Edited version of your private ruling

Authorisation Number: 1012601572805

Ruling

Subject: GST and commercial residential premises

Question 1

Is a supply by way of a single lease of chalets and a 'manager's residence' an input taxed supply of 'residential premises' for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No

Question 2

Is a subsequent single sale of chalets and a 'manager's residence' (that have been subject to a single lease) an input taxed supply of 'residential premises'?

Answer

No

Question 3

Are subsequent separate sales of the individual chalets or the manager's residence (that have been subject to a single lease) an input taxed supply of 'residential premises'?

Answer

Yes

Question 4

Is a supply, by way of multiple leases of each of the individual chalets, an input taxed supply of 'residential premises'?

Answer

Yes

Question 5

Are subsequent sales of individual chalets (that have been subject to individual leases) an input taxed supply of 'residential premises'?

Answer

Yes

Question 6

Is a supply, by way of a separate lease of the 'manager's residence', an input taxed supply of 'residential premises'?

Answer

Yes

Question 7

Is a subsequent sale of the 'manager's residence' (that has been subject to a single lease) an input taxed supply of 'residential premises'?

Answer

Yes

Relevant facts and circumstances

You are registered for GST.

You are proposing to acquire property from a related party.

The Property comprises chalets and a manager's residence.

You intend to acquire the freehold interest in the Property, excluding one of the chalets as it is owned by an unrelated party and is not offered for sale. That chalet is separately leased to the current operator.

All chalets are furnished and have kitchen facilities, dining and lounge areas and bathroom facilities. The one and two bedroom units have laundry facilities.

One of the chalets may be used as a conference facility. This chalet comprises a split level which provides a break out area downstairs for meals and an open plan boardroom area for delegates upstairs with air conditioning, large opening doors, windows and blackout curtains.

The 'manager's residence' is within the resort complex and has a porte-cochere attached. This residence includes a reception area, a manager's office, and two bedrooms with kitchen and bathroom facilities. A full time manager resides in the manager's residence.

Parking: Each chalet has its own parking space located near the chalet's entry door. There is also additional car parking included in the community property lot. There is no onsite restaurant, bar, commercial laundry facilities, meeting or function rooms.

The chalet owners have an interest in the community property and this interest is currently supplied under the lease agreement for each chalet.

The Property is currently being leased to a related party who will continue to operate the Property as a tourist facility after the proposed purchase.

Upon settlement of the proposed purchase, you and the operator will enter into either a new lease for all chalets and the manager's residence or separate leases (which would be on identical terms) for each chalet and the manager's residence.

The proposed lease agreement will be a standard lessor/lessee agreement for a term of less than 50 years and will entitle the lessee (the operator) to use the leased premises to conduct the resort enterprise in their own right. Under the proposed lease (or leases) of the chalets, the interest in the community property will be supplied with the lease of the chalets.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Division 9

A New Tax System (Goods and Services Tax) Act 1999 Division 38

A New Tax System (Goods and Services Tax) Act 1999 Division 40

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

A New Tax System (Goods and Services Tax) Act 1999 section 40-65

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

Reasons for decision

Question 1

Is a supply by way of a single lease covering the chalets and manager's residence an input taxed supply of 'residential premises' for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Section 9-40 of the GST Act provides that you are liable for GST on any taxable supplies that you make.

The term 'taxable supply' is defined in section 9-5 of the GST Act.

Under section 9-5 of the GST Act, 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 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.

Division 38 of the GST Act sets out the supplies that are GST free and Division 40 of the GST Act provides for the supplies that are input taxed. In this instance, the supply of the chalets and managers residence will not be GST free under Division 38. The issue in this case is whether this supply will be an input taxed supply under Division 40. Input taxed means that GST is not 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.

Under subsection 40-35(2) of the GST Act, the supply will only be input taxed to the extent that the premises are to be used predominately for residential accommodation (regardless of the term of occupation).

Section 195-1 of the GST Act defines residential premises as 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.

We consider that the chalets and the manager's residence satisfy the definition of residential premises for GST purposes. Accordingly, the supply of the chalets and the manager's residence by way of lease will be an input taxed supply of residential premises to be used predominantly for residential accommodation pursuant to section 40-35 of the GST Act.

However, if the supply of the chalets and the manager's residence is a supply of commercial residential premises, the supply will not be input taxed, and will be a taxable supply provided that all of the requirements of section 9-5 of the GST Act are met.

The term '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

(b) …..

(f) anything similar to *residential premises described in paragraphs (a) to (e).

Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises (GSTR 2012/6) provides the Tax Office view of the characteristics of commercial residential premises.

Paragraph 10 of GSTR 2012/6 provides that the objective factors that are relevant to characterising premises under paragraph (a) or (f) of the definition include the overall physical character of the premises and how the premises are operated. Paragraph 10 continues that if these factors do not give a clear characterisation, then contractual documentation that provides evidence of current or future use and government zoning and planning permissions may be also be considered.

Of relevance is whether the chalets and the manager's residence are similar to a hotel motel or inn. The terms hotel, motel, and inn are not defined in the GST Act and therefore take their ordinary or common meanings, subject to context.

GSTR 2012/6 describes the features of hotels, motels and inns at paragraphs 13 to 25.

The features of a hotel, motel and inn in paragraphs 13 to 22 can be summarised as:

· the provision of accommodation for a commercial purpose

· the capacity to supply accommodation to multiple occupants

· usually meals are offered to guests and the premises include a kitchen where these meals are prepared

· usually a restaurant or dining area is provided

· guest rooms are furnished and include a bed, living area and bathroom

· linen and towels are usually provided

· the travellers who stay there have their principal place of residence elsewhere and they require accommodation while away for business or pleasure. (Although some residential or private hotels my provide accommodation to long term residents).

· the visitors are guests who do not usually have an exclusive right to occupy the premises as a tenant.

· a reception desk and concierge services is provided

· shared kitchens and living facilities for guests are not usually a feature

Some of the features of hotels, motels and inns described at paragraphs 13 to 22 include features that apply to operating establishments.

In your case, once you acquire the premises, you are intending to lease the chalets and the manager's residence under a single lease to an entity (the operator) who will operate these premises to supply accommodation to guests.

Therefore we will consider the physical characteristics of the premises that you will supply, by way of a single lease of the chalets and the manager's residence. The premises comprise the chalets and the manager's residence as the manager's residence physically forms part of the resort complex.

Paragraph 118 of GSTR 2012/6 explains that a manager's residence that is physically part of the building that comprises the hotel, motel, inn, hostel, boarding house or similar premises, is part of the commercial residential premises.

Paragraph 97 of GSTR 2012/6 provides additional advice in relation to property which is separately titled. Paragraph 97 advises that a supply consisting of rooms, apartments, cottages or villas as well as commercial infrastructure, regardless of whether they are separately titled is a supply of commercial residential premises. Paragraph 95 of GSTR 2012/6 provides that commercial infrastructure includes (but is not limited to) reception areas, dining and bar areas, meeting/function areas, kitchens, laundry facilities, storage rooms and car parks.

The commercial infrastructure that is provided with the supply of chalets and the manager's residence is the community property. Under the current arrangement the owner of the chalets and the manager's residence has an interest in the community property and this interest is supplied with the supply of the chalets and the manager's residence. Under the single lease that you plan on entering into with the operator, the supply of the chalets and the manager's residence will also include the interest in the community property.

The physical characteristics of the premises, comprising the chalets and the manager's residence includes the commercial infrastructure in the form of the community property. We consider that the supply of the chalets and the manager's residence with the commercial infrastructure satisfies a number of the features of a hotel motel or inn that are described at paragraphs 13 to 22.

In addition to the physical characteristics we will consider whether the contractual documentation that evidences current or future use and government zoning and planning permissions affects the characterisation of the premises.

We have considered the physical characteristics of the supply of the chalets and the manager's residence as well as the contractual documentation that provides evidence of current or future use and government zoning and planning permissions.

Having considered all relevant factors, we consider that the single supply of the chalets and the manager's residence is sufficiently similar to a hotel, motel or inn. We consider that the commercial residences premises comprise the chalets, the manager's residence and the commercial infrastructure.

Therefore you will make a supply of commercial residential premises as defined in section 195-1 of the GST Act when you lease the chalets and manager's residence under a single lease to an entity.

As you are making a supply of 'commercial residential premises, the supply of these premises will not be an input taxed supply of residential premises under section 40-35 of the GST Act.

Question 2

Is a subsequent sale (i.e. in one-line) of the chalets and manager's residence (that have been subject to a single lease) an input taxed supply of 'residential premises'?

Section 40-65 of the GST Act provides that sales of real property are input taxed to the extent that the property is residential premises to be used predominantly for residential accommodation. However, the sale is not input taxed to the extent that the residential premises are 'commercial residential premises' or 'new residential premises' other than those used for residential accommodation before 2 December 1998.

As explained in question 1, the supply of the premises by way of a single lease comprising the chalets and the manager's residence is a supply of 'commercial residential premises' under the definition in section 195-1 of the GST Act. Where the chalets and the manager's residence are sold together as a single supply (ie in one line), the sale of the premises will also constitute a supply of 'commercial residential premises' for the purposes of section 40-65 of the GST Act. Therefore, the supply of these premises will not be an input taxed supply of residential premises under section 40-65 of the GST Act.

Question 3

Are subsequent separate sales of the individual chalets or the manager's residence (that have been subject to a single lease) an input taxed supply of 'residential premises'?

The reasoning for Question 2 explains that a sale of residential premises will be input taxed unless the supply is a supply of 'commercial residential premises'.

In question 2 we considered the single sale (ie in one line) of the chalets and manager's residence.

You also seek a ruling on the question of whether the single separate sales of each of the chalets or the manager's residence which have previously been leased under a single lease, are an input taxed supply of residential premises.

The advice in paragraph 98 of GSTR 2012/6 applies in this instance.

98. A supply by sale or lease of real property consisting of part of a building cannot be characterised by reference to another supply. For example, a hotel may be strata titled so that each hotel room and the commercial infrastructure are separate strata units. Where the strata units are individually supplied under multiple sale contracts or leases, each individual supply of a strata unit must be characterised without reference to other supplies of strata units. A supply by sale or lease of strata titled rooms, apartments, cottages or villas without sufficient commercial infrastructure referred to at paragraph 95 of this Ruling is an input taxed supply of residential premises to be used predominantly for residential accommodation regardless of whether the building complex, or any part of it, is being, or will be, operated as commercial residential premises. This characterisation does not change where an entity makes multiple supplies of strata units by sale or lease to another entity that together constitute a hotel or other commercial residential premises.

Even though the chalets or the manager's residence may be subject to a single lease prior to the separate sale of each chalet or manager's residence, it will not alter the characterisation of the supply. The supply of each separately titled chalet or manager's residence does not possess the characteristics of 'commercial residential premises'. The single supply of each chalet or the manager's residence is not considered with reference to the supplies of the other chalets. Further the characterisation of the sales of the chalets is not affected by the preceding supply of the chalets and the manager's residence under a single lease. The single sale of each individual chalet or the manager's residence will be an input taxed supply of residential premises pursuant to subsection 40-65(1) of the GST Act.

Question 4

Is a supply, by way of multiple lease of each of the individual chalets, an input taxed supply of 'residential premises'?

The answer to question 3 also applies to the multiple supplies of the individual chalets by way of separate lease for each chalet.

The single lease of each individual chalet is an input taxed supply of residential premises pursuant to paragraph 40-35(1)(a) of the GST Act. The single supply by way of lease of each chalet or managers residence does not possess the characteristics of commercial residential premises.

Question 5

Are subsequent sales of individual chalets (that have been subject to individual leases) an input taxed supply of 'residential premises'?

The answer to question 3 also applies to a supply by way of sale of each of the chalets.

It does not matter that these chalets have previously been supplied by way of separate single leases. The individual supply under multiple sale contracts must be considered without reference to the other separate supplies of the chalets.

The single sale of each individual chalet will be an input taxed supply of residential premises pursuant to subsection 40-65(1) of the GST Act.

Question 6

Is a supply by way of a separate lease of the manager's residence an input taxed supply of 'residential premises'?

The answer to question 3 also applies to a separate lease of the manager's residence.

The single lease of the manager's residence is an input taxed supply of residential premises pursuant to paragraph 40-35(1)(a) of the GST Act.

Question 7

Is a subsequent sale of the manager's residence, (that has been subject to a separate lease) an input taxed supply of 'residential premises'?

The answer to question 3 also applies to a separate sale of the manager's residence.

The single sale of the manager's residence is an input taxed supply of residential premises pursuant to subsection 40-65(1) of the GST Act.