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Edited version of your written advice
Authorisation Number: 1012831629951
Date of advice: 1 July 2015
Ruling
Subject: GST and the sale of property
Question
Did you make a taxable supply when you sold your property located in Australia?
Answer
Yes.
Relevant facts and circumstances
You are registered for GST and carry on an enterprise that includes provision of accommodation.
In yyyy, you purchased a guest house located in Australia.
You used the building located on the lot to operate an accommodation business.
You subsequently built two other buildings on the lot with a similar configuration to the original building.
The property was created as a result of subdivision. The subdivision was approved on dd/mm/yyyy.
The sub-developed land is zoned for commercial use only, and as part of this the council required the roads to be widened and a carpark to be constructed on the property.
You sold the property on dd/mm/yyyy.
There is a building on the property which has xx bedrooms that was used for holiday/short term accommodation. The building was utilised as part of your accommodation enterprise up to the time of sale, to provide short term accommodation. There is also a separate laundry and a xx bay shed.
Special conditions sale contract state that a boundary fence is to be erected between the property and adjoining land and for a concrete driveway not exceeding x metres.
The inventory attached to the contract includes items such as: xx single beds, xx doona covers, xx mattress protectors, dining chairs, lounges, fridge/freezer, cutlery and crockery.
The building has xx bedrooms, xx bedrooms sleep two people and x bedrooms sleep 1 person. All rooms have single beds.
The building has a communal lounge, kitchen and dining area.
The building has two bathrooms, one male and one female. Each bathroom has toilet and shower cubicles.
The building was utilised as part of your accommodation enterprise up to the time of sale, to provide short term accommodation.
A nearby building was used as a reception area where guests could collect and drop off keys. There is also a dining area located in the nearby building; this area is used by occupants of the accommodation buildings to consume meals that can be purchased from you.
You intended to sell the building as a going concern.
The contract for sale does not have any written agreement or clauses pertaining to the sale of a going concern.
The contract specifies: "Margin scheme will be used in making the taxable supply".
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 Subsection 38-325(1) and
A New Tax System (Goods and Services Tax) Act 1999 Section 195-1.
Reasons for decision
Under section 9-5 of the GST Act you make a taxable supply if:
(a) you make the supply for consideration
(b) the supply is made in the course or furtherance of an enterprise that you carry on
(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.
Your supply of the property was made for consideration in the course of the enterprise that you carry on. In addition, the property is situated in Australia and you are registered for GST. Your supply of the premises will be a taxable supply to the extent it is not GST-free or input taxed.
The supply of a going concern is GST-free if it meets certain requirements including:
n the sale is for a payment or consideration
n the purchaser is registered, or required to be registered, for GST, and
n the seller and the purchaser have agreed, in writing, that the supply is of a going concern.
The contract for sale does not have any written agreement or clauses pertaining to the sale of a going concern.
The contract specifies: "Margin scheme will be used in making the taxable supply".
On the facts suppled, the supply of the premises was not a GST-free supply under the going concern provision or any other provision of the GST Act.
The term 'residential premises' is defined in section 195-1 as land or a building that is occupied as a residence or for residential accommodation (regardless of the term of the occupation).
The property satisfies the definition of residential premises in section 195-1.
Therefore, the supply of these premises by way of lease, hire or licence is an input taxed supply of residential premises unless it is a supply of commercial residential premises.
'Commercial residential premises' is defined in section 195-1, and means:
(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 guidance on the characteristics of hotels, motels, inns, hostels and boarding houses or similar premises.
Paragraph 10 of GSTR 2012/6 explains the factors to be considered in characterising premises:
10. Objective factors that are relevant to characterising premises as falling within either paragraph (a) or (f) of the definition include the overall physical character of the premises and how the premises are operated. Where these objective factors do not give a clear characterisation, the following may also be considered:
• contractual documentation that provides evidence of current or future use, and
• government zoning and planning permissions.
The property was used for operating a guest house until time of settlement. The property is zoned for commercial use only.
Paragraphs 11 and 12 of GSTR 2012/6 identify characteristics that are common to operating hotels, motels, inns, hostels, boarding houses or similar premises. These characteristics are:
• Commercial intention
• Multiple occupancy
• Holding out to the public
• Accommodation is the main purpose
• Central management
• Management offers accommodation in its own right
• Services are offered
• Status of guests
The terms 'hotel', 'motel', 'inn', 'hostel' and 'boarding house' are not defined in the GST Act. The property is most like a hostel. Paragraphs 26 to 35 of GSTR 2012/6 explain the features of hostels. 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 occupants. Physical characteristics may include a commercial kitchen, communal dining area and a communal laundry. Onsite managers generally manage the accommodation. Hostels have capacity to permit multiple occupancies whether in a dormitory environment or in separate bedrooms. The operator hostel supplies the accommodation in its own right. Meals may be provided, although it is not an essential element of a hostel operation.
We consider that the property exhibits the characteristics of a hostel.
It contains xx bedrooms, communal kitchen, dining and lounge areas as well as female and male bathroom areas.
The premises were utilised as part of your accommodation enterprise until the time of sale.
Therefore, your supply of the property was a supply of commercial residential premises. Consequently, your supply was a taxable supply under section 9-5 of the GST Act.