Edited version of private advice

Authorisation Number: 1051911643823

Date of advice: 23 November 2021

Ruling

Subject: Commercial residential premises

Question

Is the property considered 'commercial residential premises' for the purposes of section 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No

This ruling applies for the following period:

XX Month 20XX to XX Month 20XX

Relevant facts and circumstances

You are not currently registered for goods and services tax (GST). You supply rental accommodation in a residential property.

The property is, and has only been, rented to one party at a time as it is not designed or constructed to allow for multiple unrelated parties to stay at the same time.

Occupants are required to cook their own meals and make up their own rooms. The property does not have onsite staff to welcome guests or attend to their needs. The property is cleaned by contractors after each stay.

A limited level of services are provided, such as provision of linen and wi-fi is available.

Reasons for decision

Commercial residential premises are defined in section 195-1 of the GST Act as:

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

(b) premises used to provide accommodation in connection with a *school; or

(c) a *ship that is mainly let out on hire in the ordinary course of a *business of letting ships out on hire; or

(d) a ship that is mainly used for *entertainment or transport in the ordinary course of a *business of providing ships for entertainment or transport; or

(da) a marina at which one or more of the berths are occupied, or are to be occupied, by *ships used as residences; or

(e) a caravan park or a camping ground; 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.

Note: * denotes a defined term in section 195-1 of the GST Act.

The relevant paragraphs to consider in respect of your property are paragraphs (a) and (f).

While paragraph (f) extends the scope of the definition, its operation is limited to premises that have some or all of the characteristics of both residential premises and one of the classes of premises listed in paragraphs (a) to (e) of the definition.

The ATO's view on the meaning of commercial residential premises is set out in Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises (GSTR 2012/6).

It is considered that your property is operated in a similar way to holiday homes. In respect of holiday homes, GSTR 2012/6 states at paragraph 241 that:

The physical characteristics of holiday houses, apartments and units indicate that they are residential premises to be used predominantly for residential accommodation. It is necessary to consider the features of a hotel, motel, inn, hostel and boarding house to determine whether the overall character of the premises is similar to the classes of premises.

The terms hotel, motel, inn, hostel or boarding house in paragraph (a) of the definition are not defined in the GST Act and take their ordinary meanings in context.

GSTR 2012/6 sets out some common characteristics of hotels, motels, inns, hostels, boarding houses or similar premises. These are:

•                    commercial intention - premises are operated on a commercial basis or in a business-like manner even if they are operated by a non-profit body.

•                    multiple occupancy - premises have capacity to provide accommodation to multiple, unrelated guests or residents at once in separate rooms, or in a dormitory

•                    holding out to the public - offer accommodation to the public or a segment of the public

•                    accommodation is the main purpose of the premises

•                    central management to accept reservations, allocate rooms, receive payments and perform or arrange services. This can be provided through facilities on-site or off-site.

•                    management offers accommodation in its own right rather than as agent.

•                    provision of, or arrangement for services and facilities.

•                    occupants have status as guests - occupants do not usually enjoy an exclusive right to occupy any particular part of the premises in the same way as a tenant.

In this case, the provision of rental accommodation in the premises on the property exhibit a number of these characteristics.

However, the property is not let out to multiple unrelated guests. Therefore, there is no multiple occupancy.

Multiple occupancy is a significant factor in determining whether residential premises have the characteristics of commercial residential premises.

In The Married Couple and Commissioner of Taxation [2013] AATA 888, the taxpayer constructed premises with the following features as explained by Senior Member G Lazanas:

75. The house has two storeys with three bedrooms, one upstairs and two downstairs. There are two bathrooms, one on each floor, one of these being described as an en suite to the main bedroom. There is one kitchen on the top level and an internal lounge/living/dining area on each floor. Access to the upstairs part of the building is via the main entrance, which is off the downstairs lounge area, that is, there is no separate entry to the first level. None of the bedroom doors are lockable from the outside, only from the inside.

The Senior Member, in considering whether the premises were commercial residential premises, stated:

77. The terms "hotel", "motel", "inn", "hostel" and "boarding house" are not defined terms within the GST Act and, therefore, take their ordinary meanings. The features of these types of premises were considered in ECC Southbank Pty Ltd as trustee for Nest Southbank Unit Trust & Anor v Commissioner of Taxation [2012] FCA 795; (2012) 205 FCR 505. The terms were also considered by the Tribunal in Re Wynnum Holdings No 1 Pty Ltd & Anor and Commissioner of Taxation [2012] AATA 616. Furthermore, as observed by Stone J in South Steyne Hotel Pty Ltd v Federal Commissioner of Taxation [2009] FCA 13; (2009) 71 ATR 228 at paragraph [44], "[i]n addition to providing accommodation they [hotels, motels, inns, hostels and boarding houses] also have in common that, large or small, they provide for multiple occupancies. The terms [hotel, motel, etc] are not used where only one apartment, room or other space is provided".

78. The Married Couple submitted that the house was commercial residential premises because it is an investment property and they intended to rent it and because they considered it to be similar to a hotel. The fact that it is an investment property is irrelevant because of the statutory definition of commercial residential premises in the GST Act. I agree with the submissions of the Commissioner that the physical characteristics of the house demonstrate that the premises are not, nor sufficiently similar to, a hotel, motel, inn, hostel or boarding house as per paragraphs (a) and (f) of the definition of "commercial residential premises" in s 195-1 and, furthermore, the premises cannot be operated in such a way that would display the features of a hotel, motel etc as discussed by the Federal Court in ECC Southbank at paragraphs [51] to [68], nor those discussed by the Tribunal in Wynnum Holdings at paragraphs [65] to [77]. Most significantly, the house also lacks the multiple occupancies factor.

79. Despite Mr C's endeavours to convince me that the house can be occupied by up to three separate groups of guests staying at the house at one time (as it has three bedrooms), I do not consider that it was designed to provide for multiple occupancies. For example, the four different entry points of the house on the ground floor are not different entry points to self-contained rooms or spaces. Moreover, one of those entry points is from the garage which is not how one would ordinarily enter a hotel. Also, access to the bedrooms upstairs is only through the lounge downstairs. While there are two living and dining areas (one on each floor), there is only one kitchen and only two bathrooms (one of them being an en suite off the master bedroom). Also, none of the bedrooms lock from the outside, only from the inside. These are features commonly associated with a luxury residential home not "high end commercial accommodation". Accordingly, I find the premises are not commercial residential premises, as defined.

There is also no central management to accept reservations, payments or perform or arrange services. No staff are located on site either at arrival or departure or during the term of the guests stay.

The level of services offered is very limited, including provision of linen, towels and wi-fi.

Ultimately, whether the premises are a hotel, motel, inn, hostel or boarding house, or sufficiently similar to residential premises described in paragraph (a) of the definition of 'commercial residential premises' is a question of fact involving matters of impression and degree. While it is recognised that the premises have some of the characteristics of commercial residential premises, there are important differences.

The lack of multiple occupancy and central management are important factors that indicate that your premises do not have the required level or degree of characteristics of a hotel, motel, inn, hostel or boarding house. Similarly, your premises are not similar to a hotel, motel, inn, hostel or boarding house.

As a consequence, your premises are not commercial residential premises under the definition in section 195-1 of the GST Act.