Edited version of private advice

Authorisation Number: 1051954178469

Date of advice: 14 March 2022

Ruling

Subject: Commercial residential premises

Question 1

Is the lease fee charged by Company to the Trust consideration for a taxable supply of commercial residential premises?

Answer

Yes, the lease fee charged by the Company to the Trust will be consideration for a taxable supply of commercial residential premises if the Company is registered or required to be registered for GST.

Question 2

Is the supply of accommodation by the Trust to its employees a supply of long-term commercial accommodation?

Answer

Yes, the supply of accommodation by the Trust to its employees is a supply of long-term commercial accommodation.

Question 3

If the supply is deemed to be long-term commercial accommodation, can the Trust make an election to use concessional GST treatment provisions as set out in section 87-5 of the A New Tax System (Good and Services Tax) Act 1999 (GST Act)?

Answer

Yes, the Trust can make an election to use concessional GST treatment provisions as set out in section 87-5 of the GST Act.

Question 4

If the Trust is deemed to be able to use the concessional treatment per section 87-5 of the GST Act, can it claim 100% of the GST credits on the lease fee charged by Company.

Answer

Yes, the Trust can claim 100% of the GST credits on the lease fee charged by the Company where the lease fee is consideration for a taxable supply.

This ruling applies for the following period:

14 March 20XX to 14 March 20XX

Relevant facts and circumstances

The Trust

The Trust operates an enterprise.

The Trust provides accommodation to the employees.

The workers have a deduction made from their salary each pay period to pay Trust for their accommodation.

The payment is for the provision accommodation which includes housing, furniture, all outgoings (electricity/water etc), linen, use of communal facilities etc.

There are approximately X workers housed in this manner, and this number is expected to grow in the future.

An average stay would be greater than 27 days in duration.

The Trust is registered for GST.

XXXXX Pty Ltd (XXXXX)

The Company owns land.

The Company leases modular accommodation on a 12 month basis from a local company.

The accommodation is made up of group housing that surrounds a communal kitchen, laundry and recreational area.

The Company incurs costs related to the accommodation including but not limited to the following example points:

•         Furniture, bedding etc

•         Whitegoods

•         Internet

•         Electricity and gas

•         Council and water rates

•         Waste disposal

The Company invoices Trust at the end of each month a lease fee for the use of its buildings and all the associated expenditure.

The Company is not currently registered for GST but this position is currently under review.

The accommodation

Prospective employees are given an Offer of Employment letter. Attachment A of this letter contains details of accommodation arrangements. The type of accommodation is described as a "donga" with a maximum of 5 people per bedroom.

A list of what was provided to employees as part of the accommodation was included in the private ruling application.

Employees are responsible for providing their own food.

Reasons for decision

Commercial residential premises

An entity makes a taxable supply under section 9-5 if:

• it makes the supply for consideration
• the supply is made in the course or furtherance of an enterprise that it carries on
• the supply is connected with the indirect tax zone (that is, Australia)
• the entity is registered or required to be registered for GST, and
• the supply is neither GST-free nor input taxed.

A supply by way of lease, hire or licence of residential premises is an input taxed supply under section 40-35 to the extent that the premises are to be used predominantly for residential accommodation (regardless of the term of occupation).

However, under paragraph 40-35(1)(a), a supply of residential premises by way of lease, hire or licence is not input taxed if it is 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.

The term 'residential premises' is defined in section 195-1 to mean 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 occupation or intended occupation) and includes a *floating home.

'Commercial residential premises' is defined in section 195-1 to mean:

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

(b) ...., or

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

It is accepted that the accommodation that is provided to the Trust's employees satisfies the definition of 'residential premises' in section 195-1. This is because they provide shelter and basic living facilities as outlined in paragraphs 9 and 15 of Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises.

Premises designed and operated to provide accommodation to employees and contractors may be commercial residential premises.

The definition of 'commercial residential premises' encompasses establishments similar to, or establishments that exhibit characteristics that place them on a similar footing to, hotels, motels, inns, hostels and boarding houses.

Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises provides the ATO view of the characteristics of 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.

Paragraph 12 of GSTR 2012/6 lists the following eight characteristics common to 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 as guests.

Paragraph 41 of GSTR 2012/6 states that ultimately, whether premises are commercial residential premises is a matter of overall impression involving the weighing up of all relevant factors.

Example 10, paragraphs 70-77 of GSTR 2012/6, provides an example of camp-style accommodation which is commercial residential premises as it is operated in a way that is similar to a hotel.

Example 10 - 'camp-style' accommodation for employees and contractors

70. XYZ Mining Co establishes 'camp-style' accommodation consisting of 130 single person quarters at a mine site to accommodate employees and contractors of the mine.

71. Employees and contractors are provided accommodation in single person quarters when the workers are on site. The single person quarters consist of a separately keyed room with a bed, small wardrobe and separate bathroom.

72. XYZ Mining Co has a central office located at the site for the management of room allocation, maintenance and servicing. Cleaners are employed by XYZ Mining Co to service the rooms regularly, which includes changing sheets and towels. All meals are provided in a communal canteen. Communal laundry facilities are provided. Other services provided at the site include televisions and DVD players, and bar facilities.

73. Employees and contractors do not have the right to restrict management's access to their rooms during their stay at the mine site. Authorised mining company personnel are able to enter and inspect rooms without providing notice. Employees and contractors are required to abide by 'camp rules' which, among other things, place restrictions on fixtures and fittings being added to the single person quarters and prohibit smoking and the keeping of pets.

74. The single person quarters are designed to provide living accommodation and are residential premises to be used predominantly for residential accommodation.

75. To determine whether the accommodation is accommodation in commercial residential premises, it is necessary to weigh-up the extent to which the premises reflect the features of a hotel, motel, inn, hostel, or boarding house. The premises are being operated so as to provide accommodation on a commercial basis to employees and contractors who are away from their usual homes. The premises are also operated on a multiple occupancy basis similar to a hotel. Employees and contractors do not obtain rights to restrict management's access to their rooms similar to a hotel. The range of services offered is typical of the level of services often provided in some hotels. The restrictions concerning fixtures and fittings being added to the single person quarters, and the prohibition on smoking and the keeping of pets, are similar to what may be expected in hotels. The premises are centrally managed by XYZ Mining Co and it offers the accommodation in its own right. However, XYZ Mining Co does not hold out or advertise the single person quarters as being available to the public generally. It is only available to its employees and contractors. There is nothing to suggest that the accommodation is designed as low cost accommodation in comparison to other types of comparable accommodation.

76. On balance, and despite the fact that the accommodation is not held out to the public generally, the premises are operated in a way that is similar to a hotel and the premises fall within paragraph (f) of the definition of commercial residential premises.

77. Therefore, XYZ Mining Co's supply of accommodation in the single person quarters to employees and contractors is a taxable supply of accommodation in commercial residential premises.

Your supply of accommodation exhibits most of the factors as outlined in example 10 above. However, in your case, the accommodation will be provided in what are described as "dongas" with five people sharing one donga. No meals are provided. On that basis, it is considered that the premises will be operated in a way that is sufficiently similar to a hostel (not a hotel or boarding house) and the premises will fall within paragraph (f) of the definition of commercial residential premises.

The supply of the premises by the Company to the Trust will be a taxable supply of commercial residential premises if the Company is registered or required to be registered for GST.

The supply of the accommodation in the premises by the Trust to the employees will be a supply of accommodation in commercial residential premises.

Long-term accommodation in commercial residential premises

Division 87 reduces the amount of GST payable on a taxable supply, where the supply provided is a supply of long-term accommodation in commercial residential premises.

Section 87-5 provides that the value of a taxable supply of commercial accommodation is 50% (or such other percentage specified in the regulations) of what would otherwise be the case where the commercial accommodation:

•         is provided in commercial residential premises that are predominately for long-term accommodation, and

•         is provided to an individual as long-term accommodation.

Section 87-15 defines 'commercial accommodation' as 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:

•         cleaning and maintenance

•         electricity, gas, air-conditioning or heating, or

•         telephone, television, radio or any other similar thing.

Subsection 87-20(1) provides that commercial accommodation is considered long-term if the accommodation is for a continuous period of 28 days or more.

Subsection 87-20(3) provides that commercial residential premises are predominately for long-term accommodation if at least 70% of the individuals who are provided with commercial accommodation in the premises are provided with accommodation for a continuous period of 28 days or more.

In your case, most if not all employees of the Trust will be provided with accommodation for a continuous period of 28 days or more.

Given the above, these supplies of accommodation will be supplies of long-term commercial accommodation in commercial residential premises that are predominately for long-term accommodation. The GST on such supplies will be calculated in accordance with section 87-5.

Section 87-25 gives a supplier of commercial accommodation the option of not applying the concessional provisions of Division 87, thereby treating the supplies of commercial accommodation as input taxed pursuant to paragraph 40-35(1)(b).

If the Trust does not make a choice under section 87-25 to not apply Division 87 to its supplies of commercial accommodation, then its supplies are taxable supplies and it will be entitled to claim input tax credits for any creditable acquisitions it makes in connection with the supply of the commercial accommodation.

This includes the acquisition of commercial accommodation from Company should it be registered or required to be registered for GST when it makes its supply of commercial accommodation to the Trust.