Edited version of private advice

Authorisation Number: 1051788790533

Date of advice: 10 December 2020

Ruling

Subject: GST and residential premises

Question

Will your supply of the Property to the SDA Provider under the Head Lease be a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Service Tax) Act 1999 (GST Act) and subject to GST?

Answer

No. The Property will be an input taxed supply of residential premises.

Relevant facts and circumstances

You are registered for GST.

You have entered into multiple off-the-plan contracts (each a Contract of Sale) for the purchase of X one-bedroom apartments (Apartments) for the purposes of use as X specialist disability accommodation (SDA) apartments for tenants with High Physical Supports (as defined under the National Disability Insurance Scheme Act 2013 (NDIS Act)) (SDA Apartments) and one support care apartment (Support Apartment) which is required for a carer to provide overnight on-site assistance to the X tenants with High Physical Supports (together the Property).

The Property forms part of a larger development of X residential apartments.

Your Apartments are spread from Ground Floor to Level X. The reason for this spread is three-fold:

1. The National Disability Insurance Agency (NDIA) prefers not to have clusters of SDA tenants together where possible. The fundamental principle of SDA is independent living within the community so they can feel integrated. This also reflects the move in modern care settings away from clustered group homes/villages/buildings and into mixed-use developments where care and residential are integrated (as reinforced by the NDIA in the SDA Investor Brief 2018).
2. Required building designs of SDA apartments and the modifications required to floor plates means it is difficult to fit SDA apartments on one floor compared with ordinary residential apartments. Therefore, it is easier and better to have more SDA apartments spread over multiple floors than on one floor.
3. The assistive technology components and required modifications can be connected and implemented across the floors to provide seamless care - the technology allows SDA apartments to be spaced within modern design settings rather than be clustered together on one floor or in a separate building and still achieve the same level of care.

The SDA Apartments remain 'connected' through an enterprise network system installed throughout the building and connected to the Support Apartment and have access to modifications in common areas on all the relevant floors. All SDA Apartments are also further modified to the individual needs of the SDA tenant - there is a base level of modification required to meet High Physical Support standards and this is always supplemented with additional modifications and supports which are specific to the tenant and which are installed at the request of the tenant. This ensures that onsite care and access to care can be provided 24/7 to the tenants through the use of purpose-installed technology and modifications in the same way aged care or outpatient care facilities have technology connecting tenant rooms to the central staff room and are modified to suit the needs of aged care or outpatient residents.

The purpose designed and integrated SDA Apartments, enterprise network system and individualised modifications encourage independent living and efficient support services resulting in improved community participation and reduced reliance on government funded supports for the SDA tenants.

You will lease the Property (i.e. the SDA Apartments and the Support Apartment) to Entity B (SDA Provider) under a Head Lease. The Head Lease contains a provision that the premises are only to be used for the permitted use, being the provision of SDA.

You are not a qualified SDA provider and cannot directly provide the SDA Apartments to the SDA tenants or enrol them as SDA dwellings. Only approved SDA Providers are entitled to enrol dwellings. The SDA Provider will sub-lease the SDA Apartments to NDIS participants who have specialist disability accommodation support approved under their NDIS plan (Participants) under subleases (Subleases) and licence the Support Apartment to Entity C (a supported independent living provider within the meaning of the NDIS Act) (SIL Provider) under a collaboration agreement which appoints the SIL Provider as primary provider of support services to the tenants of the SDA Apartments including to deliver overnight onsite assistance.

To meet the building criteria of the NDIA, significant design standards must be met to ensure that the required level of care for the relevant classification is met. Your Apartments will meet the classification standard High Physical Supports, which requires dwellings to be modified to meet the anticipated needs of High Physical Support tenants (including high-end automation, ceiling hoists, accessibility requirements, 24 hour connectivity with the Support Apartment and additional automated safety features for emergencies).

The additional design features of each SDA apartment for High Physical Supports are set out in Schedule 1 to the Contract of Sale. These modifications are inclusive of and in addition to the base requirements per the SDA Design Standards which can be summarised as follows:

•         step-free doorways and wider entrances to the dwelling

•         additional mandatory width corridors and spaces to allow for access to facilities such as bathrooms, kitchen, living areas and bedrooms

•         power and control automation of internal and external doors, windows, lights and blinds

•         specialised toilets and seats and reinforcements of bathroom walls

•         shower grab rails and seats

•         sensor or level tap operation of appliances at certain reduced heights

•         side-hinged oven doors and telescopic rails with the oven-controls on the side of the benchtop

•         height-adjustable benchtop surfaces

•         drawer-style dishwashers

•         fixed ceiling hoists in the master bedroom with required loads up to 250kg

•         emergency power solution for up to 2 hours power in a blackout

•         desirability of fire sprinklers to be installed

•         nurse and emergency call system

•         an intercom system for supports (for connection to Support Apartment).

The specific design features of the Support Apartment are set out in the Technology Design Requirements set out in Schedule 1 of the Contract of Sale but can be summarised as follows:

•         nurse and emergency call system

•         sensor monitoring system for each SDA Apartment to be accessed from Support Apartment

•         remote access and locking access for each SDA Apartment

•         integration into fire alarm system of common building

•         tablet/smartphone interface between Support Apartment and SDA Apartment

•         hard-wired phone system between Support Apartment and SDA Apartment

•         dedicated WIFI system separate from individual systems in SDA Apartments

•         continuous power back-up system

•         fixed locked box for medicines for each Participant

•         built-in storage for linen, utensils and consumables for all units

•         hardwired control consoles/devices for nurse call, monitoring, security and fire systems.

You have provided evidence of Platinum Level Certification and certification to SDA High Physical Supports for each SDA Apartment as received on ddmmyyyy. Platinum Certification is the current equivalent of certification of High Physical Supports - this will be replaced by the new NDIS SDA Design Standards which come into effect on 1 July 2021.

You have provided a layout plan which is the same layout which has been achieved with the SDA Apartments.

You have provided a signed Contract of Sale (Contract) for one of the SDA Apartments. The other SDA Apartments have the same design requirements as this SDA Apartment.

You have provided Schedule 1 of the Contract of Sale (Schedule 1) which sets out all the requirements for the modifications necessary to make the SDA Apartments compliant with the required certifications and to meet individual tenant requirements.

All requirements in Schedule 1 are needed to modify a standard apartment to meet the requirements and/or SDA tenant needs. Schedule 1 reflects the additional changes and modifications needed for the SDA Apartments.

Schedule 3 and Schedule 4 of the Contract of Sale sets out the cost and quotes required to provide the automation requirements (to meet certification) from Entity D to the common areas and each SDA Apartment.

You have provided the Head Lease.

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 9-40

A New Tax System (Goods and Services Tax) Act 1999 Section 11-5

A New Tax System (Goods and Services Tax) Act 1999 Section 11-20

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

Question 1

You are liable for GST on any taxable supplies that you make.

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.

You will satisfy paragraphs 9-5(a), (b), (c) and (d). Further the GST-free provisions are not relevant.

Section 40-35 provides that a supply of premises by lease, hire or license is input taxed if the supply is of residential premises, other than a supply of commercial residential premises and the premises are to be used predominately for residential accommodation.

It is common ground that the Premises are not commercial residential premises as they are not similar to a hotel, motel, inn, boarding house or hostel as outlined in Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises.

Residential premises is defined in section 195-1 as:

residential premises 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) ...

Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises considers how section 40-35 (residential rent) applies to supplies of residential premises.

In relation to premises not occupied at the time of supply, paragraph 7 of GSTR 2012/5 relevantly provides:

7. Premises, comprising land or a building, are also residential premises under paragraph (b) of the definition of residential premises if the premises are intended to be occupied, and are capable of being occupied, as a residence or for residential accommodation, regardless of the term of the intended occupation. This limb of the definition refers to premises that are designed, built or modified so as to be suitable to be occupied, and capable of being occupied, as a residence or for residential accommodation. This is demonstrated through the physical characteristics of the premises.

The requirement in section 40-35 that the premises are to be used predominantly for residential accommodation is interpreted as a single test that looks to the physical characteristics of the property to determine the premises' suitability and capability for residential accommodation.

To satisfy the definition of residential premises, premises must provide shelter and basic living facilities. Premises that do not have the physical characteristics to provide these are not residential premises to be used predominantly for residential accommodation. The premises must also be fit for human habitation.

The Apartments in the Property do provide shelter and basic living facilities and are fit for human habitation. Therefore, the Property satisfies the definition of 'residential premises' in section 195-1.

However, not all premises that possess basic living facilities are residential premises 'to be used predominately for residential accommodation'. Paragraph 25 of GSTR 2012/5 states:

... If it is clear from the physical characteristics of the premises that their suitability for living accommodation is ancillary to the premises' prevailing function, the premises are not residential premises to be used predominantly for residential accommodation.

Examples of premises where the physical characteristics of the premises indicate it is not residential premises to be used predominantly for residential accommodation are outlined in paragraphs 26 to 39 of GSTR 2012/5:

•         office building - The physical characteristics indicate that the premises are a place for office workers to undertake tasks associated with a business.

•         private hospital - The physical characteristics indicate that these premises are a place where the sick or injured are given medical or surgical treatment.

•         residential care facility (low care hostel and nursing home) - The physical characteristics evidence that the premises are to be used predominantly to provide care to the frail and disabled.

•         shop - The characteristics and design plans show that the building is a shop designed to facilitate a retail business.

Whilst the premises above may provide shelter and basic living facilities, the physical characteristics evidence that they are a different type of premises. In contrast, paragraphs 44 to 45 of GSTR 2012/5 illustrate that the addition of furniture and minor fittings is not sufficient to modify the physical characteristics of residential premises into premises other than residential premises to be used predominantly for residential accommodation. In that example the installation of an electricity point and telephone line and addition of shelves, filing cabinets, desk, office chairs, office suitable carpet and signage to facilitate part of a house being used as an office are not sufficient modifications and the premises remain residential premises to be used predominately for residential accommodation.

In your case, the Property consists of the X SDA Apartments and one Support Apartment located in various locations throughout a X-apartment residential building. The Apartments have a bedroom, bathroom, laundry, kitchen, dining and living area. These physical characteristics of the Apartments are those of residential premises.

You contend that due to the modifications required throughout the apartment to facilitate independent living in the apartment by a person with disabilities, the physical characteristics of the Property are for the prevailing function of providing care and the Property's suitability for living accommodation is secondary. You draw parallels between the Property and the example of a residential care facility at paragraphs 30 to 35 of GSTR 2012/5 (Example 6).

There are differences in the physical characteristics between the facility in example 6 and your Property.

The purpose-built facility in example 6, a low care hostel and a nursing home, has the physical characteristics of separate communal meal, living and entertainment areas, administration offices, and commercial kitchen and laundry and private bedrooms. In your case, each of X SDA Apartments are fully self-contained (bedroom, kitchen, dining, loungeroom, laundry and bathroom) and linked by technology to a Support Apartment located throughout a X-apartment residential building.

The physical characteristics of the facility in Example 6 are predominantly for care (separate communal meal, living and entertainment areas, administration offices, and commercial kitchen and laundry) and ancillary for residential accommodation (private bedroom). Whereas the physical characteristics of the X SDA Apartments are predominantly for residential accommodation (self-contained units) and ancillary for the care (Support Apartment linked by technology).

It is acknowledged that under the Contract for an SDA Apartment the builder is required to complete extensive works as listed in the Schedules and obtain the Livable Housing Australia Platinum Level Certification. However, despite the extent of these works, they have not changed the physical characteristics of the SDA Apartments into a different type of premises.

This is supported by the NDIS Specialist Disability Accommodation Design Standard which outlines that the design standards focus is on providing a home environment that maximises the capacity of the individual to live as independently as possible incorporating personal support features within contemporary housing practice.

Based on the physical characteristics of the Property we consider the prevailing function is residential premises to be used predominantly for residential accommodation. The Property is not a care facility. The additional design features support the resident to live in the residential premises independently while also being supported with any required care.

Your supply of the Property by way of the Lease will be input taxed pursuant to section 40-35.

As your supply is not a taxable supply pursuant to section 9-5 your supply is not subject to GST.

Question 2

You are entitled to an input tax 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 (i.e. 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 Property is for a creditable purpose.

As outlined in question 1 you have acquired the Property for making input taxed supplies. Therefore, you are not making a creditable acquisition.