Edited version of private advice

Authorisation Number: 1052228363295

Date of advice: 12 March 2024

Ruling

Subject: GST and residential premises

Question

Will your supply of XX specialist disability accommodation (SDA) dwellings under a lease agreement to XX Pty Ltd a National Disability Insurance Scheme (NDIS) provider be a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST ACT)?

Answer

No. The supply of the dwellings will be input taxed supplies of residential premises under subsection 40-35(1) the GST Act.

Relevant facts and circumstances

You are registered for goods and services tax (GST).

You have entered into a single lease agreement (an unexecuted copy provided) XX Pty Ltd, an NDIS provider who is approved to supply SDA. Under the lease you will supply XX dwellings for a period of 5 years with an option for another 5 years. The lease agreement was executed on XX.

XX Pty Ltd advised that the dwellings will be sub-leased to NDIS participants.

The XX dwellings are currently being built and each dwelling is standalone with all amenities contained within the dwelling (bedroom/s, shower, toilet/s, kitchen, laundry etc). Each dwelling will have its own title. There are no communal areas. The XX dwellings are not part of a larger development or other premises.

The lease provides:

3. The parties acknowledge and agree that this Lease is conditional upon:

(c)           at least XX out of XX dwellings meeting all criteria for "Fully Accessible" dwellings in the NDIS Specialist Disability Accommodation Design Standards (the Standards) as at the Commencement Date, and a copy of the current Standards at the date of this Lease are annexed to this Lease as Annexure X;

(d)          the Landlord providing to the Tenant certification from an accredited Specialist Disability Accommodation Assessor (www.sdaassessors.org.au) to the effect that the Standards applying to "Fully Accessible" have been achieved / complied with.

You provided a copy of the site plan showing the XX dwellings as well the Survey-Strata Plan approval (subject to condition(s)).

One of the conditions is as follows:

Buildings & Use

3. A restrictive covenant, to the benefit of the XX pursuant to Section

XXX of the Transfer of Land Act XXXX is to be placed on the certificate(s) of title of

the proposed lot(s) advising of the existence of a restriction on the use of the land.

Notice of this restriction is to be included on the diagram or plan of survey

(deposited plan). The restrictive covenant is to state as follows:

"This lot is not to be developed for any purposes other than for residential use by aged and dependant persons."

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

Under section 9-5 of the GST Act, an entity makes a taxable supply where the supply:

(a) is made for consideration; and

(b) is made in the furtherance of an enterprise being carried on; and

(c) is connected with the indirect tax zone; and

(d) is made by a supplier who 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.

Residential premises

Subsection 40-35(1) of the GST Act provides that a supply of premises by lease, hire or license is input taxed if the supply is of residential premises (other than 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).

Subsection 40-35(2) provides that the supply is input taxed only to the extent the premises are to be used predominately for residential accommodation (regardless of the term of occupation).

'Residential premises' for GST purposes 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 the occupation or intended occupation) and includes a floating home.

Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises provides the ATO view of the characteristics of residential premises (GSTR 2012/5).

Physical Characteristics

Paragraph 9 of GSTR 2012/5 explains that residential premises to be used predominantly for residential accommodation 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 10 of GSTR 2012/5 provides that premises that display physical characteristics evidencing their suitability and capability to provide residential accommodation are residential premises even if they are used for a purpose other than to provide residential accommodation (for example, where the premises are used as a business office).

To satisfy the definition of residential premises, premises must provide shelter and basic living facilities. Premises that do not have the physical characteristics to provide these are not residential premises to be used predominantly for residential accommodation (paragraph 15 of GSTR 2012/5).

In this case, the dwellings will satisfy the definition of 'residential premises' as the premises provide shelter and basic living facilities. Based on the physical characteristics, the dwellings are clearly residential premises to be used predominately for residential accommodation.

You will not be entitled to claim input tax credits for the GST included in costs to the extent that they relate to

making supplies that would be input taxed supplies of residential premises, such as construction costs.

For completeness we will address commercial residential premises.

Commercial residential premises

Under section 195-1 of the GST Act, the term 'commercial residential premises' means:

(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.

Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises (GSTR 2012/6) provides the Commissioner's view on the characteristics of commercial residential premises.

The terms hotel, motel, inn, hostel and boarding house are not defined in the GST Act and take their ordinary meaning. GSTR 2012/6 lists the ordinary meanings of the terms from a number of dictionaries in interpreting paragraph (a) of the definition. The following meanings are sourced from Macquarie Dictionary 5th edition:

•        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.

Paragraphs 10 and 11 of GSTR 2012/6 explain that the objective factors relevant to characterising premises under paragraph (a) or (f) of the definition include the overall physical character of the premises and how the premises are operated. The test to apply for paragraph (a) of the definition is whether the premises are a hotel, motel, inn, hostel or boarding house and the test for applying paragraph (f) is whether the premises are similar to these, in the sense that they have sufficient likeness or resemblance to any of those types of establishments.

Paragraph 12 of GSTR 2012/6 lists the characteristics that are considered to be common to operating hotels, motels, inns, hostels, and boarding houses that are relevant, though not determinative, to characterising premises as commercial residential premises:

•        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, and

•        occupants have the status of guests.

You lease the dwellings to XX Pty Ltd and not to the NDIS participants. The dwellings are not commercial residential premises as they do not display physical, nor operational features similar to a hotel, motel, inn, boarding house or hostel as outlined in GSTR 2012/6. The supply of the dwellings by you to XX Pty Ltd cannot satisfy the characteristics outlined in paragraph 12 of GSTR 2012/6.

Summary

The lease of the dwellings by you will be an input taxed supply of residential premises.