Edited version of private advice

Authorisation Number: 1012677697055

Ruling

Subject: GST, student accommodation and commercial residential premises

Question 1

Will you be making a taxable supply of accommodation in commercial residential premises when you supply accommodation to students of educational institutions?

Answer

Yes, provided you do not make a choice pursuant to section 87-25 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Question 2

If you are considered to be making a taxable supply of commercial accommodation in commercial residential premises, will your supply fall within the scope of section 87-5 of the GST Act?

Answer

Yes

Question 3

Will your acquisitions relating to the Facility (including construction services and operating costs) be made for a creditable purpose?

Answer

Yes, provided you do not make a choice pursuant to section 87-25 of the GST Act.

Relevant facts and circumstances

You are registered for GST.

You are a member of a GST group.

The representative member of the GST group is a related entity.

You own land located at a specified location (the Land).

The related entity has development approval (subject to a Project Approval (PA) and a modification to the PA) to carry out the development of the Land being the construction of three buildings to be used for student accommodation with ancillary retail uses comprising:

• XXm² of student accommodation comprising XX bedrooms

• XXm² retail floor space

• construction of the surrounding public domain

• public art, and

• bicycle parking.

The buildings that will be constructed on the Land are collectively referred to as the Facility.

Physical features and facilities

You have provided a copy of the architectural plans. The Facility will be made up of the following physical features and facilities:

• a specified number of fully furnished apartments with a specified number of beds (studio single bed and 'cluster room' apartments which house multiple beds).

• Each studio apartment will contain one bathroom/WC and a kitchenette. Each bedroom in a 'cluster room' apartment will contain a bathroom/WC and will share a communal kitchenette. Both types of apartments will be provided with phone, electricity and gas services.

• Reception and administration areas for the manager/operator of the Facility will be located on the ground floor.

• Communal laundry facilities located on the ground floor will contain a total of 7 commercial washing machines and 7 commercial dryers. These laundry facilities will be accessible to all occupants of the Facility.

• Bicycle facilities will be accessible by all occupants of the Facility.

• Various communal areas, providing recreational spaces such as:

• TV facilities

• dining areas

• lounge and other socialising areas

• study rooms

• outdoor roof terrace area containing seating and BBQ facilities.

Pursuant to the PA, the accommodation portion of the Facility must only be used as residential accommodation for students and not otherwise for residential accommodation.

The Facility must not be advertised other than for student residential accommodation and occupants must provide evidence of identity and of their Australian tertiary education facility.

Pursuant to the Building Code of Australia Assessment Report (BCA Assessment Report), the Facility will be classified as follows:

Basement Level: Class 8 Substation

Ground Level: Class 6 Retail

Class 7b Storage

Class 3 Residential

Level 1- 7(Building 1 & 2): Class 3 Residential

Level 1- 5 (Building 3): Class 3 Residential"

This ruling is only in relation to the accommodation portion of the Facility that qualifies as 'Class 3' which is used to provide student accommodation.

A 'Class 3 building' is described under Part A3 of the Building Code of Australia as follows:

a residential building, other than a building of Class 1 or 2, which is a common place of long term or transient living for a number of unrelated persons, including:

(a) a boarding house, guest house, hostel, lodging house or backpackers accommodation; or

(b) a residential part of a hotel or motel; or

(c) a residential part of a school; or

(d) accommodation for the aged, children or people with disabilities; or

(e) a residential part of a health-care building which accommodates members of start or

(f) a residential part of a detention centre.

Operation of the Facility

It is intended that the provision of student accommodation at the Facility will commence from a future specified date.

Operation of the Facility will need to comply with the Plan of Management and Caretaker/Manager Availability requirements in the PA and Modified PA.

You have commenced negotiations to enter into an Operating and Maintenance Agreement with a third party (Manager) to assist to operate, manage and maintain the Facility.

Under the Operating and Maintenance Agreement, it is intended that the Manager will:

• Enter into licences (Licence to Occupy) with occupants (primarily students, but also retail and car park licensees) and collect revenue from these arrangements in its capacity as your agent.

• Provide various pre-operational services to assist you with the opening of the Facility.

• Procure amenities such as telephone, internet and laundry services and will act as agent on your behalf when entering into agreements for such services.

• Assist you in complying with your obligations under the National Rental Affordability Scheme (NRAS).

• Procure contractors to provide various services, such as cleaning, waste management and security services.

The Manager must employ a General Manager who will be contactable 24 hours a day, 7 days a week and a number of professional staff will be on-site during business hours (in accordance with the PA).

The Manager intends to employ a number of students as live-in residential assistants (RAs), who will assist with the management of day to day operations.

The Manager, with your written approval, can name the Facility and erect appropriate signs on the interior and exterior of the Facility.

Occupants are responsible for cleaning their rooms but are can arrange for cleaning services to be organised by the Manager for a fee.

You are eligible to supply student accommodation in line with the NRAS as the student accommodation is to be low cost - less than 80% of the market rent.

The term of the Licence to Occupy offered to occupants in relation to the student accommodation is expected to be for periods of 6 to 12 months.

The occupants cannot separately arrange and pay for utilities such as telephone, water, electricity, gas and internet connection.

The accommodation apartments will be provided fully furnished.

The education institution the students are enrolled at will not have any input into the operation of the Facility.

In regard to prospective occupants, no preference is given to students of a particular educational institution.

You intend the Facility will be actively marketed to students from a number of tertiary institutions.

No educational institution has an interest in either you or the Manager.

The Manager is a professional management company, operating and managing student accommodation. The Manager is not affiliated to any one particular institution.

Agreements will not be entered into with any educational institution relating to the Facility.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 Section 9-40

A New Tax System (Goods and Services Tax) Act 1999 Section 9-75

A New Tax System (Goods and Services Tax) Act 1999 Section 11-5

A New Tax System (Goods and Services Tax) Act 1999 Section 11-15

A New Tax System (Goods and Services Tax) Act 1999 Section 11-20

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

A New Tax System (Goods and Services Tax) Act 1999 Division 87, and

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

Reasons for decision

In this ruling:

• unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act),

• all terms marked by an *asterisk are defined terms in the GST Act, and

• all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on the ATO website ato.gov.au

Question 1

Will you be making a taxable supply of commercial accommodation in commercial residential premises when you supply accommodation to students of educational institutions?

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

Section 9-5 provides you make a taxable supply if: 

• you make the supply for consideration

• the supply is made in the course or furtherance of an enterprise that you carry on

• the supply is connected with Australia, and

• you are registered, or required to be registered for GST.

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

The primary issue in this case is whether your supply of the premises is an input taxed supply. 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), 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 supply will only be input taxed to the extent the premises are to be used predominately for residential accommodation (regardless of the term of occupation).

The definition of residential premises in section 195-1 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).

Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) provides the ATO view of the characteristics of residential premises.

Paragraph 9 of GSTR 2012/5 explains that the requirement that the residential premises are to be used predominately for residential accommodation in section 40-35 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. Paragraph 15 of GSTR 2012/5 continues by stating that to satisfy the definition of residential premises, premises must provide shelter and basic living facilities.

In this case the Facility will satisfy the definition of 'residential premises' as the premises provide shelter and basic living facilities.

The next step is to consider whether the Facility also falls within the scope of being 'commercial residential premises'. Commercial residential premises are defined in section 195-1 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).

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 similar establishments 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) provides the ATO view of the characteristics of commercial residential premises.

The terms hotel, motel, inn, hostel and boarding house are not defined in the GST Act and take their ordinary meaning. The Macquarie Dictionary 5^th 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.

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.

At this stage the project is still in the construction phase and it is intended that the provision of student accommodation at the Facility will commence from a future specified date.

When attempting to characterise premises that are not operating, paragraph 87 of GSTR 2012/6 provides:

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.

In this case the Facility has a 'Class 3' classification in accordance with the Building Code of Australia being a residential building which is a common place of long term or transient living for a number of unrelated persons, including a boarding-house, guest house, hostel, lodging-house or backpackers accommodation or a residential part of a health-care building which accommodates members of staff.

The architectural plans show the Facility consists of a number of buildings containing one bedroom, and multiple bedroom residential units, common areas and reception area.

In addition to the physical characteristics of the premises, 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, determining whether premises are commercial residential premises is a matter of overall impression involving the weighing up of all relevant factors.

Whilst not currently operating, you have provided details of the manner in which the premises will be operated.

Given the facts provided we consider the premises in question bare the closest resemblance to a 'hostel'. The term 'hostel' includes premises that can be described as a hostel, a hotel or inn and also includes a supervised place of accommodation usually supplying board and lodging provided at a comparatively low cost.

Paragraphs 26 through 35 of GSTR 2012/6 describe the features typical of hostels. In considering those features the following is noted:

• The physical characteristics of a hostel, or premises similar to a hostel, reflect that the premises are designed to supply accommodation at a comparatively low cost to the occupants. In this case, the physical characteristics include a communal laundry and communal dining and social areas. You are eligible to supply student accommodation in line with the NRAS as the student accommodation is to be low cost - less than 80% of the market rent.

• Hostels are typically centrally managed by an on-site manager who manages the accommodation and arranges or provides services. The feature that a hostel, or premises similar to a hostel, be a supervised place of accommodation can be evident where occupants can raise queries and concerns pertaining to the management of the premises with an on-site manager. In this case you will engage a third party to assist to operate, manage and maintain the Facility who will employ a General Manager who will be contactable 24 hours a day, 7 days a week and a number of professional staff will be on-site during business hours. The Manager also intends to employ a number of students as live-in residential assistants (RAs), who will assist with the management of day to day operations.

• Hostels have the capacity to supply accommodation for multiple occupancies where such accommodation may be provided either in a dormitory environment or in separate bedrooms. In this case, the accommodation will be provided to residents on a multiple occupancy basis in single bedroom studio apartments and 'cluster room' apartments housing multiple bedrooms.

• Accommodation may be supplied within a hostel to occupants as the occupant's principal place of residence. The residents of the Facility will enter into a Licence to Occupy with the term of the licence offered to residents in relation to the student accommodation expected to be for periods of 6 to 12 months. The accommodation would be considered the resident's principal place of residence for the duration of such contractual arrangements.

• The operator of a hostel supplies the accommodation in its own right and not in the capacity of an agent for another party. In this case, you (as the Operator) will be supplying the accommodation in your own right. The Manager will enter into the Licence to Occupy with the occupants in its capacity as your agent.

• Occupants of a hostel may be provided meals by the operator of the premises. However, the provision of meals is not an essential feature of a hostel. In this case meals will not be provided with each studio apartment having a kitchenette. Each apartment in the 'cluster room' configuration will share a communal kitchenette.

As outlined above, there is an exclusion in the definition of 'commercial residential premises'. 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, Paragraph 150 of Goods and Services Tax Ruling GSTR 2001/1 Goods and services tax: supplies that are GST-free for tertiary education courses contains a list of factors considered in determining whether a supply is in connection with an education institution that is not a school.

Based on the facts provided, we consider the Facility does not fall within the exclusion in the definition of 'commercial residential premises'.

Given the above, we consider the Facility falls within the definition of 'commercial residential premises' as being a hostel or something similar to a hostel. As such, your supply of accommodation in the Facility (once constructed) will not be an input taxed supply. The supply will constitute a taxable supply of accommodation in commercial residential premises that you own as all of the criteria of section 9-5 are satisfied.

Question 2

If you are considered to be making a taxable supply of commercial accommodation in commercial residential premises, will your supply fall within the scope of section 87-5 of the GST Act?

Section 9-75 contains the general rule for calculating the amount of GST on a taxable supply.

However, a special rule in Division 87 reduces the amount of GST payable on a taxable supply, where the supply provided, is a supply of long-term accommodation in commercial residential premises.

Section 87-5 provides that the value of a taxable supply of commercial accommodation is 50% (or such other percentage specified in the regulations) as would otherwise be the case where the commercial accommodation:

• is provided in commercial residential premises that are predominately for long-term accommodation, and

• is provided to an individual as long term accommodation.

Section 87-15 defines 'commercial accommodation' as the right to occupy the whole or any part of commercial residential premises including, if it is provided as part of the right so to occupy, the supply of:

• cleaning and maintenance

• electricity, gas, air-conditioning or heating, or

• telephone, television, radio or any other similar thing.

Subsection 87-20(1) provides that commercial accommodation is considered long-term if the accommodation is for a continuous period of 28 days or more and is able, under the terms of the agreement, to be taken up by an individual.

Subsection 87-20(3) provides that commercial residential premises are predominately for long-term accommodation if at least 70% of the supplies of accommodation are for a continuous period of 28 days or more and is able, under the terms of the agreement, to be taken up by an individual.

As discussed earlier, the Facility is considered to be 'commercial residential premises' and all residents of the Facility will enter into a Licence to Occupy with the term of the licence offered to residents expected to be for periods of 6 to 12 months.

Given the above, we consider your supply of accommodation is a supply of long-term commercial accommodation in commercial residential premises that are predominately for long-term accommodation. The GST on such supplies calculated in accordance with section 87-5.

Please note that section 87-25 provides a supplier of such commercial accommodation with the choice of not applying the concessional provisions of Division 87 and treating the supplies of commercial accommodation as input taxed pursuant to paragraph 40-35(1)(b).

Question 3

Will your acquisitions relating to the Facility (including construction services and operating costs) be made for a creditable purpose?

Section 11-20 provides that you are entitled to an input tax credit (ITC) for any creditable acquisitions that you make. Section 11-5 provides that you make a creditable acquisition if:

(a) you acquire anything solely or partly for a creditable purpose

(b) the supply of the thing to you is a taxable supply

(c) you provide, or are liable to provide, consideration for the supply, and

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

Section 11-15 provides that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise and the acquisition does not relate to making input taxed supplies and is not of a private or domestic nature.

You have made acquisitions in carrying on your enterprise of property development and providing commercial accommodation consisting of construction services and related expenses in connection with the construction of the Facility. As discussed above, your supply of accommodation in the Facility (once constructed) will not constitute an input taxed supply. Furthermore the acquisitions are not of a private or domestic nature.

Consequently, such acquisitions are considered to have been acquired for a creditable purpose. Provided the other criteria of section 11-5 are satisfied and you do not make an election pursuant to section 87-25, you will be making creditable acquisitions and be entitled to an ITC in accordance with section 11-20.