Edited version of private advice

Authorisation Number: 1051994372021

Date of advice: 30 June 2022

Ruling

Subject: Commercial residential premises and entitlement to claim input tax credits

Question 1

Will the property be commercial residential premises, in accordance with the definition in section 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when completed?

Answer

Yes.

Question 2

If the answer to question 1 is yes, is the entity entitled to claim input tax credits (ITC's) for the GST paid in relation to the construction and development of the property to the extent that these costs relate to the commercial residential premises?

Answer

Yes, to the extent that the costs incurred relate to the commercial residential premises.

This ruling applies for the following periods:

Financial year ending 30 June 20XX to Financial year ending 30 June 20XX

The scheme commences on:

The date this ruling is issued

Relevant facts and circumstances

The entity holds an Australian Business Number (ABN) and is registered for goods and services tax (GST).

The entity is currently developing a tourist resort on the property.

Development approval (DA) has been obtained from the relevant Council.

The DA allows the entity to construct holiday cabins and on-site facilities as well as a manager's residence.

The development is partially completed.

Each holiday cabin is a separate self-contained accommodation unit joined to the other cabins and the managers residence via a deck.

The entity has incurred costs in relation to;

•         obtaining DA; and

•         undertaking the development of the Property.

The entity has been provided with valid tax invoices from the suppliers in relation to the cost incurred to date.

Once all the cabins are completed the entity intends to lease the Property to a third party (the trading entity). The lease will specify that the Property can only be used to operate the resort.

The trading entity will the operate the resort.

While staying at the resort, guests will have access to on-site facilities and will be able to avail themselves of other services provided by the trading entity.

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 11-5

A New Tax System (Goods and Services Tax) Act 1999 section 11-15

A New Tax System (Goods and Services Tax) Act 1999 paragraph 11-15(2)(a)

A New Tax System (Goods and Services Tax) Act 1999 section 11-30

A New Tax System (Goods and Services Tax) Act 1999 paragraph 40-35(1)(a)

A New Tax System (Goods and Services Tax) Act 1999 subsection 40-70(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 40-70(2)

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

Reasons for decision

Section 11-5 of the GST Act states that you make a *creditable acquisition if:

(a)  you acquire anything solely or partly for a creditable purpose; and

(b)  the supply of the thing to you is a *taxable supply; and

(c)   you provide, or are liable to provide, *consideration for the supply; and

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

Represents a defined term under section 195-1 of the GST Act

Section 11-15 of the GST Act provides the meaning of creditable purpose as being:

(1). You acquire a thing for a creditable purpose to the extent that you acquire it in *carrying on your *enterprise.

(2). However, you do not acquire the thing for a creditable purpose to the extent that:

(a)  the acquisition relates to making supplies that would be *input taxed; or

(b)  the acquisition is of a private or domestic nature.

Section 11-30 of the GST Act states that an acquisition that you make is partly creditable if it is a *creditable acquisition to which one or both of the following apply:

(a)  you make the acquisition only partly for a *creditable purpose;

(b)  you provide, or are liable to provide, only part of the *consideration for the acquisition.

Subsection 40-70(1) of the GST Act states that a supply of residential premises by way of a long-term lease is input taxed if:

(a)  the supply is of *real property but only to the extent that the property is residential premises to be used predominantly for the *residential accommodation (regardless of the term of occupation); and

(b)  the supply is by way of a long-term lease.

Subsection 40-70(2) of the GST Act states that the supply is not input taxed to the extent that the residential premises are:

(a)  *commercial residential premises; or

(b)  *new residential premises other than those used for residential accommodation (regardless of the term of occupation) before 2 December 1998.

Section 195-1 of the GST Act provides the following definition of *commercial residential premises:

(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 as residence; 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 to students in connection with an education institution that is not a school.

Goods and Services Tax Ruling GSTR 2012/6 - Goods and services tax: commercial residential premises (GSTR 2012/6) provides guidance on supplies of commercial residential premises and supplies of accommodation in commercial residential premises.

Paragraph 11 of GSTR 2012/6 discusses the tests to be applied as to 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 establishments for the purposes of paragraph (f). These tests necessarily raise questions of fact involving matters of impression and degree.

Paragraph 195-1(f) of the GST Act provides that anything similar to residential premises described in paragraphs 195-1(a) to (e) of the GST Act can be commercial residential premises.

In this case, the entity is constructing a resort. Consisting of self-contained cabins and communal facilities as well as a managers residence all connected by a deck. There are several stages to the development.

Based on the facts and evidence of this case, the above indicates that the resort would be similar to a caravan park or camping ground when completed.

Paragraph 109 of GSTR 2012/6 states that the definition of a caravan park or camping ground (paragraph e of the definition) are not defined in the GST Act and take on their ordinary meanings in context.

Paragraph 110 of GSTR 2012/6 provides that occupants of a caravan park or camping ground may stay in a caravan, movable home, a permanent cabin or villa, or a tent provided by the operator on site. Caravans and camping grounds are operated on a commercial basis or in a business-like manner.

Therefore, based on the facts of this case, the resort property would satisfy the definition of commercial residential premises when completed as it will have similar characteristics of a caravan park or camping ground to the extent of the property that is available to the general public.

As a result, the construction of the resort is in the furtherance of an enterprise being carried on and any costs relating to the construction of the resort and the supply of commercial residential accommodation would be creditable acquisitions under section 11-5 of the GST Act.

Paragraphs 111 to 112 and 118 to 119 of GSTR 2012/6 provides further clarification in relation to a supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises.

111. 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 accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises. The supply of accommodation is therefore a taxable supply where the requirements of section 9-5 are satisfied.

112. Paragraph 40-35(1)(a) refers to accommodation in residential premises being provided to an individual as opposed to being supplied to the individual. Accordingly, the supply of accommodation in commercial residential premises may be made to an entity other than an individual to whom the accommodation is provided. For example, the entity that owns or controls commercial residential premises may provide accommodation to an employee of a company, even though the supply of accommodation is made to the company itself.

118. In applying paragraph 40-35(1)(a), it is necessary to identify the premises that forms the commercial residential premises. Premises that are a hotel, motel, inn, hostel or boarding house, or similar premises, may include a unit or apartment that is occupied by a manager or caretaker. Where the unit or apartment physically forms part of the building that comprises the hotel, motel, inn, hostel, boarding house or similar premises, the unit or apartment forms part of the commercial residential premises. Accommodation provided to the manager or caretaker, being an individual, by the entity that owns or controls the commercial residential premises, is a taxable supply.

119. Where a residential premises (being a unit or apartment) supplied by way of lease or licence to a manager or caretaker are physically separate to the buildings comprising the commercial residential premises, the supply of the unit or apartment is an input taxed supply under subsection 40-35(1).

We have determined that the entity constructing the resort is constructing a property that will be a commercial residential premise and as a result would be making taxable supplies in accordance with section 9-5 of the GST Act.

However, in relation to the construction of the managers residence, this will be an input tax supply of residential accommodation and any cost relating to the construction and upkeep of this property will not be a creditable acquisition to the entity under paragraph 11-15(2)(a) of the GST Act.

The managers residence although linked to other cabins via a deck, does not form a part of the physical structure of the building that comprises the self-contained cabins. As detailed above in paragraph 118 of GSTR 2012/6, the supply of the managers accommodation will be a supply of residential accommodation and not commercial residential accommodation.

Therefore, all costs associated with the construction and upkeep of the managers residence will not be creditable acquisitions as they relate to an input taxed supply. Therefore, any GST relating to this residential property will need to be excluded from the costs incurred in the construction.