Edited version of your written advice

Authorisation Number: 1013015866966

Date of advice: 27 May 2016

Ruling

Subject: Goods and services tax - Property - Commercial residential

Question 1

Are the supplies of accommodation (including on-site parking, additional beds and high chairs where requested), at the various sites taxable supplies?

Answer

Yes

Question 2

Are the supplies of conference facilities at the various sites taxable supplies?

Answer

Yes

Relevant facts and circumstances

Entity A is registered for GST. Entity A is the group representative for the xxx group.

The group members currently hold the rights to occupy and rent out a number of apartments across a number of sites in various cities, which they use to make supplies of short-term accommodation to the public.

The group members hold their apartments under varying titles from the individual owners.

While the various group entities that lease or own the apartments supply the accommodation in their respective properties, they acquire a number of operational services (human resources, laundry, advertising, etc.) from Entity A for consideration on a commercial basis.

There are no formal management agreements between the group members, as they are all part of the one Group, and all are effectively controlled by one individual.

The Group representative, Entity A:

• does not make any supplies of accommodation.

• is the only entity in the Group that 'employs' staff

• contracts with some external suppliers for some of the acquisitions to be used by the group member making the supplies of accommodation and makes supplies of administration and other shared services to the other group members.

Group members enter into various types of agreements with the relevant Owners' Corporations, and sometimes directly with the other Owners of the apartments if the matters do not relate to the specific duties of the Owners' Corporation (normally to determine who is responsible for repairs and maintenance).

Entity A also normally employs a dedicated onsite caretaker between 7 days a week, and provides after hours calls. Entity A enters into agreements with the relevant Owners' Corporations, and sometimes with the other Owners of the apartments, whereby it undertakes cleaning of the common areas and facilities (copy of a typical agreement with an Owners' Corporation provided).

The group member providing the accommodation sometimes enters into a licence agreement or lease whereby it pays a nominal fee to operate its business from the site.

The agreements also permit the Group member to use some of the Common Property storerooms and cages for laundry and linen services.

Where the group member does not have exclusive control/use of specific areas of common property or property controlled by an Owners' Corporation, its use arises as per the plan of subdivision whereby all owners or tenants have the shared right to use that area in conjunction with other members.

The apartments range from studio apartments through to three bedroom apartments. Most apartments have separate electricity and water meters, and some have individual ground floor post boxes. Some apartments have on site car spaces.

Features and services common to most apartments include:

• in room kitchen facilities (sufficient to cook all meals)

• in room laundry facilities,

• separate living spaces in the apartment,

• Foxtel,

• individually controlled heating and cooling,

• high speed internet access, normally separately charged (plus GST),

• phone, calls normally separately charged (plus GST)

• linen and towels provided,

• hairdryer,

• DVD/CD players that are being phased out in favour of iPod docking speakers,

• iron/ironing board,

• separate electricity and water meters, and post boxes,

• daily cleaning except on some sites, and

• only a few of the sites have parking for guests.

The guests are not (with some exceptions) entitled to, nor are they supplied with, non-accommodation services and facilities such as food and meals, room service, beverages, bar services, coffee lounges or dry cleaning.

Some of the sites have a "chargeback" arrangement with specifically approved local suppliers (eg a local restaurant) under which a guest can buy meals from certain nominated food suppliers (meals and snacks that would normally be eaten there at the restaurant, or be taken away) and have the amount owing to the relevant supplier be notified to the relevant group member. The group member then collects (separately to the charge for accommodation) the amount owed from the guest and then subsequently remits that amount to that supplier. There are also similar arrangements with other local businesses. The guests order from and deal independently and directly with the provider.

In most of the sites, there is small lounge/common room designed for use by the apartment Owners as a small library, TV room, lounge, tea room or sitting room. They are not designed for nor dedicated for, but many can be adapted to rent out to anyone, separately to the accommodation, as a meeting or conference room (subject to GST).

Some of the complexes have separate conference facilities.

Your Contention(s)

Your agent contends that the premises must have the physical characteristics and facilities to enable the provision of hotel like services and that these premises do not possess such characteristics.

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 reference materials referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au

• all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act

Question 1

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.

It is common ground that the premises from which the accommodation is supplied, satisfies the definition of residential premises under section 195-1 and that the entities are supplying accommodation in those residential premises. The question to be determined is whether the residential premises are commercial residential premises. If the premises are commercial residential premises, the supplies of accommodation by the entities are taxable supplies.

'Commercial residential premises' is defined in section 195-1 to include (amongst other things):

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

…

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

…

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

Paragraph (f) of the definition of commercial residential premises extends the scope of the definition to premises that are 'similar' to any of the types of establishments described in paragraphs (a) to (e). Premises that are 'similar' must have sufficient, but not necessarily all, characteristics in common with any of the types of premises.

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.

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. It is not solely the physical characteristics that determine whether premises are commercial residential premises.

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.

Paragraph 12 of GSTR 2012/6 lists the 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.

Paragraphs 13 to 24 of GSTR 2012/06 list the following features which are typical of hotels, motels and inns:

• Hotels provide accommodation for a commercial purpose.

• Hotels have the capacity to provide for multiple occupancy.

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

• Rooms are invariably furnished.

• 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, 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 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.

• Hotels usually have a reception desk to handle the requirements of both management and guests. Hotels may offer concierge services at either the reception desk or at a separate desk.

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

• Accommodation in a Hotel is supplied by the operator of the hotel in its own right and not in the capacity of an 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.

After consideration of all of the physical characteristics and operating characteristics of the relevant properties operated by the Entities, it is considered that all the premises operated by the Entities are commercial residential premises and the Entities are providing accommodation in commercial residential premises. Overall, the premises share sufficient similarities with hotels and motels to meet paragraph (f) of the definition of commercial residential premises.

The entities operate their establishments on a commercial basis. The Entities provide multiple occupancy within each complex having ownership or leases over numerous (or all) of the units in a complex. The Entities do not act as an agent for a third party; the Entities own or lease the apartments within the building and provide accommodation in their own right. The Entities also have, through various means (ownership of the building, leases of the majority or all of the units or common spaces and/or licence or caretaker agreements), sufficient right to use or effective control over the common areas of the premises from which they provide accommodation to carry out their business operations.

The management of the premises is also centrally managed by the Entity. To perform the management function, the relevant Entity acquires operational services from Entity A. While the size and scale of reception areas varies between premises, all premises have a reception desk, or area on site, that is controlled by the Entity, to handle the requirements of both management and guests, including check in and check out.

The Entities hold themselves out to the public to provide serviced apartment accommodation to guests. This accommodation is provided to the general public including business travellers, corporate clients, and holiday goers. The nature of these clients would indicate they are in a class who ordinarily have their principal place of residence elsewhere and who need or desire accommodation while away for business or pleasure. The booking process on the xxx website calculates the price of the accommodation in accordance with a daily rate multiplied by the number of days of occupancy.

The configuration of apartments in the premises is similar to that contained in a typical hotel or motel, with the apartments being fully furnished for the guests' immediate use. Tea and coffee making items and toiletries are provided for guests use. The guests are supplied with linen and towels, and the tariff charged includes cleaning (usually daily), utilities such as electricity, gas and water, and services such as internet access and Foxtel. Laundry facilities are also available either within apartments or within the premises.

Additional services such as food and parking vary between the premises. Some premises provide food to guests (for example breakfast) and a number of the Entities have a charge back facility for dry-cleaning and for meals with specified local restaurants. Some buildings have free onsite parking available to the guests of apartments. While the absence or limited nature of these services may result in the premises not being considered the same as a traditional hotel or motel, the absence (or limited nature) does not result in the conclusion that the premises cannot be sufficiently similar to hotels and motels.

Nicholas J addressed the issue of services 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.

The level of additional services needs to be considered with all relevant matters.

Further, paragraph 41 of GSTR 2012/6 provides a list of factors that may indicate that premises are not a hotel, motel, inn, hostel or boarding house including:

• 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.

While the absence of one or more of the above features does not mean that the premises are similar to a hotel, motel, inn, hostel, or boarding house, the fact that the premises do not exhibit any of the above features provides further support to the view that the premises have the characteristics of a hotel, motel or inn.

In determining whether the premises are similar to a hotel, motel or inn, we have considered the premises in their entirety that is the operation of the serviced apartments and the physical character of the premises. On balance while the various premises do not have all the commercial infrastructure of a more traditional hotel, motel or inn, we consider that all the premises have sufficient common physical and operating characteristics with such establishments to conclude that the premises are similar to that of a hotel, motel or inn. As such, for GST purposes, the premises are regarded as commercial residential premises.

Therefore, the supplies of accommodation will be taxable supplies where the requirements of section 9-5 are satisfied.

Parking, additional bedding and high chairs

The supply of parking, additional bedding and high chairs for consideration will normally be a taxable supply. However, where supply of such items is integral, ancillary or incidental to an input taxed supply of accommodation, they will form part of the input taxed supply. As the supply of accommodation by the Entities is a taxable supply of accommodation in commercial residential premises, it is unnecessary to determine whether the supply of parking, additional bedding and high chairs form part of or are separate to the supply of the accommodation. The supplies of parking, bedding and high chairs will be taxable supplies whether as part of or separate to the supplies of accommodation.

Question 2

The supply of the conference facilities satisfies the requirements of section 9-5 and is neither GST-free, nor input taxed. Therefore, the supply of the conference facilities is a taxable supply and the relevant Entity is entitled to claim input tax credits in connection with those supplies.