Edited version of your written advice

Authorisation Number: 1051484056832

Date of advice: 14 February 2019

Ruling

Subject: Commercial residential premises

Question 1

Is the property at X (“the Property”) commercial residential premises under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer 1

Yes.

Question 2

Are you entitled to input tax credits for the land acquisition and construction of the commercial residential premises at X (the Facility) under section 11-20 of the GST Act?

Answer 2

Yes

Question 3

Applying subsection 29-10(4), can you report historic adjustments of creditable acquisitions in the next available reporting period?

Answer 3

Yes

Relevant facts and circumstances

You are registered for GST and account on an accruals basis.

The Property was constructed for you on a Xm2 site. It contains the following constructed buildings and improvements (collectively “the Facility”):

● office block connected to a common dining area and recreation room;

● two residential blocks for students and guardian supervisors;

● student accommodation of one and two bedroom dormitories;

● separate common areas of amenities;

● laundry;

● lounge area;

● self-contained rooms for guardian supervisors;

● sports facility, including a basketball court with storage and volleyball court; and

● learning block for student tuition and study with private and outdoor study areas.

Included in the site layout are two residences to accommodate the site manager and an education manager. The residences consist of 1 B bedroom house and 1 x C bedroom house (“the Residences”).

The Residences are separated from the main facility by a fence, but are not separately titled. The occupation of the Residences is a condition of employment with no residential tenancy agreements in place.

The Facility houses secondary school students aged from X years to Y years from communities to complete their school education.

Meals and supervision are provided at the Facility.

No residential tenancy agreements are in place. The students’ places at the Facility are bound by scholastic and behavioural agreements tied to secondary educational attendance.

You built and own the Property and lease the Facility to XYZ who administers it.

Departmental funding grants are also made to XYZ to assist in running the Facility, which commenced operation on xxyy.

You seek certainty on your ability to claim input tax credits (“GST Credits”) on creditable acquisitions incurred in construction and land acquisition where they relate to commercial residential premises.

You seek to amend your BAS for the financial years xxyy, xxyy, xxyy and xxyy for GST Credits that have not been claimed by you on acquisition of the Property and Facility construction costs.

You want to apply subsection 29-10(4) to account for creditable acquisitions made in previous years in the next available tax period.

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 9-20

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 29-10

A New Tax System (Goods and Services Tax) Act 1999 Section 40-35

A New Tax System (Goods and Services Tax) Act 1999 Division 93

Reasons for decision

Question 1

Commercial residential premises

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. It is therefore necessary to ascertain whether all or part of the Facilities fall within the definition of ‘commercial residential premises in section 195-1.

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

…

(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.

On the information you have provided, we are of the view that the physical characteristics of the Facility fall within paragraph (f) of the definition of commercial residential premises, being most similar to a hostel or boarding house in that it bears physical similarities to a hostel or boarding house.

Paragraphs 26 to 40 of GSTR 2012/6 set out the features of hostels and boarding houses:

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.

Based on the description of these types of premises in GSTR 2012/6, 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 residences to accommodate the site manager and the education manager; and

● has communal recreation and dining rooms.

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.

The Facility will be used by a charitable organisation to provide accommodation to secondary school students aged from X years to Y years from communities to complete their school education.

The physical characteristics of the Facility (including the Residences) with its proposed use by the charitable organisation, indicate that the Facility, in its entirety, is commercial residential premises.

Question 2

Section 11-20 states that you are entitled to a 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; and

(d) you are registered or required to be registered.

The relevant issue here is whether your acquisitions of the Property and the construction of the Facility on the Property were for a creditable purpose.

Creditable Purpose

You are an enterprise under section 9-20(1). An enterprise is an activity, or series of activities, done:

(g) by the Commonwealth, a State or a Territory…

You lease the entire Facility to XYZ who administers the Facility and provides accommodation to students. The Facility is one of several premises you lease. We consider paragraph 11-5(a) to be satisfied as you acquired the Property and constructed the Facility in the course of carrying on your property construction, leasing and administration enterprise.

Taxable Supply

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.

Addressing each of the elements of section 9-5 in turn:

● you paid for the Property and construction of the Facilities [s 9-5(a)];

● the Property and the Facilities were supplied to you in the course of property sales and construction enterprises carried on by your respective supplier [s 9-5(b)];

● the Property is located in Australia [s 9-5(c)]; and

● each of your respective suppliers of the Property and the Facility construction were registered for GST [s9-5(d)].

The various acquisitions you made to purchase the Property and build the Facility in the course of your enterprise were therefore taxable supplies.

Consideration

You provided the consideration for the acquisition of the Property and the construction of the Facilities. You therefore meet the requirement in section 11-5(c).

Registered

As you were registered for GST at the time you made the acquisitions of the Property and Facility construction, you fulfil the requirement in section 11-5(d).

As you have fulfilled all the elements of section 11-5, your acquisitions of the Property and the Facility construction services were creditable acquisitions.

Question 3

Subsection 29-10(4) of the GST Act states:

If the *GST return for a tax period does not take into account an input tax credit attributable to that tax period:

(a) the input tax credit is not attributable to that tax period; and

(b) the input tax credit is attributable to the first tax period for which you give the Commissioner a GST return that does take it into account.

Applying subparagraph 29-10(4), the historical GST Credits you intend to include in your next GST return will be attributable to the period in which you lodge that return. You must hold valid tax invoices at that time. You must also do so within the time limits prescribed by Division 93.

ATO view documents

Goods and Services Tax Ruling GSTR 2012/6 Goods and service tax: commercial residential premises