Edited version of your written advice

Authorisation Number: 1012875776320

Date of advice: 10 September 2015

Ruling

Subject: GST and supplies of accommodation in commercial residential premises

Question

Are you making an input tax supply of residential premises when you supply accommodation to guests?

Answer

No. You are making a taxable supply of accommodation in commercial residential premises.

Relevant facts and circumstances

You are registered for GST.

The Premises is located at a residential apartment building (the Building).

You do not own the Building where the Premises are located. There are X apartments within the Building.

You have entered into Residential Tenancy Agreements with X apartment owners. These agreements are of various lengths of time including month to month. Owners can withdraw their apartment with 60 days notice.

You pay a monthly rent (exclusive of GST) to the individual apartment owners.

The apartments are self-contained (with kitchen and laundry) and fully furnished. The furnishings are owned by the apartment owner.

You rent X rooms (a combination of studio, 1, 2, 3 & 4 bedroom serviced apartments) within the Building and these are offered externally for both short term stays and extended stays.

You keep the accommodation charge paid by guests.

There is no commercial kitchen on the Premises and you do not provide food service to guests. If a guest requires room service for take away food they can contact a number of takeaway restaurants within close proximity to the Building that deliver. You do not offer in-room dining or food.

There are no minibars or food items provided in the apartments.

Guests can purchase a limited number of food/drink items from your office.

You have a common property licence agreement with the Owners Corporation that allows use of the common areas within the building.

Guests have access to the pool terrace and gymnasium.

You have a reception area operating Monday to Sunday. The reception desk also provides some services to the residents such as parcel holding.

You lease a conference room which is reported separately from your accommodation revenue.

Apartments are cleaned daily with fresh towels for stays of less than three nights. More than three nights the guest receives one weekly clean and linen service which is included in their tariff. There is no cleaning or linen service on weekends. Guests replenish their own amenities (shampoo, soaps, toiletries, detergents, sponges) for stays longer than a week.

You provide the following guest services:

• Dry cleaning provided by an external contractor.

• Additional room cleaning and linen change.

• Free pantry shopping.

• Free Wi-Fi and internet.

Parking is located on site at the Premises. For the majority of guests that stay for an extended time the car-parking is included which is a secure car park located in the basement of the building.

There is no restaurant or bar in the Building.

You provide a significant amount of longer term accommodation. However, the amount of accommodation provided for 28 days or longer is less than 70 percent of your accommodation provided.

The longer term guests do not enter into a residential tenancy agreement. Longer term guests are required to sign a Terms and Conditions Agreement. You have provided a copy of the agreement.

A condition report is taken of the apartment.

You may impose a cleaning fee if the apartment is not left in a fair condition.

Longer term guests have access to all common areas. Electricity is included in the tariff. One set of linen is included. The apartments are still serviced weekly - referred to as a quick spring clean.

Longer term guests replenish their own amenities such as shampoo.

A longer term guest may be able to make minor alterations to the apartment if they seek permission from you and you are subsequently able to obtain permission from the apartment owner. Similarly permission may be obtained for a pet as the Building is pet friendly.

You arrange the utilities in the apartment.

You complete any minor maintenance such as changing a light bulb however the apartment owner pays the cost for fixing items in the apartment such as the fridge.

The entire Building has access to the wireless internet.

The Body Corporate of the Building employs a facilities manager to look after/clean the common areas including the pool.

Other apartments in the Building are occupied as residences by owners and tenants.

Relevant legislative provisions

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

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

Reasons for decision

In this reasoning:

• 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

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

Under section 9-5, 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 the indirect tax zone (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 would be 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.

Subsection 40-35(1) provides that a supply of premises by lease, hire or license is input taxed if the supply is of residential premises (other than a supply of commercial residential premises or accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises).

'Residential premises' is defined in section 195-1 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;

(regardless of the term of the occupation or intended occupation).

Paragraphs 9 and 15 of Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises explain that a single test looking at the physical characteristics of the property will determine the premises suitability and capability for residential premises. To satisfy the definition of residential premises, the premises must provide shelter and basic living facilities.

The apartments satisfy the definition of 'residential premises'.

However, it is necessary to further consider whether the supply of your apartments is a supply of commercial residential premises.

'Commercial residential premises' is also defined in section 195-1 and includes a hotel, motel, inn, hostel or boarding house, or anything similar.

Guidance on whether premises are characterised as residential premises or commercial residential premises is provided in Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises.

Paragraphs 95 to 98 of GSTR 2012/6 consider separately titled rooms, apartments, cottages or villas and explains that in order for premises to be commercial residential premises, the living accommodation areas must be accompanied by commercial infrastructure to support the commercial operation of the premises.

Paragraph 95 of GSTR 2012/6 outlines that commercial infrastructure includes (but is not limited to) reception areas, dining and bar areas, meeting/function areas, kitchens, laundry facilities, storage areas and car parks. This commercial infrastructure is used to provide services to occupants.

The next step is to consider whether the Property also falls within the scope of being 'commercial residential premises'. Commercial residential premises are defined, in part, in section 195-1 as:

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

(b) …

…

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

…

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.

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.

a dwelling, usually a private house, in which board and lodging are provided for payment

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 10 of GSTR 2012/6 explains 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 12 of GSTR 2012/6 list the following eight characteristics 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

• occupants have status as 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 145 of GSTR 2012/6 explains 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.

Given the facts provided, we do not consider the premises to be a hostel or boarding house or anything similar (paragraphs 26 - 40 of GSTR 2012/6).

The features of hotels, motels and inns are outlined in paragraphs 13 - 24 of GSTR 2012/6.

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 supply accommodation for multiple occupancies.

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

• The guest rooms in a hotel are invariably furnished, and always include a bed, and some living area, and usually an adjoining bathroom. In some cases, hotel rooms may also have a kitchenette for self-catering.

• 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, the 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 usually 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. However, it is not essential that all guests in a hotel stay for a short period. This feature may not be evident in hotels that provide accommodation to long-term residents.

• Hotels usually have a reception desk to handle the requirements of both management and guests, particularly when guests check in or check out of the establishment. Hotels may also offer concierge services either at the reception desk or at a separate concierge's desk.

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

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

As stated in paragraph 25 of GSTR 2012/6, when determining whether premises are, or are similar to, a hotel, motel or inn, it is necessary to consider the premises in its entirety. It is not sufficient to only consider the features of part of the premises, such as an individual room, in which accommodation is provided.

In your case the common characteristics of operating hotels, motels, inns, hostels and boarding houses as outlined in paragraph 12 of GSTR 2012/6 are present.

In considering the features of your Premises, the infrastructure necessary to provide meals and dining to guests is not present however you have a reception area to provide some services to guests.

As meals are not provided to guests we do not consider the Premises to be an Inn or anything similar.

You do not provide a 24 hour, 7 days a week reception. Nor do you provide food services to the guests. However, you have a reception area to provide some services to guests. Whilst the infrastructure to provide meals or the provision of meals via a 3rd party is an indication of a premises being similar to commercial 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.

Paragraph 41 of GSTR 2012/6 provides a list of factors that may indicate that premises are not a hotel, motel, or similar premises:

• 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.

The absence of one or more of the above features does not mean that a premises are similar to a hotel, motel, inn, hostel, or boarding house. However, in this case, the premises are furnished, the occupant does not separately arrange and pay utilities, the occupant is not responsible for minor maintenance, and the premises receive at a minimum a weekly clean for longer term guests and more frequent for others.

On balance, while the Premises do not have all the commercial infrastructure of a more traditional hotel or motel, we consider that you are operating the Premises on a commercial basis similar to a hotel or motel and that there is sufficient commercial infrastructure to support this operation. Guests also have access to other services usually offered by a hotel, motel or inn, such as internet access and Foxtel. As such, for GST purposes we consider that you are making supplies of accommodation in commercial residential premises.

Pursuant to paragraph 40-35(1)(a), 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.

Therefore the supply of your accommodation in commercial residential premises will be a taxable supply where the requirements of section 9-5 are satisfied.

Further information - long-term accommodation in commercial residential premises

Long-term stays in commercial residential premises that are for 28 days or more receive concessional treatment under Division 87 reducing the amount of GST payable.

Further information is available in GSTR 2012/7 Goods and Services Tax Ruling Goods and services tax: long-term accommodation in commercial residential premises and GST Bulletin GSTB 2001/2 Accommodation in caravan parks and camping grounds.