Edited version of your written advice

Authorisation Number: 1012700940936

Ruling

Subject: GST and the supply of property

Question 1

Is the supply of the commercial premises, comprising apartments, brick motel or holiday self-contained villas and caravan sites, by you, a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes

Question 2

Is the supply of the residential premises by you an input taxed supply pursuant to section 40-65 of the GST Act?

Answer

Yes

Relevant facts and circumstances

You own a Resort and Tourist Park

The property is comprised of two distinct operations:

1. A Resort

2. A Tourist Park

The Resort has a number of categories of accommodation, offering a choice of apartments with pool, lake and town views. These rooms feature:

• Air-conditioning and heating

• En-suite bathrooms

• Large adjoining living area opening onto balcony/patio

• Refrigerator, tea/coffee making facilities

• Satellite television

• IDD telephone, clock radio, hairdryer, iron /board

• Queen size bed

• 2 Single beds or fold out double bed

• Wifi connection

The Tourist Park has the following types of accommodation:

• Motel and Holiday self-contained Villas

The features of this type of accommodation are as follows:

• Double villas sleep up to 4 persons with separate double bedrooms

• Bunk Villas that sleep up to 6 persons with separate bunk room (2 double bunks)

• Full sized bathrooms and most with a bath

• Colour TV

• 1 Car park alongside the villa

• Fully equipped kitchens include oven, crockery, cutlery, utensils and Fridge.

• Occupants must bring their own linen and towels but blankets and pillows are provided.

• Holiday Caravan Sites

Linen available for hire, onsite amenities and off street parking.

There is also a reception where trained staff provide information and assistance.

On site recreational activities include:

• Saltwater swimming pool

• Sundeck

• Floodlit tennis court

• Games room

• Massage Room

• Poolside BBQ

• Walking tracks/ maps

• Beauty Parlour offering a selection of treatments.

• Restaurant

• Conference Facilities

Note: The tourist park villa accommodation and camp sites do not have access to the resort pool, sauna or spa.

You entered into a number of contracts of sale in respect of assets located on the property and the business operated therefrom.

Following discussions with your representative, we will not examine the transaction relating to the sale of the business.

The property assets were sold under two interdependent contracts as follows:

• Contract 1 - sale of Commercial Premises (being a caravan park and motel):

You have referred to the properties in this contract as 'the commercial properties'.

• Contract 2 - Sale of Residential Premises

You have referred to the properties in this contract as 'the residential properties'.

No major improvements have been undertaken on any of the above properties since you originally acquired them.

Sale of the commercial premises

The contract for the sale of the commercial premises agrees, in writing, that the supply of the commercial premises will be a taxable supply. You acknowledge your liability for GST on the supply of the commercial premises at settlement date, per paragraph 25 of Goods and Services Tax Ruling GSTR 2000/28 Goods and services tax: attributing GST payable or an input tax credit arising from a sale of land under a standard land contract (GSTR 2000/28).

You have provided a copy of the contract. The following relevant information is taken from that document:

1. The properties are sold subject to existing tenancies.

2. Special conditions to contract for sale of land:

Paragraph xx - Interdependent Contracts

Schedule A - list of properties

Sale of the residential premises

The residential properties are suitable for residential accommodation and the existing tenants are using these properties for residential purposes. The properties are standalone residential premises which are being managed by an agent.

The residential properties are not commercial residential premises as defined in section 195-1. The residential properties are also not commercial residential premises per section 40-65(2)(a).

All residential properties were purchased with the existing buildings attached to the land and they have not undergone any significant improvements over the period of your ownership. The residential properties were acquired by you as residential premises and have not been previously subject to a long-term lease.

The premises are not new residential premises pursuant to section 40-75(1).

You have provided a copy of the Contract for sale of land. It contains the following relevant information:

• The residential properties are sold subject to existing tenancies.

• Special conditions to contract for sale of land:

Clause xx Interdependent Contracts

• Schedule A List of properties

Your representative provided the following additional information:

• A map of the area detailing the resort and residential lots, identifying what is supplied under each contract and what is excluded.

• A lease agreement between the Resort Operator and yourselves in respect of the commercial lots and vacant land adjacent thereto.

• You are the entity reflected on the title deeds of the properties which are the subject of the respective transactions.

• The properties identified as residential properties in the Contract for the sale of land, are not part of the resort operations. You have provided a schedule of the lease agreements for those residential properties which are managed by an agent.

• There is a single commercial lease in respect of a Café. All other properties comprise the resort and these are the properties which are to be sold as per the contract for sale of commercial premises.

• The following lots were sold under the contract for sale of residential premises as they were rented as residential premises:

• Lot xx1

• Lot xx2

• The following lots are vacant land and were never used for camping or resort purposes as there were no approvals in place to do so:

• Lot xx3;

• Lot xx4;

• Lot xx5; and

• Lot xx6

You have provided the following supporting documentation:

• Contract for the sale of land - 200X edition (commercial premises) between you and the purchaser; and

• Contract for sale of land - 200X edition (residential premises) between you and the Purchaser;

• Map of the area ;

• Lease between you and the Business Operator

• Schedule B - List of residential properties currently under lease.

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 38-325,

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

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

Reasons for decision

Question 1

Is the supply of the commercial premises, comprising apartments, brick motel or holiday self-contained villas and caravan sites, by you, a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Detailed reasoning

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

A supply is a taxable supply if it meets all the requirements of section 9-5. This section states:

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 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.

In your case, the supply of the premises comprising apartments, brick motel or holiday self-contained villas and caravan park would meet the requirements of paragraphs 9-5(a) to 9-5(d). This is provided your supply is not GST-free or input taxed.

Accordingly, it is relevant to examine the GST-free and input taxed provisions under Division 38 and 40 respectively.

Division 38 provides for certain supplies to be GST-free. Where a supply is GST-free, GST does not apply to the supply. We consider Division 38 will not apply to your supply of the premises to make that supply GST-free.

Division 40 provides for certain supplies to be input taxed. Where a supply is input taxed, GST does not apply to the supply. Of relevance to your situation is Subdivision 40-C which discusses residential premises. Subsection 40-65 states:

(1) A sale of *real property is input taxed, but only to the extent that the property is *residential premises to be used predominantly for residential accommodation (regardless of the term of occupation).

(2) However, the sale is not input taxed to the extent that the *residential premises are:

(a) *commercial residential premises; or

(b) *new residential premises other than those used for residential accommodation (regardless of the term of occupation) before 2 December 1998.

The term 'residential premises' is defined in section 195-1. This section states:

Residential premises means 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 occupation or intended occupation) and includes a *floating home.

Residential premises are discussed in Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5). Paragraphs 9, 10 and 15 of GSTR 2012/5 highlight 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 states:

To satisfy the definition of residential premises, premises must provide shelter and basic living facilities. Premises that do not have the physical characteristics to provide these are not residential premises to be used predominantly for residential accommodation.

In your case, two broad accommodation options are being offered by the Resort and Tourist park:

(1) Apartments and Villas

(2) Caravan sites.

1. Apartments and Villas

These premises comprise bedrooms, bathrooms, kitchen facilities and car parking. Consequently, the apartments and villas possess the physical characteristics to provide sleeping accommodation and facilities for day-to-day living such as a bedroom, bathroom and kitchen. As such, it is considered that the units are capable of being occupied as a residence and will satisfy the definition of residential premises under section 195-1. Consequently, the supply of the premises by way of lease, hire or licence will be an input taxed supply under paragraph 40-35(1)(a) unless the supply is of commercial residential premises.

Accordingly, it is necessary to determine whether your premises are commercial residential premises.

Commercial residential premises

A supply of commercial residential premises is specifically excluded from the input taxed treatment provided by section 40-35. Supplies of commercial residential premises are subject to GST.

The definition of 'commercial residential premises' in section 195-1 includes the following:

(a) a hotel, motel, inn, hostel or boarding house; or

...

(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) sets out the Tax Office view of the characteristics of commercial residential premises

As the terms in paragraph (a) of the definition are not defined within the GST Act, they therefore take their ordinary meanings in context. 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).

Paragraph 12 of GSTR 2012/6, lists the common characteristics of operating hotels, motels, inns, hostels and boarding houses that are relevant to characterising premises as commercial residential premises. We will examine each characteristic in light of the accommodation provided by the Resort and Tourist Park:

• Commercial intention

The premises are operated on a commercial basis or in a business - like manner. From the information provided, this criteria is met.

• Multiple occupancy

The premises have the capacity to provide accommodation to multiple, unrelated guests or residents at once in separate rooms.

• Holding out to the public

The premises offer accommodation to the public. The Resort and Tourist Park has a website which details the accommodation types, services and daily rates. Furthermore, you and/or the Operator have various service agreements in place with accommodation internet sites etc

• Accommodation is the main purpose

Providing accommodation is the main purpose of the premises comprising the Resort and Tourist Park.

• Central management

The premises have central management to accept reservations, allocate rooms, receive payments and perform or arrange services.

You have advised that there is a reception, where trained staff provide information and assistance.

• Provision of, or arrangement for, services

Management provides guests and residents with some services and facilities, or arranges for third parties to provide them. On-site recreational activities include a swimming pool, tennis court, games room, beauty parlour etc.

• Occupants have the status of guests

Predominantly, the occupants are travellers who have their principal place of residence elsewhere.

From the information provided, we consider that the premises are sufficiently similar to a hotel or motel to be characterised as commercial residential premises.

2. Caravan sites

Paragraphs 109 to 110A of GSTR 2012/6 discuss caravan parks and camping grounds.

The terms 'caravan park' and camping ground are not defined in the GST Act and take their ordinary meaning in context.

Paragraph 110 states:

Occupants of a caravan park or camping ground may stay in a caravan, a moveable home,¹¹ a permanent cabin or villa, or a tent provided by the operator on site. Alternatively, guests may park their own caravan, motor home, camper trailer or the like on a site or pitch their own tent on a site. Sites may be powered or un-powered. Accommodation in a caravan park or camping ground is held out to the public as accommodation for travellers although long-term accommodation may also be provided to occupants. Caravan parks and camping grounds are operated on a commercial basis or in a business-like manner.

Accordingly, this type of accommodation supplied by the operator is considered to be commercial residential premises.

Conclusion

The supply of the commercial premises, comprising a caravan park and motel, is a taxable supply by you under section 9-5.

Question 2

Is the supply of the residential premises, an input taxed supply pursuant to section 40-65 of the GST Act?

Premises comprising land or a building are residential premises in section 195-1 where the premises are occupied as a residence or for residential accommodation, regardless of the term of occupation. The actual use of the premises as a residence or for residential accommodation is relevant to satisfying this limb of the definition.

Premises comprising land or a building are also residential premises under paragraph (b) of the definition of residential premises if the premises are intended to be occupied, and are capable of being occupied, as a residence or for residential accommodation.

As outlined above, the requirement in section 40-65 that premises be 'residential premises to be used predominantly for residential accommodation (regardless of the term of occupation)' 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 provides that to satisfy the definition of residential premises, premises must provide shelter and basic living facilities.

The contract for sale of land lists the residential properties which are the subject of the sale (Schedule A).

You have advised that each of these properties is tenanted and that residential tenancy agreements have been entered into by the managing agent. You have also confirmed that these properties are not available as tourist accommodation and do not form part of the Resort and Tourist Park. The properties were acquired by you as residential properties and have not undergone any significant improvements.

Consequently, we are of the view that the properties listed in Schedule A of the Contract for Sale of Land are residential properties to be used predominantly for residential accommodation and the supply of these properties will be input taxed.