Edited version of your written advice

Authorisation Number: 1051179704127

Date of advice: 11 January 2017

Ruling

Subject: Goods and services tax (GST) and the sale residential premises

Question 1

Will you be acquiring residential premises on the purchase of X for GST purposes?

Answer

Yes

Question 2

Will you have an adjustment pursuant to section 135-5 when you acquire the Apartment?

Answer

No

Question 3

Will you have an adjustment pursuant to section 135-10 if you subsequently become registered for GST?

Answer

No

Relevant facts and circumstances

You are not registered for GST.

You intend to purchase the property at X (the property or the Apartment).

The contract of sale is subject to lease to a company who operates by renting the property out for short term to long term accommodation. This company also provides weekly cleaning, and water and electricity usage is included in the rental price it charges its customer.

The contract of sale price is stated to be GST inclusive.

GST in the Particulars of Sale of the Contract of Sale refers to a sale of a farming business or going concern. The property is not a farming business and will not be acquired as a going concern.

The Apartment includes a kitchenette, bathroom and laundry within the unit.

Relevant legislative provisions

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

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

A New Tax System (Goods and Services Tax) Act 1999 Division 135

Reasons for decision

Question 1

The term 'residential premises' is defined in section 195-1 of the GST Act as 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 the occupation or intended occupation).

Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises contains the Commissioner's view of the characteristics of residential premises.

Paragraph 9 of GSTR 2012/5 provides that 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.

In order to satisfy the definition of residential premises, premises must provide shelter and basic living facilities (paragraph 15 of GSTR 2012/5).

Given the physical characteristics of the Apartment it is considered that it satisfies the definition of 'residential premises'.

Paragraph 98 of Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises explains that where the strata titled units are individually supplied under multiple sale contracts or leases, each individual supply of strata unit must be characterised without reference to other supplies of strata units. A supply by sale or lease of strata titled rooms without sufficient commercial infrastructure referred to at paragraph 95, is an input taxed supply of residential premises to be used predominantly for residential accommodation regardless of whether the building complex, or any part of it, is being, or will be, operated as commercial residential premises.

'Commercial residential premises' is defined in section 195-1 of the GST Act and includes a hotel, motel, inn, hostel or boarding house or anything similar. 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 issue of whether a single apartment or room in a larger complex can be categorised as 'commercial residential premises' is discussed at paragraphs 156 and 157 of GSTR 2012/6 with reference to South Steyne Hotel Pty Ltd v. Federal Commissioner of Taxation [2009] FCA 13 (South Steyne) and South Steyne Hotel Pty Ltd v. Federal Commissioner of Taxation [2009] FCAFC 155 (South Steyne FFC).

156. Hotels have the capacity to supply accommodation for multiple occupancies. In South Steyne Hotel Pty Ltd v. Federal Commissioner of Taxation (South Steyne ), Stone J considered whether a supply of an apartment in a complex was a supply of 'anything similar to' a hotel, motel, inn, hostel or boarding house under paragraph (f) of the definition. Her Honour commented:

The definitions of motels, inns, hostels and boarding houses indicate that, in common with hotels, they provide accommodation, although of varying types. In addition to providing accommodation they also have in common that, large or small, they provide for multiple occupancies. The terms are not used where only one apartment, room or other space is provided.

157. On appeal to the Full Federal Court, Emmett J noted in South Steyne Hotel Pty Ltd v. Federal Commissioner of Taxation (South Steyne FFC ):

28. The term hotel or motel would not be used, as a matter of ordinary English, where a single apartment, room or other space is supplied.

29. The fact that the use and occupation by guests of an apartment in the Sebel Hotel may be similar to the use and occupation by guests of a room in a hotel or motel does not make an individual apartment similar to a hotel or motel. It might be appropriate to describe an individual apartment as being similar to part of a hotel, namely a hotel room. It is not an ordinary use of English to describe a single or individual apartment as being similar to a hotel or motel.

On the above basis, your acquisition of a single apartment will not be an acquisition of commercial residential premises. Rather, it will be an acquisition of residential premises under section 40-65 of the GST Act.

Question 2

Paragraph 8 of Goods and Services Tax Determination GSTD 2012/1 Goods and services tax: what are goods and services tax consequences following the sale of residential premises that are subject to a lease? explains that the purchaser has an increasing adjustment under Division 135, where residential premises subject to a lease are acquired through a supply of going concern under section 38-325 i.e. a GST-free supply of going concern, or a GST-free supply of farm land under section 38-480.

As you will not be acquiring the Apartment through a GST-free supply of going concern or a GST-free supply of farm land, you will not have an increasing adjustment pursuant to Division 135.

Question 3

As per question 2, as you will not be acquiring the Apartment through a GST-free supply of going concern or a GST-free supply of farm land, you will not have an increasing adjustment pursuant to Division 135.