupy the premises;

· the occupant is permitted, subject to the terms of the lease or licence, to alter the part of the premises occupied by the occupant, such as by attaching hanging devices on a wall;

· the occupant is permitted, subject to the terms of the lease or licence, to keep pets in the premises;

· the occupant must separately arrange and pay for the connection of a telephone, electricity, or gas service;

· the occupant is responsible for the cleaning and minor maintenance of the premises, such as changing light bulbs in their room; and

· the premises are unfurnished.

While the absence of the above features does not mean that premises are similar to a hotel, motel, inn, hostel, or boarding house, the fact that the premises do not exhibit any of the above features provides further support to the view that the premises have the characteristics of a hotel, motel or inn.

In considering whether the premises are similar to a hotel, motel or inn, we have also referred to the Explanatory Memorandum to the Tax Laws Amendment (2006 Measure No 3) Bill 2006, in particular Example 15.3:

Owner Pty Ltd developed a new serviced apartment complex which consists of 50 apartments, a reception area and conference facilities. Owner Pty Ltd has retained the complex for the purposes of leasing the entire complex to Proprietor Pty Ltd who will operate an accommodation business, which essentially is run as a hotel.

The apartments are offered to the public, by Proprietor Pty Ltd in its own right, for short-term stays. The apartments are used predominately for accommodation and include self contained kitchen and laundry facilities. Proprietor Pty Ltd provides room cleaning and other services to the guests.

In this example the supply of the complex by Owner Pty Ltd to Proprietor Pty Ltd under the lease is similar to the supply of a hotel and is a supply of commercial residential premises.

The supply by Proprietor Pty Ltd when it supplies the apartments to the guests will also be taxable as a supply of accommodation in commercial residential premises to an individual by an entity that controls the commercial residential premises. The fact that the apartments may or may not be strata titled will not alter the conclusion in this example.

In summary, in determining whether your premises are similar to a hotel, motel or inn, we have considered the premises in its entirety, that is the operation of the serviced apartments and the physical character of the premises. On balance, while the premises does not have all the commercial infrastructure of a more traditional hotel, motel or inn, we consider that the operation of your serviced apartments brings the premises in to being similar to that of a hotel, motel or inn. As such, for GST purposes, the premises are regarded as commercial residential premises.

Pursuant to paragraph 40-35(1)(a) of the GST Act, a supply of residential premises by way of lease, hire or licence is not input taxed if it is a supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises. The supply of accommodation will be a taxable supply where the requirements of section 9-5 of the GST Act are satisfied.