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Edited version of your written advice
Authorisation Number: 1051286083060
Date of advice: 2 October 2017
Ruling
Subject: GST and residential premises
Question
Are you making input taxed supplies of premises by way of lease, under section 40-35 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when you lease accommodation at specified address to specified entity?
Answer
Yes, you are making input taxed supplies of premises by way of lease, under section 40-35 of the GST Act, when you lease accommodation at specified address to specified entity.
Relevant facts and circumstances
1. You, specified entity, own a property located at specified address. You are registered for GST.
2. There are two buildings at this address. The land and the two buildings are on one title. The two buildings have been renovated. The accommodation is suitable for students as well as non-students. There are in total specified number rooms in the buildings. Each room has a kitchenette and ensuite/bathroom. In addition, each room is fully furnished with a bed, microwave, and desk. All linen and other amenities are provided by the occupant in the residence. The only communal facilities are a shared laundry and a courtyard. There is no on-site manager or on-site supervisor. An off-site real estate agency acts on your behalf regarding your supply of accommodation.
3. The specified entity has leased the entire property from you. Before your contract with specified entity, you leased the premises to independent tenants prior to as well as after the renovation. Similarly, there was no on-site manager or on-site supervisor when you leased the premises to independent tenants. Your current supply to specified entity is made in the course or furtherance of your leasing enterprise. You leased the property to the specified entity for consideration. The specified entity operates a specified enterprise.
4. The specified entity sub-leases the individual rooms to their students.
5. The specified entity pays a rental fee for the entire property. This rental fee includes the occupation of all rooms for use as specified accommodation. Furnishing of rooms, utilities and the cleaning of common areas is provided by you in accordance with Special Condition specified number of the relevant lease agreement.
6. A government permit is in place. The permit was obtained to convert the premises into a multi-unit dwelling that can be used for specified accommodation.
7. The original lease was executed in specified date. A variation to the lease was executed in specified date and it took effect from specified date.
8. There is no written agreement between the specified entity and you pursuant to subsection 153-50(1) of the GST Act.
9. There is no agency agreement between the specified entity and you.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 Section 40-35
A New Tax System (Goods and Services Tax) Act 1999 Section 40-35(1)
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 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
Subsection 40-35(1) provides that a supply of premises by lease, hire or licence 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 an entity that owns or controls the commercial residential premises).
The premises from which the accommodation is supplied satisfy the definition of ‘residential premises’ under section 195-1 and you are supplying accommodation in those residential premises.
The issue is whether the residential premises are 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 terms hotel, motel, inn, hostel and boarding house are not defined in the GST Act and take their ordinary meaning. The Macquarie Dictionary 5th 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 (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 provide 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 of ‘commercial residential premises’ include the overall physical character of the premises and how the premises are operated.
Paragraph 11 of GSTR 2012/6 provides that the tests to be applied are whether the premises are a hotel, motel, inn, hostel or boarding house for the purposes of paragraph (a), or whether the premises are similar to these types of premises, in the sense that they have a sufficient likeness or resemblance to any of these types of establishments for the purposes of paragraph (f). These tests necessarily raise 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
● occupants have status of guests.
Paragraphs 13 to 24 of GSTR 2012/6 list the following features which are typical in a hotel, motel or inn:
● Hotels provide accommodation for a commercial purpose.
● Hotels have the capacity to provide for multiple occupancy.
● 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.
● 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 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.
● 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.
Paragraphs 26 and 27 of GSTR 2012/6 provide as follows:
26. The term ‘hostel’ includes premises that can be described as a hostel, a hotel or inn. The features of hotels and inns identified at paragraphs 13 to 25 of this Ruling are relevant to these types of premises.
27. The term ‘hostel’ also includes a supervised place of accommodation usually supplying board and lodging provided at a comparatively low cost.
Paragraph 41 of GSTR 2012/6 states that whether premises are commercial residential premises is a matter of overall impression involving the weighing up of all relevant factors.
We are of the view that there are no supplies of accommodation in commercial residential premises after weighing up all the relevant factors including all of the physical and operating characteristics of the lease of the property.
You are providing accommodation in residential premises that are not commercial residential premises. The premises are not a hotel, motel, inn, hostel or boarding house. In addition, the premises do not share sufficient similarities with hotels, motels, inns, hostels or boarding houses to meet paragraph (f) of the definition of commercial residential premises.
Therefore, you are making input taxed supplies of premises by way of lease, under section 40-35 of the GST Act, when you lease accommodation at specified address to specified entity.