Edited version of private advice

Authorisation Number: 1051858892246

Date of advice: 5 July 2021

Ruling

Subject: Claiming GST on commercial residential premises

Question

Are the short term stay premises' commercial residential premises such that you can claim GST credits in regards to the building and construction costs along with the future income and expenses from the business venture?

Answer

No.

Relevant facts and circumstances

Your trust was established in order to conduct a new business venture.

Land has been purchased with the intention of building a new commercial residential premises.

The premises will provide short term commercial holiday accommodation for both family groups and corporates.

Your activities have met the definition of what constitutes an enterprise and you have registered for GST.

On the block there will be X properties. Each property will be able to sleep up to X people.

Target clientele will be families, couples or alternatively small groups looking for the feel of a higher end, more luxurious accommodation not readily available in the area (will also have the option of hiring both for larger groups).

Customers will be able to book online and will be able to check in to the property using a code on an electronic door lock which will be given to them via an email prior to check in time.

They will have all the basics they need for their stay - you will provide linen, towels, toiletries and some staple pantry items.

You are seeking clarification on the application of GSTR 2012/6 Commercial Residential Premises in regards to the building and construction costs along with the future income and expenses from the business venture.

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 11-15

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

Reasons for decision

The primary issue in this case is whether your supply of the short stay dwellings through leasing or letting out of the properties to guests would be an input taxed supply. Input taxed means that GST is not payable on the supply and there is no entitlement to an input tax credit for anything acquired to make the supply.

Input taxed supplies and residential premises

Subsection 40-35(1) 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 or accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises).

'Residential premises' is defined in section 195-1 as land or a building that:

•                    is occupied as a residence or for residential accommodation, or

•                    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 (GSTR 2012/5) provides the ATO view of the factors to consider and the characteristics of residential premises. Paragraphs 9 and 15 of GSTR 2012/5 explain that a single test looking at the physical characteristics of the property will determine the premises' suitability and capability for residential accommodation. To satisfy the definition of residential premises, the premises must provide shelter and basic living facilities.

Paragraph 7 of GSTR 2012/5 explains that the physical characteristics of the premises will determine whether the property is residential premises for the purposes of subsection 40-35(1). It states that the definition of residential premises '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'.

From the facts and information provided, your 2 short stay dwellings satisfy the definition of 'residential premises'.

Commercial residential premises

However, it is necessary to further consider whether the supply through leasing of your property is a supply of commercial residential premises.

Commercial residential premises are defined in section 195-1 as:

(a) a hotel, motel, inn, hostel or boarding house, or

(b)...

...

(f) anything similar to *residential premises described in paragraphs (a) to

(e).

...

Guidance on whether premises are characterised as residential premises or commercial residential premises is provided in GSTR 2012/6.

Paragraph 10 of GSTR 2012/6 explains that the objective factors that are relevant to characterising premises under paragraph (a) or (f) of the definition of 'commercial residential premises' include the overall physical character of the premises and how the premises are operated.

Paragraph 11 of GSTR 2012/6 provides that the tests to be applied are whether the premises are a hotel, motel, inn, hostel or boarding house for the purposes of paragraph (a), or whether the premises are similar to these types of premises, in the sense that they have a sufficient likeness or resemblance to any of these types of establishments for the purposes of paragraph (f). These tests necessarily raise questions of fact involving matters of impression and degree.

Paragraph 95 to 98 of GSTR 2012/6 considers separately titled rooms, apartments, cottages or villas and explains that in order for premises to be commercial residential premises, the living accommodation areas must be accompanied by commercial infrastructure to support the commercial operation of the premises.

Paragraph 95 of GSTR 2012/6 outlines that commercial infrastructure includes (but is not limited to) reception areas, dining and bar areas, meeting/function areas, kitchens, laundry facilities, storage areas and car parks. This commercial infrastructure is used to provide services to occupants.

We are of the view that you are not making supplies of accommodation in commercial residential premises after considering:

•                    all of the physical and operating characteristics of the lease of the X dwellings located at your Property; and

•                    the lack of sufficient commercial infrastructure supplied.

You will be making an input taxed supply of accommodation in residential premises when you let the X short stay dwellings to the occupants. Therefore, as the leasing of your dwellings will not be a taxable supply under section 9-5, you cannot claim GST credits in relation to the construction or operation of the premises.