Edited version of private advice

Authorisation Number: 1052126959591

Date of advice: 12 June 2023

Ruling

Subject: GST and residential premises

Question 1

Are the leasing of Commercial Premises, taxable supplies under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, the leasing of commercial premises are taxable supplies under section 9-5 of the GST Act.

Question 2

Are the leasing of Suites A and B, input taxed supplies under section 40-35 of the GST Act?

Answer

Yes, the leasing of Suites A and B is input taxed supplies of residential premises.

Question 3

If Suites A and B are commercial residential premises can the concession under Division 87 of the GST Act apply?

Answer

As we have determined in question 2 that Suites A and B leased to residential tenants are residential premises and not commercial residential premises for the purposes of the GST Act this question does not require an answer.

Relevant facts and circumstances

You are registered for goods and services tax (GST). You lease Commercial Premises to businesses. You treat these supplies as taxable supplies. You lease Suites A and B to residential tenants.

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 9-40.

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

Unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Question 1

Section 9-40 provides that you are liable for GST on any taxable supplies that you make.

You make a taxable supply where you satisfy the requirements of section 9-5, which provides:

You make a taxable supply if:

a) the entity makes the supply for consideration

b) the supply is made in the course or furtherance of an enterprise that the entity carries on

c) the supply is connected with the indirect tax zone, and

d) the entity is registered, or required to be registered, for GST

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

Your supply of commercial premises is made in the course or furtherance of your enterprise and is connected with the indirect tax zone (Australia), and you are registered for GST. As such, your supply of commercial premises satisfies the positive limbs of section 9-5 of the GST Act.

Your supply of commercial premises is not GST-free, or input taxed under any provision of the GST Act. Therefore, your supply of commercial premises is a taxable supply.

Question 2

Section 40-35 provides:

(1) A supply of premises by way of lease, hire or licence (including a renewal or extension of a lease, hire or licence) is input taxed if:

(a) the supply is of residential premises (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); or

(b) the supply is of commercial accommodation and Division 87 (which is about long-term accommodation in commercial premises) would apply to the supply but for a choice made by the supplier under section 87-25.

(1A)...

(2) However:

(a) The supply is input taxed only to the extent that the premises are to be used predominantly for residential accommodation (regardless of the term of occupation); and

(b)...

Residential premises

Section 195-1 provides that 'residential premises' means 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 the occupation or intended occupation) and includes a floating home.

It is considered that Suites A and B are the supply of residential premises for the purposes of the GST Act. We need to consider if any of the exceptions apply such as it being a supply of commercial residential premises.

Commercial residential premises

Section 195-1 also contains the definition of 'commercial residential premises'. That term is relevantly defined to mean a hotel, motel, inn, hostel, or boarding house (in paragraph (a) of the definition), or anything similar to a hotel, motel, inn, hostel, or boarding house (in paragraph (f) of the definition). 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.

While paragraph (f) of the definition of commercial residential premises 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 (refer to paragraph 143 of Goods and Services Tax Ruling 2012/6 Goods and services tax: commercial residential premises (GSTR 2012/6)).

Paragraphs 9 and 140 of GSTR 2012/6 provides that the terms in paragraph (a) of the definition of commercial residential premises are not defined within the GST Act and therefore take their ordinary meanings in context. The ordinary meanings of these terms can be found in paragraph 141 of GSTR 2012/6, which provides as follows:

141. The following meanings sourced from the Macquarie Dictionary 5th Edition (Macquarie), the Oxford English Dictionary 2nd and 3rd editions (OED) and the Shorter Oxford English Dictionary 5th Edition (SOED) are relevant in interpreting paragraph (a) of the definition:

Hotel

•                     a building in which accommodation and food, and alcoholic drinks are available.

•                     building or establishment where travellers or tourists are provided with overnight accommodation, meals, and other services.

•                     an establishment, esp. of a comfortable or luxurious kind, where paying visitors are provided with accommodation, meals, and other services.

Motel

•                     a roadside hotel which provides accommodation for travellers in self-contained, serviced units, with parking for their vehicles.

•                     a hotel catering primarily for motorists; spec. on comprising self-contained accommodation with adjacent parking space.

Inn

•                     a small hotel that provides lodging, food etc., for travellers and others.

•                     a public house providing accommodation, refreshments, etc., for payment, esp. for travellers.

•                     now also, a public house serving alcoholic liquor for consumption on the premises, whether providing accommodation or not.

Hostel

•                     a supervised place of accommodation, usually supplying board and lodging provided at a comparatively low cost, as one for students, nurses, etc.

•                     a public house of lodging and entertainment for strangers and travellers; an inn, a hotel.

•                     a house of residence for students at a university or on a course, esp. at a non-residential college, or for some other special class of people.

Boarding house

•                     a dwelling in which lodging is provided to paying residents who share common facilities such as a kitchen, laundry, living room, etc.

•                     a dwelling, usually a private house, in which board and lodging are provided for payment.

•                     a house offering board and lodging for paying guests.

In their ordinary meanings, these terms share the common attribute of providing accommodation to guests. Paragraph (f) of the definition of commercial residential premises extends the scope of the definition to premises that are 'similar' to the class of establishments described in paragraphs (a) to (e).

Premises that are 'similar' to establishments that are commercial residential premises must have sufficient characteristics in common with the class of premises described above.

Paragraph 142 of GST 2012/6 confirms that objective factors relevant to characterising premises as falling within either paragraph (a) or (f) of the definition include the overall physical character of the premises, and how the premises are operated. Where these objective factors do not give a clear characterisation, the following may also be considered:

•                     contractual documentation that provides evidence of current use or future use, and

•                     government zoning and planning approvals and permissions.

Paragraphs 10 and 11 of GSTR 2012/6 provide that the tests to be applied in determining whether premises fall within either paragraph (a) or (f) of the definition of 'commercial residential premises' necessarily raise questions of fact involving matters of impression and degree which include consideration of the overall physical character of the premises together with how the premises are operated.

The common characteristics of operating hotels, motels, inns, hostels, and boarding houses that may be displayed are detailed in paragraph 150 of GSTR 2012/6.

150. These characteristics are displayed where:

•                     Commercial intention;

The 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

The premises have the capacity to provide accommodation to multiple, unrelated guests or residents at once in separate rooms, or in a dormitory.

•                     Holding out to the public

The premises offer accommodation to the public or a segment of the public.

•                     Accommodation is the main purpose

Providing accommodation is the main purpose of the premises.

•                     Central management

The premises have 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

The entity operating the premises supplies accommodation in its own right rather than as an agent.

•                     Provision of, or arrangement for, services

Management provides guests and residents with some services and facilities, or arranges for third parties to provide them.

•                     Occupants have status as guests

Predominantly, occupants are travellers who have their principal place of residence elsewhere. The occupants do not usually enjoy an exclusive right to occupy any particular part of the premises in the same way as a tenant.

While the common characteristics of operating hotels, motels, inns, hostels, and boarding houses that are relevant, though not necessarily determinative, to characterising premises as commercial residential premises.

Features of hotels, motels and inns

The features of hotels, motels and inns are outlined in paragraphs 13 - 24 of GSTR 2012/6 and provide:

A motel is a particular type of hotel that primarily caters to the needs of motorists seeking roadside accommodation. An inn is a small hotel at which board (meals) and lodging are provided to travellers. The features of a hotel also relevantly apply to motels and inns such as providing accommodation for a commercial purpose, offering meals to guest and being a kitchen where meals are prepared, often include a restaurant or dining room for guests, rooms are usually furnished and always include a bed and living area and usually with an adjoining bathroom. Linen and towels are usually supplied and the rooms are usually cleaned and serviced by staff on a daily basis. The guests of a hotel are often travellers who have their principal place of residence elsewhere. Guests of a hotel do not usually enjoy an exclusive right to occupy any particular part of the premises in the same way as a tenant to whom to whom a house or apartment is let. The guest is usually charged a daily rate multiplied by the number of days stay, although this is not essential. A hotel usually has a reception desk and is usually centrally operated by a manager who is onsite.

We do not consider that the suites are a hotel, motel, inn, or anything similar.

The features of hostels and boarding houses are discussed in paragraphs 26 to 35 and 36 to 40 of GSTR 2012/6 respectively.

Features of hostels and boarding houses

Essentially, the term 'hostel' includes premises that can be described as a hostel, a hotel or inn. The features of hotels and inns identified earlier are also relevant to hostels. Hostels also include supervised places of accommodation usually supplying board and lodging at a comparatively low cost. Hostel accommodation may be provided either in a dormitory environment or in separate bedrooms.

Physical characteristics of hostels may include a commercial kitchen where meals are prepared, a communal area suitable for a dining area for occupants, and a communal laundry; however, the provision of meals is not an essential feature of a hostel. 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.

A 'boarding house' is a dwelling at which board and lodging are provided to guests or residents. While the term indicates that the premises ordinarily consist of a single dwelling, premises are not precluded from being a boarding house where the premises consists of a building with an additional stand-alone structure in which board (meals), or lodging, or both, is provided.

We do not consider that Suites A and B are hostels, boarding houses, or anything similar.

Conclusion

As stated above, determining whether premises are commercial residential premises is a matter of overall impression and degree involving weighing up all relevant factors.

The supply of Suites A and B by way of lease are input taxed supplies of residential premises under section 40-35.