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Edited version of private advice
Authorisation Number: 1052181054873
Date of advice: 18 October 2023
Ruling
Subject: GST - commercial residential premises
Question
Will the supply of XX address (the Property) by Entity A, under a lease to a management entity (the Operator), be a taxable supply of commercial residential premises pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer
No, the supply will not be a taxable supply of commercial residential premises pursuant to section 9-5.
This ruling applies for the following periods:
DDMMYYYY to DDMMYYYY
The scheme commenced on:
DDMMYYYY
Relevant facts and circumstances
Entity A (You) are registered for GST.
On DDMMYYYY, you acquired a block of land located at XX address (the Property) for $X.
Subsequent to purchase, you sought and obtained development approval for:
• construction of a multi-storey building for commercial accommodation use including rooftop and ground level communal open spaces;
• basements for car parking spaces;
• site services, waste management, access arrangements;
• landscaping and off-site works; and
• signage.
The DA Notice of Decision states the development is approved for commercial accommodation use only. At any time, the building shall not be used or converted to residential use without further approval from the relevant authority.
You have engaged a builder to construct a multi-storey residential building (the Premises).
Building approval was issued on DDMMYYYY.
The building will be a "Class 3" building for the purposes of the National Construction Code (NCC). A Class 3 building under the NCC is described as follows:
... a residential building providing long-term or transient accommodation for a number of unrelated persons, including the following:
(1) A boarding house, guest house, hostel, lodging house or backpacker accommodation.
(2) A residential part of a hotel or motel.
(3) A residential part of a school.
(4) Accommodation for the aged, children, or people with disability.
(5) A residential part of a health-care building which accommodates members of staff.
(6) A residential part of a detention centre.
(7) A residential care building.
Construction of the Premises is expected to be completed in MMYYYY.
You have provided a copy of the Floor Plans for the Premises.
Accommodation Units
The Premises will contain # accommodation units, being a combination of the following:
• studios
• one bedroom units, each containing a private bathroom
• one bedroom units, each containing a private bathroom and a private study
• two bedroom units, each containing a private bathroom
• two bedroom units, each containing two private bathrooms.
All accommodation units will also contain a kitchen, laundry and dining area, and will be fitted with the following fixtures, fittings and built-in kitchen appliances:
• Kitchen - sink, mixer (tapware), oven, cooktop, dishwasher, rangehood
• Bathroom - bathroom mixer (tapware), shower, shower mixer (tapware), towel rail(s), toilet roll holder, toilet suite, basin
• Laundry - laundry tub, laundry mixer (tapware), washer and dryer combo.
A percentage of accommodation units will be furnished upon completion of the development, including:
• # studios
• # one bedroom units
• # one bedroom units with a private study
• # two bedroom units with two private bathrooms.
Furnished units will include the following items: bed and mattress, bedside and side tables, occasional chair, fridge, dining settings, entertainment unit, sofa, coffee table and outdoor table and chairs.
Communal spaces
The Premises will include the following communal spaces - dining room, resident lounge, café, multipurpose rooms, cinema, library, business centre, carparks. A reception area will be located within the lobby lounge.
All facilities within the Premises will be accessible for general use by occupants without charge.
The Premises is part of a Community Title Scheme and will share a common gym and garden open space. These areas will be accessible to occupants of the Premises without charge.
A dedicated reception desk will be located near the entry of the Premises. A private building management room with dedicated desks, chairs, IT, software and associated items to perform the management tasks of the Property will be located behind the reception desk.
Intended operation of the Premises
Once construction is completed, you will enter into an agreement with a management entity (the Operator). The Operator will be responsible for all operative functions within the property including facility and operational management. A lease will be established between you and the Operator and the Operator will pay rent to you. Accommodation will be supplied by the Operator in its own right and not in the capacity of an agent. The Operator has not yet been selected; however, will be a related entity.
Pursuant to the terms of the lease, the Operator will be entitled to enter into tenancy agreements with third party occupants, to allow them to occupy an accommodation unit within the Premises as well as to use common areas and shared facilities with other occupants.
The accommodation units will be advertised to the general public via an online booking platform and/or other third-party websites.
Leasing of units by the Operator is anticipated to commence in YYYY.
Whilst the Operator is yet to be selected, as they will be a related entity, you have provided details of how you anticipate the Premises will be operated.
An occupant portal will be established to handle, amongst other things, queries and concerns raised by occupants in respect of the management of the Premises. On-site management and a concierge service will be available during business hours. After hours support services will then be provided through the occupant portal.
On-site management and concierge services will be provided to all occupants and included in the rental agreement. These services will include:
• Mail and parcel collection
• Front of House and Concierge services
• Assistance moving in and out of the property
• Assistance with connection to utilities (occupant's responsibility)
• Arranging maintenance and major repairs to units
• Arranging community events within the building's shared spaces
• Co-ordinating communication for occupants (e.g. through a building specific smart phone app).
A number of ancillary services will made available to occupants on a user pay basis, and billed on a regular recurring basis, including:
• Cleaning / laundry dry cleaning service
• Dog walking
• Storage
• Additional storage and car parking spaces
• Private fitness classes.
Ancillary services will be provided by external, third-party operators.
Community events will be arranged for occupants of the Premises within the building's shared spaces. Examples of community events will include poker nights, Friday night drinks, Thursday music night, Tuesday night trivia, community outdoor gym classes, painting and art workshops, Christmas in July and Halloween.
The back of house area will include basic meal preparation areas and equipment to allow for the provision of catering at events. There will be no commercial kitchen and food service and/or meals will not be provided to occupants.
Cleaning, laundry and dry-cleaning services will be provided by external, third-party operators (for a fee). There is no central laundry facility at the Premises.
There will be no connection with any specific education institution.
You intend to lease the majority of the accommodation units on a long-term basis (periods of # months or greater). The remaining accommodation units will be available for short term accommodation only (periods of less than # days).
The short-term accommodation units will be offered to the short-term accommodation market via third party booking websites, as well as directly through the property website and associated marketing channels.
The Premises will provide primarily long-term rental accommodation.
Short-term accommodation occupants will be able to extend their tenure upon request. Occupants of short-term accommodation units will not be bound by a Residential Tenancy Agreement.
The short-term accommodation units will be furnished and the level of design and inclusion will be exactly the same as the other units in the Premises.
Residential Tenancy Agreements and Occupant Rights
Occupants residing in the long-term accommodation units will enter into Residential Tenancy Agreements with the Operator, for the provision of accommodation and associated services and facilities.
The Residential Tenancy Agreements will be for a fixed period of # months or greater and will incorporate the standard residential tenancy terms under Schedule 1 of the Residential Tenancies Act 1997.
Occupants will be able to select any unit within the Premises that is available to rent.
Occupants will have a right of quiet enjoyment and exclusive possession of their selected unit.
Management will only be able to access an accommodation unit pursuant to the terms of the Residential Tenancy Agreement.
The Operator will not be able to move occupants to another accommodation unit without consultation.
Occupants will be permitted to keep an animal (pet) on the premises.
Occupants will be responsible for the payment of their own utilities. Water, energy and broadband retailers will directly bill occupants for utilities.
Fixed term agreements will be rolled over on a periodic basis if occupants do not seek a new Tenancy Agreement with the Operator.
The Residential Tenancy Agreements are yet to be drafted; however, you have provided clauses which will be in the Residential Tenancy Agreements.
Occupants and their guests will be required to comply with the House Rules. As the Operator is yet to be selected and the development is still in progress, a set of House Rules have not been drafted. You have provided an indication of clauses which will be in the House Rules.
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
Goods and services tax (GST) is payable on taxable supplies. 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.
Entity A (You) will grant a lease of the property located at XX address (the Property) to an operator (the Operator) pursuant to a single lease. The Operator (a related entity still to be selected) will operate an accommodation enterprise from the Premises.
You will satisfy paragraphs 9-5(a), (b), (c) and (d).
There are no provisions in the GST Act under which your supply of the Property will be GST-free.
Therefore, what remains to be determined is whether your supply of the Property will be input taxed.
If a supply is input taxed, then:
• no GST is payable on the supply, and
• there is no entitlement to an input tax credit for anything acquired or imported to make the supply.
Section 40-35 states:
40-35 Residential rent
(1) A supply of premises that is 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.
(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).
Residential premises is defined in section 195-1 as:
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).
The Commissioner's view on whether premises are considered residential premises is provided in Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5).
'Residence' and 'residential accommodation' are not defined in the GST Act and each term takes its ordinary meaning in context.
Paragraph 8 of GSTR 2012/5 provides that a supply of residential premises may consist of a single room or apartment, or a larger complex consisting of rooms or apartments.
Paragraph 9 of GSTR 2012/5 continues that the requirement in section 40-35 that premises be 'residential premises to be used predominantly for residential accommodation (regardless of the term of occupation)' 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.
Paragraph 15 of GSTR 2012/5 provides that to satisfy the definition of residential premises, premises must provide shelter and basic living facilities.
Paragraph 20 of GSTR 2012/5 provides that the premises must also be fit for human habitation in order to be suitable for, and capable of, being occupied as a residence or for residential accommodation.
The Premises being considered will be residential premises once construction is completed, as they are intended to be occupied, and will be capable of being occupied, as a residence or for residential accommodation.
Therefore, your supply of the Property by way of lease to the Operator will be input taxed unless it is a supply of 'commercial residential premises'.
Commercial residential premises
Commercial residential premises are defined in section 195-1, in part, as:
(a) a hotel, motel, inn, hostel or boarding house; 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.
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 (GSTR 2012/6) sets out the ATO view on how GST applies to supplies of commercial residential premises and accommodation in commercial residential premises.
Paragraph 9 of GSTR 2012/6 provides that 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.
The Macquarie Dictionary 5th Edition provides the following definitions:
Hotel a building in which accommodation and food, and alcoholic drinks are available.
Motel a roadside hotel which provides accommodation for travellers in self-contained, serviced units, with parking for their vehicles.
Inn a small hotel that provides lodging, food, etc., for travellers and others.
Hostel a supervised place of accommodation, usually supplying board and lodging, provided at a comparatively low cost, as one for students, nurses, etc.
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.
In their ordinary meanings, these terms share the common attribute of providing accommodation to guests.
Paragraph 143 of GSTR 2012/6 provides that 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.
Paragraph 145 of GSTR 2012/6 provides that premises that fall within paragraph (f) may be described as something other than those premises listed in (a) to (e), for example, a 'resort' or 'serviced apartments'. These premises are commercial residential premises if they are used in a particular way.
Premises that are 'similar' to establishments that are commercial residential premises must have sufficient characteristics in common with the class of premises described.
In ECC Southbank Pty Ltd as Trustee for Nest Southbank Unit Trust v Commissioner of Taxation [2012] FCA 795 (ECC), Nicholas J was required to determine whether premises designed to provide low cost student accommodation were commercial residential premises. In determining this, Nicholas J relevantly considered:
50. The test to be applied for the purpose of determining whether the Urbanest premises are commercial residential premises involves asking whether the Urbanest premises is a hotel, motel, inn, hostel or boarding house or whether it is similar to - in the sense that it has a likeness or resemblance to - any of those types of establishment. The application of this test necessarily raises questions of fact involving matters of impression and degree.
In this case, the Premises are not being constructed to be a hotel, motel, inn, hostel or boarding house. Therefore, the Premises do not fall squarely within the scope of paragraph (a) of the definition of commercial residential premises. We therefore need to consider whether the physical character of the Premises will bring the premises within the scope of paragraph (f) of the definition of commercial residential premises to be 'similar' to a hotel, motel, inn, hostel or boarding house.
Physical and design characteristics
Although the Premises are not currently built and operating, paragraphs 86 and 87 of GSTR 2012/6 provide that 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.
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.
In this case, in terms of the physical characteristics and other objective design characteristics of the Premises:
• It is a development of a multi-storey building comprising # accommodation units. Each accommodation unit will contain a private kitchen, laundry and dining area and a combination of bedrooms, private bathrooms and a study room. A percentage of accommodation units will be furnished with a bed and mattress, bedside and side tables, occasional chair, fridge, dining settings, entertainment unit, sofa, coffee table and outdoor table and chairs.
• It has communal areas, including a shared lounge, library, multipurpose rooms and dining facilities, and shares a common gym and garden open space.
• The Premises will be a Class 3 building in accordance with the National Construction Code.
The Property will be supplied under a lease to the Operator. As the Operator is yet to be selected, there is no contractual documentation available to evidence how the Premises will be used in the future. As the Operator will be a related entity, you have supplied information surrounding the intended future use of the Premises by the Operator. The operating characteristics that are contained in the facts for the ruling are discussed below.
Paragraph 12 of GSTR 2012/6 sets out some common characteristics of hotels, motels, inns, hostels, boarding houses or similar premises. These are:
• 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, the 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.
Ultimately, whether premises are commercial residential premises is a matter of overall impression involving the weighing up of all relevant factors. (Paragraph 41 of GSTR 2012/6)
The way in which the Premises are intended to be operated generally satisfies the first seven operating characteristics of commercial residential premises as outlined in paragraph 12 of GSTR 2012/6. This is because:
• the Premises will be operated on a commercial basis, in a business-like manner
• the Premises will have capacity to provide accommodation to multiple occupants at once in separate accommodation units
• the Premises will be available for accommodation to the public
• providing accommodation will be the main purpose of the Premises
• the Premises will have a reception desk and an on-site manager during business hours who will arrange services for occupants. After hours support services will be provided through an occupant portal
• the Operator will offer accommodation in its own right and not as an agent
• the Operator will provide residents with some services (mail collection, front of house and concierge services).
The eighth characteristic is not present. The occupants will not have the status of guests. As set out in the facts, by entering into a Residential Tenancy Agreement with the Operator, occupants will obtain the right to exclusively occupy their accommodation unit in the same way as a tenant.
The decision in Wynnum Holdings No 1 Pty Ltd & Anor v. Commissioner of Taxation(Wynnum Holdings) shows that even where all other characteristics listed in GSTR 2012/6 are present, apart from status of guests, then notwithstanding the comments in ECC about principal place of residence, the premises will not necessarily be commercial residential premises. Guests can be contrasted with boarders, lodgers, and tenants/lessees.
Hotels, motels and inns
Paragraphs 13 to 25 of GSTR 2012/6 provide the following features which are typical of hotels, motels and inns.
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. Subject to those qualifications, the following features of hotels are equally relevant to motels and inns.
• Hotels provide accommodation for a commercial purpose and have the capacity to supply accommodation for multiple occupancies.
• Hotels usually offer meals to guests and they usually have a kitchen where meals are prepared for guests. The premises usually include a restaurant or dining room for guests. A motel does not necessarily have a dining room, but guests of the motel may still be provided meals.
• The guest rooms in a hotel are invariably furnished, and always include a bed, and some living area, and usually an adjoining bathroom. In some cases, hotel rooms may also have a kitchenette for self-catering.
• Linen and towels are usually supplied. The rooms are usually cleaned and serviced by staff on a daily basis, with the costs of these services being included in the tariff.
• Predominantly, the guests of hotels are travellers who ordinarily have their principal place of residence elsewhere, and who need or desire accommodation while away for business or pleasure. However, this feature may not be evident in hotels, sometimes referred to as residential or private hotels, that provide accommodation to long-term residents for whom the premises are a permanent place of residence.
• Guests of hotels do not usually enjoy an exclusive right to occupy any particular part of the premises in the same way as a tenant to whom a house or apartment is let. Nor does a guest of a hotel usually let a room for a term. The guest is usually charged at a daily rate multiplied by the number of days of occupancy. However, it is not essential that all guests in a hotel stay for a short period. This feature may not be evident in hotels that provide accommodation to long-term residents.
• Hotels usually have a reception desk to handle the requirements of both management and guests, particularly when guests check in or check out of the establishment. Hotels may also offer concierge services either at the reception desk or at a separate concierge's desk.
• Hotels do not normally provide shared accommodation to guests in the sense of having a number of unrelated guests sharing a kitchen and living facilities.
• A hotel is centrally managed by the operator, typically having at least one person present, or offsite but readily accessible, to manage the accommodation and arrange or provide services.
• Accommodation in a hotel is supplied by the operator of the hotel 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.
• When determining whether premises are, or are similar to, a hotel, motel or inn, it is necessary to consider the premises in its entirety. It is not sufficient to only consider the features of part of the premises, such as an individual room, in which accommodation is provided.
Hostels
In relation to hostels, we consider the relevant ordinary meaning is a supervised place of accommodation usually supplying board and lodging provided at comparatively low cost.
In terms of physical and design characteristics, hostels 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.
In relation to operating characteristics, in addition to the common factors that apply to commercial residential premises, paragraphs 29 to 35 of GSTR 2012/6 provide the following characteristics, specific to hostels:
• they are typically centrally managed by an on-site manager who manages the accommodation and arranges or provides services - that is, it is a supervised place of accommodation - occupants can raise queries and concerns pertaining to the management of the premises with an on-site manager
• accommodation may be provided either in a dormitory environment or in separate bedrooms
• accommodation in the premises may be supplied as the occupant's principal place of residence
• provision of meals by the operator of the premises; however, this is not an essential feature of a hostel.
Cases that have considered the ordinary meaning of 'hostel' identify several characteristics, with emphasis having been placed on the characteristics to varying degrees in each case:
• Transient accommodation[1]
• Shared facilities (in some cases there was a shared kitchen or catering facilities[2]; others have referred to the need for shared sleeping, toilet and ablution facilities for a hostel[3]; it seems, however, a private room with ensuite does not disqualify[4])
• Low cost[5]
• Restrictive resident rules indicate premises are more like a hostel than residential flats[6].
ECC is the leading case on the meaning of 'hostel' or similar premises in the Australian GST context. The Court addressed the question of whether the premises were a hostel or similar as follows:
66. In my view, the Urbanest premises bears a much closer resemblance to a hostel than a hotel. The accommodation available at the Urbanest premises is intended to be (at least in the case of the shared apartments) comparatively low in cost and is obviously configured with the needs of students seeking low cost accommodation in mind. The accommodation provided at the Urbanest premises is supervised in the sense that the reception desk is manned 24 hours a day. I infer that residents may lodge complaints with management through the reception desk about the behaviour of other residents or visitors including in relation to excessive noise, failures to maintain the cleanliness of shared apartments and like matters dealt with in the House Rules.
67. It is true that meals are not provided to residents or customers of the Urbanest premises as they might usually be in the case of a more traditional hostel. However, that does not mean that the Urbanest premises may not be fairly described as a hostel or, at least, as being similar to a hostel. In my opinion, if the Urbanest premises is not a hostel, it is very similar to a hostel.
68. In my view the Urbanest premises is not similar to an inn or a boarding house. An inn is an establishment at which board and lodging is provided to travellers. Similarly, a boarding house is a place at which board and lodging are provided to guests or residents.
It may be noted that in ECC the Court did not explicitly recognise the importance of transience. Factually though, the student accommodation was inherently likely to be transient, in the sense that student accommodation would only be for the duration of their course of study.
In any case, comments in RSPG[7] and Snowy Monaro[8] suggest that whether accommodation is transient is an important characteristic of a hostel in the GST context.
Boarding Houses
In addition to the other operating characteristics applying to commercial residential premises, paragraphs 36 to 40 of GSTR 2012/6 outlines specific characteristics of boarding houses to include:
• provision of board and lodging
• must not be premises where a central building is used as a communal dining/meeting area with a number of independent living units (that is, a retirement village is not a boarding house)
• may provide accommodation as the occupant's principal place of residence.
As explained at paragraph 184 of GSTR 2012/6, the meaning of the term 'boarding house' in the context of commercial residential premises was considered in Re Karmel & Co Pty Ltd (as trustee for Urbanski Property Trust) v. FC of T [2004] AATA 481 (Karmel).
In Karmel, the Tribunal held that the premises were not a boarding house because the property owner was not required to provide meals to occupants.
The Tribunal cited the following passage from the judgment of Hope JA in Roberts v. Waverley Municipal Council (1988) 14 NSWLR (Roberts):
In ordinary parlance a boarding-house is a place where a business is carried on of providing food and lodging to the boarders, and the food comprises meals. It is a place where the boarders pay for their board and lodging, and the concept of a place where the boarders are not required to pay anything and do their own cooking is inconsistent with the natural meaning.
Features that indicate premises that are not a hotel, motel, inn, hostel, boarding house or similar premises
Paragraph 41 of GSTR 2012/6 identifies a number of factors that may indicate that premises are not a hotel, motel, inn, hostel, boarding house or similar premises. These include:
• the operator and occupant agree for accommodation to be supplied for a periodic term (which may be for a period of months or years at a time), such as in a residential lease;
• the operator and occupant document the condition of the premises under a written contract before the accommodation is initially supplied and when the occupant ceases to occupy premises;
• the operator has the right to impose a cleaning fee on the occupant when the occupant ceases to occupy the premises;
• the occupant is permitted, subject to the terms of the lease or licence, to alter the part of the premises occupied by the occupant, such as by attaching hanging devices on a wall;
• the occupant is permitted, subject to the terms of the lease or licence, to keep pets in the premises;
• the occupant must separately arrange and pay for the connection of a telephone, electricity, or gas service;
• the occupant is responsible for the cleaning and minor maintenance of the premises, such as changing light bulbs in their room;
• the premises are unfurnished; and
• the right to occupy the residential premises is supplied to the occupant in exchange for the occupant loaning an amount to the operator together with other fees. See Example 1 at paragraph 43 of this Ruling.
The presence or absence of these features together or individually does not of itself determine the characterisation but are factors relevant to determining the overall impression of the arrangement.
Application to your arrangement
As stated above, the common characteristics of operating hotels, motels, inns, hostels and boarding houses as outlined in paragraph 12 of GSTR 2012/6 will be present, with the exception of occupants having the status of guests.
In considering the physical characteristics of the Premises, the infrastructure necessary to provide meals and dining to occupants will not be present.
In terms of shared living spaces, the Premises will have a much lesser degree of shared living than the premises in ECC, which involved cluster-style apartments.
In ECC, the cluster-style apartments comprised a number of study/bedrooms. Each study/bedroom included a single bed (in the single occupancy rooms) or a bunk bed (in the double occupancy rooms). Each study/bedroom also included a private ensuite bathroom, study desk, air-conditioning and storage spaces. Each cluster of study/bedrooms shared kitchen and living facilities located within each shared apartment.
In addition to the facilities available within a resident's apartment, the premises in ECC also incorporated within its common areas:
(a) Coin operated laundry including washing machines and dryers;
(b) Games rooms;
(c) TV areas;
(d) External garden with barbeque areas;
(e) Group study rooms and individual study booths;
(f) Library;
(g) Meeting and presentation rooms;
(h) Bike storage room; and
(i) A cafeteria-style eating area.
In this case, the Floor Plans illustrate how each accommodation unit will contain independent bathroom, kitchen, dining and living facilities. The shared living facilities, such as the shared lounge, library and multipurpose rooms, involve single spaces to be shared by all occupants of the Premises. It appears that the common areas do not provide sufficient seating or space for all occupants of the premises to use the facilities simultaneously. As a matter of fact and degree, the Premises are designed with a lesser degree of shared living than was present in ECC and a greater degree of self-contained living in each accommodation unit. This is more like what is expected in residential apartment buildings.
In considering the intended operation of the Premises, the fact that occupants will occupy the Premises as their principal place of residence is not alone determinative of the classification. However, it is important that there will be no inherent transience to the nature of the Premises.
Occupants will not have the status of guests and the nature of the accommodation will be more permanent than what is common in hotels, motels, inns, hostels and boarding houses. Occupants will enter into a Residential Tenancy Agreement. The proposed terms of the agreement and the nature of the accommodation indicate that occupants will obtain a right to exclusive occupation of their self-contained accommodation unit in the same way as a tenant.
Whilst restrictions will be placed on occupants under the House Rules, the Premises do not have other characteristics of a hostel within the ordinary meaning as it will not be a supervised place of accommodation and will not be provided to lodgers.
In considering the similarities and differences between the characteristics of hotels, motels, inns, hostels, boarding houses or similar premises and the Premises under consideration, the following observations are provided. With respect to the accommodation units that will be leased on a long-term basis:
• the Operator and occupant will agree that accommodation is supplied for a periodic term by entering into Residential Tenancy Agreements for periods of # months or greater. The occupant will enjoy exclusive possession and quiet enjoyment of their unit and cannot be moved to another unit without notice.
Furthermore, there are only limited reasons for the Operator to access an occupant's room with the requirement to give reasonable notice in line with agreed periods of time. There are only limited restrictions in addition to what is common in residential tenancies, with the guest policy being the main example.
• a property condition document will be completed by the occupant prior to moving into the premises and when the occupant ceases to occupy the premises
• the Residential Tenancy Agreements will require the occupant to pay a bond
• occupants will be permitted to keep pets in the Premises
• occupants must separately arrange and pay for the connection of a telephone, electricity, or gas service
• occupants will be responsible for the cleaning and minor maintenance of their unit
• the configuration of the accommodation units is not aligned to that contained in a typical hotel, motel, inn, hostel, boarding house, with only a percentage of the accommodation units being fully furnished for the occupant's immediate use
• there is no commercial kitchen or laundry facility on the Premises
• the operator will not offer food service and/or meals to occupants
• occupants will be responsible for cleaning their units and supplying their own linen and towels. Cleaning by an external party can be arranged by the Operator for a fee.
With respect to the accommodation units that will be leased on a short-term basis; the physical and design characteristics will be exactly the same as the other accommodation units in the Premises. Whilst there is a proposed alternative use for these accommodation units, this will not alter the classification of your supply of the Property to the Operator.
Whilst the development is approved for commercial accommodation use only per the Development Approval, in the absence of sufficient physical and operational characteristics in common with a hotel, motel, hostel, inn or boarding house, its classification under the National Construction Code is not sufficient to characterise the Premises as commercial residential premises for GST purposes.
Conclusion
Whether the Premises are 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.
Based on the facts in this case, the Premises are not a hotel, motel, inn, hostel or boarding house or similar to these types of premises. They are not commercial residential premises under paragraph (a) or (f) of the definition in section 195-1 and will be an input taxed supply of residential premises.
As an input taxed supply, your supply of the Property is not a taxable supply pursuant to section 9-5 of the GST Act.
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[1] Re RSPG and Commissioner of Taxation [2016] AATA 687 at [56] (RSPG); Snowy Monaro Regional Council v Chief Commissioner of State Revenue [2017] NSWCATAD 14 at [19] (Snowy Monaro); MacKenzie v Warringah Council [2002] NSWLEC 246 at [26]; Burwood Municipal Council v Aboriginal Hostels Ltd (1979) 39 LGRA 150; Innovia Cellophane Ltd & Anor, R (on the application of) v NNB Generation Company Ltd [2011] EWHC 2883 at [28]; VAT Case 17338: Acorn Management Services Limited [2001] BVC 4173 (Acorn Management Services); VAT Case 17613: Look Ahead Housing and Care Ltd v C & E Comrs.
[2] ECC.
[3] Noosa Shire Council v Staley [2002] QPEC 18 at [14]; in Wynnum Holdings No 1 Pty Ltd v Commissioner of Taxation [2012] AATA 616 (Wynnum)it was stated at [72]: 'Segregated sleeping areas (in the sense that residents have their own place to sleep, rather than in a dormitory) might be regarded as unusual in a hostel'.
[4] ECC; Snowy Monaro.
[5] In re Niyazi's Will Trusts [1978] 1 WLR 910 at 915; Snowy Monaro at [19].
[6] Acorn Management Services.
[7] [2016] AATA 687 at [56].
[8] [2017] NSWCATAD 14 at [19].