Edited version of your written advice

Authorisation Number: 1012927868140

Date of advice: 14 December 2015

Ruling

Subject: GST and residential premises

Question

Are you making an input tax supply of residential premises under paragraph 40-35(1)(a) of the A New Tax System (Goods and Services Tax) Act 1999 when you supply accommodation in your holiday units?

Answer

Yes.

Relevant facts and circumstances

You are a not-for-profit registered for GST.

You own holiday units in Location one and Location two.

The units are separately titled.

Each unit has multiple bedrooms, is self-contained including a full kitchen and is fully furnished.

You let out the units to members at a substantial discount to the market rent.

The units may only be booked by members using their password protected account on your website.

A member must self-cater for food and drink to be consumed at the units. There are no facilities for the provision of food or drink at any location.

Each complex has a reception desk and an onsite manager not employed by you. However, a member is directed to contact you with any query they may have.

In Location one all the units have keypads and the member is issued with a randomly generated pin code when making a booking. There is no meet and greet service and there are no keys.

In Location Two, the member collects the keys from the complex reception desk upon arrival.

Your guests are expected to clean the units and comply with a 'leave it as you found it policy'. This is outlined in the Holiday Units Terms and Conditions.

If your guests fail to comply with the 'leave it as you found it policy' a surcharge will apply. The surcharge may be deducted from the bond charged to the member's credit card. 

Your cleaners clean the glass, mirror and bath in order to maintain your fixtures and fittings for the ongoing and future use of the members. Apart from this, all the cleaning undertaken by your cleaners is limited to making good breaches of the 'leave it as you found it policy'. There is no cleaning of the units during the member's stay.

At Location one, the beds are not made and members must bring their own linen or hire linen as an optional extra at the time of booking.

At Location two, linen and towels are supplied and the beds are made prior to arrival. The linen is owned by you and the beds are made prior to arrival by your cleaners. The rooms are not serviced during the member's stay.

When you acquire a unit there are sometimes 'legacy bookings' made with the previous owner that need to be honoured as a condition of the acquisition of the unit.

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 40-35, and

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

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.

Your supply will satisfy section 9-5 as it is made for consideration, made in the course or furtherance of your enterprise, the property is located in Australia and you are registered for GST. In addition, the supply is not GST-free under any provision of the GST Act.

The primary issue in this case is whether your supply of accommodation in the units to your members (and legacy guests) is an input taxed supply of residential premises. 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

'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 units at each location satisfy the definition of 'residential premises'. However, it is necessary to further consider whether the supply of your units at each location is a supply of accommodation in commercial residential premises.

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.

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.

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

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.

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. (Paragraph 145 of GSTR 2012/6)

Paragraph 12 of GSTR 2012/6 lists 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.

Ultimately, determining whether premises are commercial residential premises is a matter of overall impression involving the weighing up of all relevant factors. (Paragraph 41 of GSTR 2012/6)

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.

For each location, the common characteristics of operating hotels, motels, inns, hostels and boarding houses as outlined in paragraph 12 of GSTR 2012/6 are present. However, in terms of holding out to the public, only members can book accommodation.

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

In addition, we do not consider the premises to be an Inn or anything similar as meals are not provided to guests. Therefore it is only necessary to consider the features of hotels and motels outlined in paragraphs 13 - 24 of GSTR 2012/6.

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.

As the operations at Location one and Location two differ slightly we will consider the features at each location separately.

Location one

While the complex has its own reception desk and onsite manager, you do not have an onsite presence and your guests are directed to contact you with any queries. However, guests are required to interact with the complex reception desk to obtain unit keys.

Guests are expected to clean the units and comply with a 'leave it as you found it policy'. Linen and towels are supplied and the beds are made prior to arrival by your cleaners. However, the rooms are not serviced during the member's stay.

Guests self-cater for food and drink as there are no facilities for the provision of food or drink.

Guests have access to various onsite facilities.

Location two

You do not have an onsite presence at any of the complexes. While each complex where your units are located has its own reception desk and onsite manager, your guests are directed to contact you with any queries. There is no meet and greet and the units are fitted with keypads removing the requirement to physically supply keys.

Guests are expected to clean the units and comply with a 'leave it as you found it policy' and there is no cleaning of the units during the guests stay. Guests are required to make the beds and supply their own linen unless they hire it at the time of booking.

There are no facilities for the provision of food or drink at any location and guests self-cater for food and drink.

Guests have access to various onsite facilities.

Conclusion

Whilst the infrastructure to provide meals or the provision of meals via a third 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.

You do not have facilities at either location for the provision of food or drink.

You do not have an onsite reception desk to provide services to guests or arrange meals via a third party. Further, the rooms are not serviced during a guests stay.

On balance, the units at each location do not have the commercial infrastructure of a hotel or motel. We do not consider that you are operating the units at each location on a commercial basis similar to a hotel or motel.

As such, for GST purposes we consider that you are making input taxed supplies of accommodation in residential premises pursuant to paragraph 40-35(1)(a).