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Edited version of your written advice
Authorisation Number: 1051308748291
Date of advice: 7 February 2018
Ruling
Subject: GST and supply of accommodation
Question
Is your supply of accommodation in the apartments located at specified addresses in Australia an input taxed supply under section 40-35 of the GST Act?
Answer
Yes, your supply of accommodation in the apartments located at the specified addresses in Australia is an input taxed supply under section 40-35 of the GST Act.
Relevant facts and circumstances
ABC Pty Ltd ATF the XYZ Family Trust (you) is currently not registered for GST.
In mmyyyy, you entered into a franchise agreement to operate the franchised business of providing furnished and partly furnished apartments for accommodation under the franchise business name.
Under the franchise agreement, you as the franchisee will lease premises (franchised premises) from third party property owners for use by you to provide accommodation, in your own right (not as agent to, or on behalf of, the property owners), to the public for short term accommodation. You have currently leased a number of apartments (the Apartments) for this purpose. You are also in the process of securing additional apartments for the same purpose.
The Apartments are situated within two apartment complexes:
● Complex 1 - a number of apartments
● Complex 2 - a number of apartments
You have provided a copy of the Tenancy Agreement which was executed on ddmmyyyy between ABC Pty Ltd T/A … (as tenant) and the Landlord of Apartment number … at Complex 1. This agreement was prepared on the Residential Property Tenancy Agreement form of the Real Estate Institute of the relevant State for a one year term and renewed for a further one year to expire on ddmmyyyy. A special condition noted that the landlord consents to ABC Pty Ltd (Trading as …) (the tenant) sub-letting the property as part of your business, to corporate and short term tenants.
You have entered into similar tenancy agreements with the other owners of the Apartments. The Apartments are marketed for long term accommodation on the franchise apartment leasing business’ website, with a focus on corporate clients requiring accommodation for relocating staff or staff on projects away from home.
You are not able to determine the average length of stay by the occupants as the Apartments are relatively new. However, you consider similar apartments marketed through the franchise apartment leasing business’ website by other franchisees have reported average stays of eight weeks with many stays of greater than three months. Some stays have been in excess of one year.
You do not control the communal facilities in either of the apartment complexes. The communal facilities are limited.
You do not sign an agreement with the occupants of the Apartments. The occupants are provided with a copy of the terms and conditions which are identical for the terms and conditions of the franchise apartment leasing business.
The terms and conditions of the franchise apartment leasing business are available on their website. The terms and conditions, amongst other things, specify that:
● by making a reservation with the franchise apartment leasing business, the client agrees to all the listed terms and conditions
● the franchise apartment leasing business grants to the occupants a licence to occupy the accommodation on terms for the period, and that the agreement does not and is not intended to create a residential tenancy agreement or any rights that attach to such an agreement
Other information is also available on the website of the franchise apartment leasing business.
The Apartments comprise a mix of studios, 1 bedroom and 2 bedroom units. Generally, some or all of the below features are included in the supply of your accommodation:
● fully furnished and self-contained apartments, with a fully equipped kitchen and internal laundry,
● occupants are responsible for cleaning during the period of their stay, with only a compulsory departure clean included in the rental charge,
● no services are provided to occupants other than the optional weekly cleaning service, carried out by a third party contractor, which can be arranged upon request
● 24 hour management contact,
● no onsite office. Face to face interactions with the occupants are generally limited to a ‘meet and greet’ at the commencement of occupancy, or to address a specific issue such as maintenance,
● television, DVD player and stereo,
● high-speed internet (Wi-Fi) available on request for an additional charge,
● secure undercover onsite parking on request for an additional charge.
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 195-1
Reasoning
Residential Premises
Under paragraph 40-35(1)(a), a supply of residential premises by way of lease, hire or licence is input taxed if the supply is of residential premises (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).
However, paragraph 40-35(2)(a) provides that the supply is input taxed only to the extent that the premises are to be used predominantly for residential accommodation (regardless of the term of occupation).
‘Residential premises’ is a defined term for GST purposes, and means 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) and includes a floating home.
The phrase ‘residential premises are to be used predominantly for residential accommodation (regardless of the term of occupation)’ is explained in GSTR 2012/5 Goods and Services Tax Ruling, Goods and services tax: residential premises (GSTR 2012/5). Paragraph 9 states that the term 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.
Paragraph 10 of GSTR 2012/5 further explains:
The requirement for residential premises to be used predominantly for residential accommodation does not require an examination of the subjective intention of, or use by, any particular person. Premises that display physical characteristics evidencing their suitability and capability to provide residential accommodation are residential premises…
The self-contained apartment units from which you supply accommodation will typically have the physical characteristics relevant to providing basic living facilities such as bedroom, living area, kitchen, bathroom and toilet. This means the apartment units are suitable and capable of being occupied for residential accommodation. Accordingly, we consider you are making a supply of residential premises to be used predominantly for residential accommodation and paragraph 40-35(1)(a) is partly satisfied. Paragraph 40-35(2)(a) is satisfied.
However, paragraph 40-35(1)(a) will only be fully satisfied if the supply of the premises are not characterised as commercial residential premises, as stated in paragraph 40-35(1)(a). Accordingly, we will consider whether the premises from which you supply accommodation are commercial residential premises.
Commercial Residential Premises
Under section 195-1, the term ‘commercial residential premises’ means:
(a) a hotel, motel, inn, hostel or boarding house; or
...
(f) anything similar to residential premises described in paragraphs (a) to (e).
However, it does not include premises to the extent that they are used to provide accommodation to students in connection with an education institution that is not a school.
GSTR 2012/6 Goods and Services Tax Ruling, Goods and services tax: commercial residential premises (GSTR 2012/6) provides the Commissioner’s view on the characteristics of commercial residential premises.
The terms hotel, motel, inn, hostel and boarding house are not defined in the GST Act and take their ordinary meaning. GSTR 2012/6 lists the ordinary meanings of the terms from a number of dictionaries in interpreting paragraph (a) of the definition. The following meanings are extracted from Macquarie Dictionary 5th edition:
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.
Paragraphs 10 and 11 of GSTR 2012/6 explain that the objective factors 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. The test to apply for paragraph (a) of the definition is whether the premises are a hotel, motel, inn, hostel or boarding house and the test for applying paragraph (f) is whether the premises are similar to these, in the sense that they have sufficient likeness or resemblance to any of those types of establishments.
Paragraph 12 of GSTR 2012/6 lists the characteristics that are considered to be common to operating hotels, motels, inns, hostels and boarding houses that are relevant, though not determinative, to characterising premises as commercial residential premises:
a) commercial intention,
b) multiple occupancy,
c) holding out to the public,
d) accommodation is the main purpose,
e) central management,
f) management offers accommodation in its own right,
g) provision of, or arrangement for, services, and
h) occupants have the status of guests.
Furthermore, paragraph 95 of GSTR 2012/6 states:
95. In addition to living accommodation areas, premises that are commercial residential premises include commercial infrastructure to support the commercial operation of the premises. This infrastructure may include (but is not limited to) reception areas, dining and bar areas, meeting/function areas, kitchens, laundry facilities, storage areas and car parks. This infrastructure is used to provide services to occupants. Premises described in paragraph (a) and similar premises under paragraph (f) of the definition contain some or all of these areas to some degree.
Ultimately, whether the premises are commercial residential premises is a matter of overall impression involving the weighing up of relevant factors.
In your case, although overall the premises have some characteristics in common with commercial residential premises, the apartments do not display sufficient features of a hotel, motel, inn, hostel or boarding house or anything similar to be characterised as commercial residential premises. Accordingly, we consider that your supply of accommodation in the apartment units at the specified addresses is not a supply of accommodation in commercial residential premises. Therefore, the requirements in paragraph 40-35(1)(a) are fully satisfied and your supply of the accommodation from these apartment units is an input taxed supply, and GST is not payable on the supply.