Edited version of private advice

Authorisation Number: 1051867957414

Date of advice: 22 July 2021

Ruling

Subject: GST and property

Question 1

Will supplies of accommodation in Australia ('the Property') by you be taxable supplies of 'commercial accommodation provided in commercial residential premises' for the purposes of sections 9-5 and 87-15 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, the supplies of accommodation at 'the Property' by you will be taxable supplies of 'commercial accommodation provided in commercial residential premises' for the purposes of sections 9-5 and 87-15 of the GST Act.

The supplies will be a taxable supply unless a choice is made under section 87-25 of the GST.

Question 2

Under Division 87 of the GST Act, will the value of your taxable supplies of accommodation provided to individuals at 'the Property' for a continuous period of 28 days or more be reduced to 50% of the price of the supply?

Answer

Yes, under Division 87 of the GST Act, the value of your taxable supplies of accommodation provided to individuals at 'the Property' for a continuous period of 28 days or more will be reduced to 50% of the price of the supply (provided, as expected, more than 70% of these individuals are provided with long-term accommodation).

Question 3

For the purposes of section 87-20(3) of the GST Act, can you rely on the agreement with occupants to occupy the premises for a continuous term of 28 days or more?

Answer

Yes, for the purposes of subsection 87-20(3) of the GST Act, you can rely on the agreement with occupants to occupy the premises for a continuous term of 28 days or more.

You will monitor the percentage of recipients that agree to a continuous term of occupation of 28 days or more.

Relevant facts and circumstances

You provided the following background facts and information:

•         You are developing a property ('the Property')

•         You are registered for GST.

The Property

The Property will be a new purpose-built student accommodation building.

The Property is located near a train station and is a short walking distance from another train station.

The Property will have transport links or is within walking distance to specified education institutions. However, the Property will not have any connection with a specific education institution.

The Property is not yet operating and is in the construction phase.

The property will have a mix of studios and ensuite rooms and will have access to the large communal spaces, including lounges, communal dining and cooking areas, quiet study areas, movie rooms, a gym, games room, open garden terraces and barbeque areas.

The Property will comprise a variety of student rooms, with xx beds in total, with x types of student living and amenity options.

The Property will also include a retail tenancy.

Each floor has common areas to be shared amongst the students. The types of communal areas and configurations vary from floor to floor.

You expect 100% of the individuals that will be provided with commercial accommodation at the Property will be provided with long-term accommodation. This is a factor that can be verified independently either by the Manager or sighting the confirmed agreements.

You have provided a sample tenancy document

Proposed arrangements with the Manager

You intend to appoint a manager to manage the Property ('the Manager').

The Manager will enter into the contracts with guests as your agent - occupants have the status of guests, the students may or may not have their principal place of residence elsewhere, depending on their personal circumstances.

The contract between you (as principal) and the guests will be for the licence to occupy a part of the Property.

Most of the accommodation will be supplied to students studying at tertiary level. The premises will not be available exclusively for students, but this is the expected market, and the Property has been designed for this market.

You will pay a management fee to the Manager for its services. The management services will include the following:

•         The Manager will maintain a reception in the office accommodation on the ground floor of the Property, providing reception and residential advice services between the advised

•         The Manager will organise an onsite residential manager so that guests can always contact someone on the Property at all times (e.g. if a guest's swipe card does not work late at night);

•         The Manager will organise social events and activities for the guests

•         The Manager will subcontract other personnel to provide cleaning, maintenance, replacing lost keys and security services for the Property

•         The Manager will not provide food to the guests

•         The Manager will provide cleaning services for all common areas of the property security management services including issuing resident key cards, CCTV and security guards

•         The Manager will not be provided with onsite accommodation; however they will be provided with an office space

•         The Manager will repair and upkeep fixed assets and building maintenance

•         Guests will be responsible for the cleanliness of their own apartments; the Manager will occasionally conduct random apartment inspections - with residents' permission.

The Manager will bear risks for the day to day management of the accommodation, while you will bear risk for the financial aspects relating to the accommodation.

The Manager will collect revenue derived from the accommodation and pay the expenses relating to the accommodation. Each month the Manager will prepare a document on the cash position which reflects the surplus after deducting all expenses, including the management fees. Surplus funds will then be transferred from the manager to you. Any shortfall amounts will be paid by you to the Manager.

The Manager will propose rental rates on a half-yearly basis which will be approved by you.

You will continuously monitor how many individuals are provided with commercial accommodation in applying the provisions of Division 87 of the GST Act.

Documents were provided in support of your ruling application.

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 40-35

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 40-35(1)(b)

A New Tax System (Goods and Services Tax) Act 1999 Division 87

A New Tax System (Goods and Services Tax) Act 1999 Subsection 87-5(1)

A New Tax System (Goods and Services Tax) Act 1999 Section 87-15

A New Tax System (Goods and Services Tax) Act 1999 Section 87-20

A New Tax System (Goods and Services Tax) Act 1999 Subsection 87-20(3)

A New Tax System (Goods and Services Tax) Act 1999 Section 87-25

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1

Reasons for decision

The key issues for this arrangement are in relation to GST and the supply of student accommodation. From the information you have provided:

We consider the supplies of accommodation at the Property by you will be taxable supplies of 'commercial accommodation provided in commercial residential premises' for the purposes of sections 9-5 and 87-15 of the GST Act.

Under Division 87 of the GST Act, the value of your taxable supplies of accommodation provided to individuals for a continuous period of 28 days or more will be reduced to 50% of the price of the supply (provided, as expected, more than 70% of these individuals are provided with long-term accommodation).

For the purposes of subsection 87-20(3) of the GST Act, you can rely on the agreement with occupants to occupy the premises for a continuous term of 28 days or more.

Detailed reasoning

In the reasoning unless otherwise stated,

•         all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

•         all reference materials referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au

•         all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act

Taxable supplies of commercial accommodation

You must pay the GST payable on any taxable supply that you make.

Section 9-5 states that you make a taxable supply if:

(a)  you make the supply for *consideration; and

(b)  the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c)   the supply is *connected with the indirect tax zone; and

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

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.

From the information you provided, you satisfy the requirements under section 9-5 because of the following:

1.    The supply of the accommodation will be for monetary consideration;

2.    You are making the supply in the course of its property enterprise that it carries on;

3.    As the Property is located in Australia, supplies of accommodation in the Property will be connected with the indirect tax zone; and

4.    You are currently registered for GST.

Furthermore we consider that in your circumstances, the supply of student accommodation will not be GST-free. Therefore, it remains to be determined if, by providing student accommodation, you will be making input taxed supplies.

Under paragraph 40-35(1)(a), a supply of residential premises by way of lease, hire or licence (other than a supply of commercial residential premises or a supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises) is input taxed.

Under paragraph 40-35(1)(b), a supply of residential premises by way of lease, hire or licence if the supply is of commercial accommodation and Division 87 would apply to the supply but for a choice made under 87-25, is input taxed.

Under subsection 40-35(2), the supply is input taxed only to the extent the premises are to be used predominately for residential accommodation (regardless of the term of occupation).

Residential premises

Section 195-1 provides that 'residential premises' means land or a building that is either occupied as a residence or for residential accommodation or is intended to be occupied, and is capable of being occupied, as such, regardless of the term of occupation or intended occupation.

Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) outlines the characteristics of residential premises.

Paragraph 9 of GSTR 2012/5 explains that the requirement in section 40-35 that premises be 'residential premises to be used predominately for residential accommodation' is to be interpreted as a single test that looks to the physical characteristics of the property to determine the premises' suitability and capability for residential accommodation. Further, paragraph 15 of GSTR 2012/5 states that to satisfy the definition of residential premises, premises must provide shelter and basic living facilities.

In your case, the student rooms, being a mix of room types satisfy the definition of 'residential premises' as the rooms provide shelter and basic living facilities.

We will now consider whether the supply of accommodation in your premises meets the exemption, found in section 40-35, to the input taxed treatment of a supply of accommodation.

Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises (GSTR 2012/6) sets out the ATO view on how GST applies to supplies of commercial residential premises and supplies of accommodation in commercial residential premises.

Paragraph 8 of GSTR 2012/6 states that a supply by way of sale or lease of commercial residential premises is a taxable supply. A supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises is also a taxable supply.

In your case, the supply of accommodation to students at the Property involves You, the Manager and the third-party occupants.

Who is supplying the accommodation?

Having regard to the guidance in paragraphs 28 and 32 of Goods and Services Tax Ruling GSTR 2000/37 Goods and services tax: agency relationships and the application of the law (GSTR 2000/37), paragraphs 223 to 227 of GSTR 2012/6 you have advised that you intend to appoint the Manager to manage the Property and that the Manager will enter into the contracts with guests as your agent.

Based on this information we consider there is a principal and agent arrangement between you and the Manager. That is, the Manager is entering into agreements with guests and managing the apartments in their capacity as your agent and do not have the degree of control over the premises necessary to be supplying the accommodation to resident's in their own right.

Given you are the entity making the supply of accommodation to the residents through an agent (the Manager), the next issue to consider is whether your supplies of accommodation to residents fall within the exception in paragraph 40-35(1)(a), being a supply of accommodation in commercial residential premises.

Commercial residential premises

'Commercial residential premises' under section 195-1 relevantly is defined to mean a hotel, motel, inn, hostel or boarding house or premises used to provide accommodation in connection with a school. Further under section 195-1, commercial residential premises 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.

'Hotel, motel, inn, hostel or boarding house'

The Goods and Services Tax Ruling GSTR 2012/6: Goods and Services Tax: commercial residential premises (GSTR 2012/6) provide guidance on commercial residential premises. Paragraphs 11 and 12, provides the characteristics of operating hotels, motels, inns, hostels, boarding houses or similar premises which are considered to be commercial residential premises. Paragraph 11 states:

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 12 of GSTR 2012/6 identifies a number of characteristics common to those exhibited by operating hotels, motels, inns, hostels and boarding houses:

• commercial intention
• multiple occupancy
• holding out to the public
• accommodation is the main purpose
• central management
• management offers accommodation in its own right
• provision of, or arrangement for, services
• occupants have status of guests.

In your case, the Property is in the construction phase. Paragraphs 86 and 87 of GSTR 2012/6 provide the following guidance:

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.

The 'premises' to be considered relate to your intended supply of accommodation to students at 'the Property'.

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

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.

From the information you have provided, we considered the factors and their application (refer to paragraph 12 of GSTR 2012/6) to the Property as per below:

•         Commercial intention: The Property will be operated by you in a business-like manner as the purpose of the Property will be to earn a profit by providing student accommodation.

•         Multiple occupancy -The Property will have a specified number of beds. The Property will be able to provide occupancy to a large number of unrelated people in separate rooms.

•         Holding out to the public - The Property will be available to the public and will be marketed to a significant segment of the public, namely tertiary students.

•         Accommodation is the main purpose - The main purpose of the Property is to provide student accommodation.

•         Central management - the Manager, on your behalf, will act as the central management for the Property. The Manager will operate a reception, will organise maintenance, cleaning and security of the Property and will organise for an onsite manager for after-hours requests.

•         Management offers accommodation in its own right - You will offer the accommodation to students and other guests in their own right. The Manager will enter into any contracts with students/guests as agent for you.

•         Provision of, or arrangement for, services - The Manager on your behalf of, will arrange services for the guests such as cleaning, maintenance, etc, and will also organise activities and events.

•         Occupants have the status as guests - The students may or may not have their principal place of residence elsewhere and this would depend on their own personal circumstances. A student who stays for a semester may (or may not) maintain their principal place of residence elsewhere during that period. Conversely, a student may stay for two years, and not maintain any other principal place of residence during that period.

The relevant case law on the issue of student accommodation is found in ECG Southbank Pty Ltd as trustee for Nest Southbank Unit Trust v Federal Commissioner of Taxation [2012] FCA 795 (Southbank case). In this court case, the trustee of the Nest Southbank Unit Trust (NSUT) had premises constructed that were designed for student accommodation and serviced apartments. Thereafter, NSUT entered into a lease arrangement with the State of Queensland under which the premises were able to be operated for student accommodation and/or serviced apartment purposes. NSUT subsequently granted a sub-lease of the premises to the trustee of the Urbanest Southbank Leasing Trust (USLT) under which the premises were permitted to be used for managed residential accommodation.

The premises in the Southbank case consisted of 132 shared apartments, 27 studio apartments and various common areas. The shared apartments incorporated a cluster of study/bedrooms (in 4, 5 or 6 room configurations) with a shared kitchen and living facilities. Some study/bedrooms were double occupancy rooms. Each study/bedroom included a single bed or bunk bed, private ensuite bathroom, study desk, air-conditioning and storage area. The studio apartments consisted of a bedroom with ensuite bathroom, private study and living space and a kitchen.

His Honour Nicholas J observed at [50] that in considering whether premises are, or are similar to, a hotel, motel, inn, hostel or boarding house, the application of the test raises questions of fact involving matters of impression and degree.

On the facts of this matter, it was open to the Court to conclude that the premises met the ordinary meaning of the term 'hostel', or were similar to a hostel, and therefore commercial residential premises. (emphasis added).

From the facts provided, the type of physical accommodations you offer at the Property will have the basic features of residential premises such as a place to sleep, bathroom and access to a kitchenette.

We considered the application of the legal principles in the Southbank case and guidance from GSTR 2012/6. We consider that the Property demonstrates the characteristics of 'commercial residential premises', being premises that is a 'hostel' or 'similar' to a hostel under section 195-1.

Premises used to provide accommodation to students in connection with an education institution that is not a school

In order to be 'commercial residential premises', the premises must not be used to provide accommodation to students in connection with an education institution that is not a 'school'. For GST purposes, 'school' is specifically defined in section 195-1 to mean an institution that supplies pre-school, primary, secondary and special education courses but does not include other education courses such as tertiary education courses.

Paragraph 150 of Goods and Services Tax Ruling (2001/1): Goods and services tax: supplies that are GST-free for tertiary education coursescontains a list of factors that are considered in determining whether a supply is in connection with an education institution that is not a school as per extracted below:

Determining whether a supply is 'in connection with an education institution that is not a school'

150. Some of the factors to be considered in determining whether a supply is in connection with an education institution that is not a school include

•         Whether the education institution has any input in the running of the accommodation facility including the setting of rental charges and determining the relationship between the supplier of the accommodation and the occupier. The input may be made through a third party.

•         Whether there is any specific or implied requirement that preference must be given to students of the education institution.

•         Whether the housing facility is constructed on land owned by the education institution.

•         Whether the land has been acquired or utilised by the education institution for the purpose of entering into agreements for the construction and running of the housing facility.

•         Whether the facility is in fact to be occupied by students of the education institution during the academic year or at other times.

•         Whether the education institution has any interest in the entity that is providing the accommodation. The interest may not always be directly reflected.

•         How the housing facility is marketed.

•         The identity of the operator and the nature of their business (is their business the supply of accommodation to students).

•         The intention of the education institution in entering into any arrangements and any relevant agreements relating to the housing facility.

•         Whether the provision of the facility reflects an education institution's charter or other governing instruments.

You advised that the Property is not physically located on a particular education institution's land even though the Property is conveniently located within walking distance of or close to public transport links to education institutions.

Further, the Property does not have an exclusive arrangement with one particular education institution (i.e. university or TAFE) for its students to occupy the premises. No education institution has any input into running the student accommodation premises (either directly or through a third party).

Conclusion

We consider that the Property is a hostel or similar to a hostel and is not premises used to provide accommodation to students in connection with an education institution that is not a school, and will satisfy the requirements of 'commercial residential premises' for the purposes of sections 9-5 and 195-1 of the GST Act.

It follows that under the arrangement, you will be providing, through the Manager, commercial accommodation* as defined in section 87-15 (see below) to students in commercial residential premises.

Choice made by the supplier under section 87-25

Pursuant to section 87-25, a supplier of commercial accommodation can choose not to apply the provisions in Division 87 (making their supplies of the commercial accommodation input taxed under paragraph 40-35(1)(b)). You will choose to apply Division 87, effectively choosing to treat all of their supplies of commercial accommodation as taxable supplies (and not input taxed supplies).

Therefore, from the information you have provided, the supplies of accommodation by you at the Property will not satisfy the requirements of section 40-35 and should not be regarded as input taxed supplies. We consider that the Property satisfies the requirements of commercial residential premises and supplies of accommodation at the Property should be taxable supplies under section 9-5.

Application of Division 87 to long-term commercial accommodation

Subsection 87-5(1) relevantly provides that:

The value of a taxable supply of commercial accommodation that:

(a)  is provided in commercial residential premises that are predominantly for long-term accommodation; and

(b)  is provided to an individual as long-term accommodation; is 50%, or such other percentage as is specified in the regulations, of what would be the price of the supply if this Division did not apply.

*Commercial accommodation is defined in section 87-15 to mean the right to occupy the whole or any part of commercial residential premises, including, if it is provided as part of the right so to occupy, the supply of:

(a)  cleaning and maintenance; or

(b)  electricity, gas, air-conditioning or heating; or

(c)   telephone, television, radio or any other similar thing.

You have advised that as part of a tenancy agreement you will provide electricity, water, air-conditioning and heating, Wi-Fi internet, cleaning of common areas and on-site management.

We therefore consider that you will be providing commercial accommodation.

The Commissioner provides guidance in relation to commercial accommodation in Goods and Services Tax Ruling (GSTR 2012/7) Goods and services tax: long-term accommodation in commercial residential premises and paragraph 33 states:

The Commissioner considers that Greenwood J's reference to 'residence' in this context is consistent with the term 'living accommodation' as discussed in GSTR 2012/5 in the context of the definition of 'residential premises'. ... Living accommodation does not require any degree of permanence of occupation. It includes lodging, sleeping or overnight accommodation. Therefore, for an entity to provide commercial accommodation to an individual, the individual must be provided with a right to occupy the whole or any part of the commercial residential premises for living accommodation (that is, in the sense of a right to stay).

From the information you have submitted, we consider that you will be supplying commercial accommodation to the occupants of the Property since:

•         You will be supplying accommodation in commercial residential premises; and

•         You will be supplying the occupants a licence (i.e. a right) to occupy their room and the common areas of the Property.

Predominantly for long-term accommodation

Long-term accommodation is defined in section 87-20 to mean commercial accommodation that is provided to an individual for a continuous period of 28 days or more. Further subsection 87-20(3) states that commercial residential premises are predominantly for long-term accommodation if at least 70% of the individuals who are provided with commercial accommodation in the premises are provided with long-term accommodation.

You stated that you expect 100% of the individuals will be provided with commercial accommodation at the Property will be provided with long-term accommodation. You will continuously monitor how many individuals are provided with commercial accommodation in applying the provisions of Division 87. Therefore, on the basis of your expectation about the percentage of individuals to be provided with long-term accommodation, the Property will be predominantly for long-term accommodation.

Accordingly, the value of your taxable supplies of commercial accommodation at the Property will be 50% of what the price of the supply would have been if Division 87 did not apply.

The 70% requirement for premises that are predominantly for long-term accommodation

At paragraph 54 of GSTR 2012/7, the Commissioner states:

Any fair and reasonable method may be used to determine whether the 70% requirement is satisfied. The Commissioner accepts that one of the following methods or a combination of both can be used:

(a) the actual occupancy of the premises for the twelve months preceding the month for which the booking is made; or

(b) the projected occupancy for the twelve months following the month in which the booking is made

You stated that the 70% requirement will be satisfied by independent verification by the manager or by sighting the individual. We consider this to be a fair and reasonable method.