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Edited version of your written advice
Authorisation Number: 1051478619467
Date of advice: 14 February 2019
Ruling
Subject: GST and commercial residential premises
Question
Are you entitled to full input tax credits for the land acquisition and construction of the Facility under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer
Yes.
Relevant facts and circumstances
The Department is registered for GST.
The Department undertakes the delivery of a number of services including accomodation. The Department regularly acquires, divests and constructs property in the delivery of housing and homeless services. The provision of supervised, metropolitan based accommodation to secondary students from remote areas of the state to complete secondary studies is considered normal activity by the Department.
The Department purchased the Property as a fully taxable supply of land from another state government department in mmyyyy.
The Department is building a student accommodation facility (the Facility) on the Property. The construction started in mmyyyy with a scheduled completion date of ddmmyyyy. The site is x m2.
The Department will lease the Facility to XYZ to administer. Departmental funding grants will be made to XYZ to assist in running the Facility. The Facility is scheduled to commence operation in mmyyyy.
You have provided a detailed site layout.
The site contains the following buildings:
● Entry (building 1) – Entry building with office block connected to learning rooms and outdoor learning area.
● Kitchen / Recreation (building 2) - Recreation building with commercial kitchen, indoor and outdoor dining facility and recreation space.
● Multi-purpose (building 3) – Central sports facility.
● Accommodation (building 4) – A two story residential block for students and guardian supervisors:
● Student accommodation is one and two bedroom dormitories, separate common areas of amenities, laundry and lounge area.
● Guardian supervisors are provided a self-contained office room on both floors.
● Residence (building 5) – three bedroom house to accommodate the site manager.
The land associated with the house footprint forms part of the total x m2 site. The residence is separated from the main facility by a fence but is not separately titled. The occupation of the residence is a condition of employment with no residential tenancy agreements in place.
The Facility houses secondary school students under 18 years of age from remote communities to complete their school education. Students’ families and friends cannot reside at the Facility.
No residential tenancy agreements are in place, the students’ places at the Facility will be bound by scholastic and behavioural agreements tied to secondary educational attendance.
The Facility is located across the road from and within walking distance to a High School. The students will attend this school.
It is mandatory that the students staying at the Facility attend high school and must leave the Facility when they graduate.
The High School does not have any input into the running of the Facility and no equitable interest in the entity providing the accommodation.
Supervision will be provided at the Facility.
Meals will be provided at the Facility.
The Department has already claimed the relevant input tax credits.
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 11-5
A New Tax System (Goods and Services Tax) Act 1999 Section 11-15
A New Tax System (Goods and Services Tax) Act 1999 Section 11-20
A New Tax System (Goods and Services Tax) Act 1999 Section 40-35
Reasons for decision
In this reasoning, please note:
● all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)
● all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act
● all reference materials referred to are available on the Australian Taxation Office (ATO) website ato.gov.au
Section 11-20 states that you are entitled to an input tax credit (GST credit) for any creditable acquisition that you make.
Section 11-5 provides that you make a creditable acquisition if all of the following criteria are satisfied:
(a) you acquire anything solely or partly for a creditable purpose (ie to the extent you acquire the thing in carrying on your enterprise except to the extent the acquisition relates to making input taxed supplies or is of a private or domestic nature)
(b) the supply to you was a taxable supply
(c) you provide, or are liable to provide, consideration for the supply
(d) you are registered or required to be registered.
The relevant issue here is whether your acquisition of the land and the construction of the Facility is for a creditable purpose.
You will lease the entire Facility to another entity that will provide accommodation to students.
Section 9-5 provides that you make a taxable supply if:
(a) you make the supply for consideration
(b) the supply is made in the course or furtherance of an enterprise that you carry on
(c) the supply is connected with the indirect tax zone (Australia), and
(d) 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 of the Facility by lease will satisfy paragraphs 9-5(a), (b), (c), and (d). Further the GST-free provisions are not relevant in this circumstance. Therefore, your supply of the Facility by lease to another entity will be taxable except to the extent that it is input taxed.
The Facility site contains the following buildings:
● Entry (building 1) - Entry building with office block connected to learning rooms and outdoor learning area.
● Kitchen / Recreation (building 2) - Recreation building with commercial kitchen, indoor and outdoor dining facility and recreation space.
● Multi-purpose (building 3) - Central sports facility.
● Accommodation (building 4) – A two story residential block for students and guardian supervisors.
● Residence (building 5) - Three bedroom house to accommodate the site manager. The residence is separated from the main facility by a fence but is not separately titled.
Section 40-35 provides that a supply of premises by lease is input taxed if the supply is of residential premises, other than a supply of commercial residential premises.
Both the Accommodation building and the Residence building have the elements of shelter and basic living facilities required to satisfy the definition of ‘residential premises’ in section 195-1 as outlined in paragraphs 9 and 15 of Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises.
However, we also need to consider whether the Facility as a whole is commercial residential premises as this would exclude the supply from the input taxed treatment provided by section 40-35.
Commercial residential premises
Guidance on whether premises are characterised as commercial residential premises is provided in Goods and Services Tax Ruling GSTR 2012/6 Goods and service tax: commercial residential premises.
The term ‘commercial residential premises’ is defined in section 195-1, in part, as:
(a) a hotel, motel, inn, hostel or boarding house; or
(b) premises used to provide accommodation in connection with a *school; 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.
Paragraph 202 of GSTR 2012/6 provides that Boarding facilities provided by schools, or by another organisation on behalf of, or in connection with, a school or schools, are commercial residential premises. For various reasons, we do not consider the Facility will be used to provide boarding facilities in connection with a school, including that the Facility is not constructed on land owned by a school, and no school has an equitable interest in the entity providing the accommodation, or input in the running of the Facility.
We will consider if the Facility meets the descriptions of hostel or boarding house as set out in GSTR 2012/6 as the Facility does not meet the descriptions of hotel, motel or inn.
As the Facility will be supplied as vacant premises a comparison of the vacant premises will be made to:
● the guidance contained in paragraphs 86 to 87 of GSTR 2012/6 in relation to vacant premises
● the physical characteristics of operating hostels and boarding houses as set out in paragraphs 26 to 40 of GSTR 2012/6.
Paragraphs 86 to 88 of GSTR 2012/6 state:
Characterising premises that are not operating
86. Premises may be characterised under paragraphs (a) or (f) of the definition of commercial residential premises when they are not operating. Premises that are not being operated at the time of supply may be classified by their overall physical character, considered with other objective characteristics.
87. Evidence that may objectively indicate whether premises are a hotel, motel, inn, hostel or boarding house includes:
● the premises' physical characteristics,
● architectural plans and drawings,
● contractual documentation that provides evidence of how the premises will be used in the future, or
● council or other government planning and zoning restrictions and approvals and permissions.
These types of evidence may be relevant where the premises have been newly constructed and not yet operated. Where these indicators reveal that the premises have been specifically constructed for a different purpose (for example, to be used as a retirement village), or not designed as a hotel, motel, inn, hostel, boarding house or similar premises, the non-operating premises are not commercial residential premises.
…
Features of hostels
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.
28. The physical characteristics of a hostel, or premises similar to a hostel, reflect that the premises are designed to supply accommodation at a comparatively low cost to the occupants. Physical characteristics may include a commercial kitchen where meals are prepared, a communal area suitable for a dining area for occupants, and a communal laundry.
29. Hostels are typically centrally managed by an on-site manager who manages the accommodation and arranges or provides services. The feature that a hostel, or premises similar to a hostel, be a supervised place of accommodation can be evident where occupants can raise queries and concerns pertaining to the management of the premises with an on-site manager.
30. Hostels provide accommodation for a commercial purpose. Non-profit entities can also operate commercial residential premises. For example, various non-profit organisations operate hostels in a business-like manner.
31. Hostels have the capacity to supply accommodation for multiple occupancies.
32. Accommodation in hostels may be provided either in a dormitory environment or in separate bedrooms.
33. Accommodation may be supplied within a hostel to occupants as the occupant's principal place of residence. It is not necessary for accommodation in the premises to be limited to guests who need or desire accommodation while away for business or pleasure.
34. The operator of the hostel supplies the accommodation in its own right and not in the capacity of agent for a third party. The arrangement between the parties will reveal whether there is an agent-principal relationship.
35. Occupants of a hostel may be provided meals by the operator of the premises. However, the provision of meals is not an essential feature of a hostel.
Features of boarding houses
36. A boarding house is a dwelling at which board and lodging are provided to guests or residents.
37. A boarding house provides accommodation for a commercial purpose. Non-profit entities can also operate commercial residential premises. For example, various non-profit organisations operate boarding houses in a business-like manner.
38. A boarding house has the capacity to supply accommodation for multiple occupancies.
39. While the term 'boarding house' indicates that the premises ordinarily consist of a single dwelling, premises are not precluded from being a boarding house where the premises consists of a building with an additional stand alone structure in which board (meals), or lodging, or both, is provided. However, premises are not a boarding house where the premises consist of a central building used as a communal dining/meeting area with a number of independent living units.
40. A boarding house may provide accommodation to occupants as the occupant's principal place of residence. It is not necessary for accommodation in the premises to be limited to guests who need or desire accommodation while away for business or pleasure.
There are a number of similarities between the Facility and the descriptions of boarding houses and hostels. Based on the description of these types of premises in GSTR 2012/6 and the guidance provided on classifying vacant premises, the Facility mostly closely matches the physical description of a hostel/boarding house as it:
● can provide multiple occupancy
● has buildings designed to supply accommodation at a comparatively low cost to occupants with one and two bedroom dormitories, separate common areas of amenities, laundry and lounge area and separate commercial kitchen with indoor and outdoor dining and recreation space
● includes self-contained office rooms for guardian supervisors
● includes a residence to accommodate a site manager
● has a commercial kitchen for supplying meals to occupants.
The physical characteristics of the Facility indicate that it has been constructed for the provision of supervised accommodation to the students at a comparatively low cost for the occupants.
The Facility will be used by XYZ to provide accommodation to secondary school students aged from 11 to 18 from remote communities to complete their school education.
The physical characteristics of the Facility, with its proposed use by XYZ, indicate that the Facility, in its entirety, is commercial residential premises.
Your supply of the Facility by lease to a XYZ that will provide accommodation to students will be a supply of commercial residential premises.
Accordingly, your acquisition of the land and the construction of the Facility will be for a creditable purpose. Where the other requirements of section 11-5 are satisfied, your acquisitions will be creditable acquisitions and you will be entitled to GST credits on those acquisitions.