Edited version of private advice

Authorisation Number: 1051621693804

Date of advice: 19 December 2019

Ruling

Subject: Goods and services tax and property

Question

Are you making taxable supplies pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when you provide accommodation, in the specified property, to employees of specified entity?

Answer

Yes.

This ruling applies for the following period:

December 2019 to December 2023

The scheme commences on:

April 2019

Relevant facts and circumstances

You (specified entity) are registered for the goods and services tax (GST).

You acquired specified property. It comprised the following:

• specified number units of accommodation; and
• a specified number room building (Building) that was operated as an specified facility by the previous owner; and
• a specified number square metres (approximately) of vacant land.

You provided us with the following:

• a copy of the floor plan in respect to the Building;
• a Google Maps screen shot of the property. You marked out the location of the specified number units, Building and vacant land;
• photographs of the units and Building and
• a loan and licence agreement in respect to one of the units.

You acquired the property under a single contract for specified amount. The contract settled on the specified date. You acquired the property from specified entity (the Vendor). The Vendor used the property as an specified care facility. You did not purchase the specified item from the Vendor.

The specified rooms provide basic living facilities and shelter.

The Vendor treated the supply, of specified address, to you as input taxed for GST purposes.

Specified number units

The units were constructed in specified year. You do not know whether the Vendor constructed the units.

You purchased the specified number units with the intention of selling some and renting the rest.

In specified year you carried out cosmetic renovations to the units. You replaced the carpets in the units.

The units are situated in specified number duplex buildings. Each building has specified number units. The units have either one or two bedrooms. All units have a living area, kitchen and bathroom. The units are not designed for specified purposes.

There are specified number of the units which are subject to a loan and licence agreement. This ruling does not apply to these specified number units. This private ruling applies only to the remaining specified number units not subject to such a loan and licence agreement.

You have leased the remaining specified number units to specified entity. Specified entity then accommodates their employees.

They are self-contained units.

You provide a weekly cleaning service and linen change pursuant to clause specified number. The rent covers this service.

The occupants can get meals provided to them pursuant to clause specified number. This is at an additional cost over and above the rent. Specified entity pays for the meals. You prepare the food in the Building's commercial kitchen. The food can be consumed in the Building's dining area. Otherwise it is delivered to the units.

The occupants of the units can use the Building's communal area.

Higher level employees stay in the units. Lower level employees stay in the Building.

Specified number room building

The Building was constructed in specified year. You do not know whether the Vendor constructed the Building.

In specified year the Building was restored and repaired. You do not know whether the Vendor carried out the restoration and repair. You do not know whether the renovations were substantial.

You have leased most of the Building to specified entity. Specified entity then accommodates their employees. The employees occupy all the rooms in the Building. The only exception being the one room occupied by the on site manager. All rooms have an ensuite.

There is an onsite manager 24 hours a day and 7 days a week. The on site manager manages the accommodation and arranges or provides services. You employ the on site manager.

The occupied rooms are rented at specified amount per night including food. Breakfast, lunch (packed) and dinner are supplied. Other motels in the area charge approximately specified amount per night (excluding food). You do not supply board and lodging at a comparatively low cost.

The unoccupied rooms are rented at specified number per night. These rooms are reserved for employees of specified entity.

There is a commercial kitchen where you prepare the meals. There is a communal area suitable for dining. There is a communal laundry in the Building.

Specified number square metres of vacant land

The occupants park their vehicles near the units and Building. The larger vehicles are occasionally parked on the vacant land. However, you may improve the vacant land and make it a better car park for the occupants.

This private ruling does not apply to any supplies in respect to the vacant land.

Relevant legislative provisions

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

Section 9-5

Paragraph 9-5(a)

Paragraph 9-5(b)

Paragraph 9-5(c)

Paragraph 9-5(d)

Section 40-35

Division 87

Section 195-1

Reasons for decision

·   All legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) unless otherwise specified.

·   All terms marked by an *asterisk are defined terms in the GST Act.

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.

Under the Agreement and the Letter you will supply meals, cleaning and other services as supplied by the on site manager. Your lease of the specified number units and accommodation in the Building will satisfy paragraphs 9-5(a), (b), (c), and (d). Further the GST-free provisions are not relevant in these circumstances. Therefore, your lease will be taxable unless it is input taxed.

Relevantly, 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 or a supply of accommodation in commercial residential premises by an entity that owns or controls the commercial residential premises.

Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) provides guidance on what constitutes residential premises. Paragraphs 9 and 15 of GSTR 2012/5 state that residential premises must have shelter and basic living facilities. We are satisfied that the specified number units and Building provide the elements of shelter and basic living facilities. So they satisfy the definition of 'residential premises' in section 195-1.

It is therefore necessary to determine whether the specified number units and Building have the characteristics of '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.

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 (GSTR 2012/6). Paragraph 87 of GSTR 2012/6 states:

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.

Paragraphs 26 to 40 of GSTR 2012/6 provide the following detail on the characteristics 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.

There are a number of similarities between the Building and the above description of boarding houses and hostels. Based on the description of these types of premises in GSTR 2012/6, the Building mostly closely matches the physical description of a hostel or boarding house. The Building:

• can provide multiple occupancy;
• has a communal area suitable for dining and a communal laundry;
• includes rooms with bathroom facilities; and
• includes a residence to accommodate an on-site manager.

Therefore, we consider that the Building is commercial residential premises. It follows that, the supply of accommodation in the Building is not input taxed under section

40-35. The supply of the accommodation in the Building is a taxable supply under section 9-5.

The specified number units, in themselves, do not have any of the features of commercial residential premises.

However, paragraphs 95 and 96 of GSTR 2012/6 state:

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.

96. Separately titled rooms, apartments, or adjacent cottages or villas located on adjoining or abutting land can be combined with sufficient commercial infrastructure (as discussed in paragraph 95 of this Ruling) so that, as a whole, it can be operated similarly to a hotel, motel, inn, or hostel. Supplies of accommodation in premises operated in this way are supplies of accommodation in commercial residential premises.

We consider that paragraphs 95 and 96 of GSTR 2012/6 apply, in principle, to the specified number units. The accommodation in the specified number units is supplied in combination with sufficient commercial infrastructure in the Building. Therefore, we consider that the lease of the specified number units along with access to the commercial infrastructure is a supply of accommodation in commercial residential premises. The supply of the accommodation in the specified number units is a taxable supply under section 9-5.