Edited version of private advice

Authorisation Number: 1052272385910

Date of advice: 19 July 2024

Ruling

Subject: GST - residential premises

Question 1

Are you entitled to be registered for the goods and services tax (GST) under section 23-10 of the A New Tax System (Goods and Service Tax) Act 1999 (GST Act)?

Answer

Yes.

Question 2

Will your supply of the premises (the premises) by lease to a registered National Disability Insurance Scheme (NDIS) provider be an input taxed supply of residential premises under section 40-35 of GST Act?

Answer

Yes. Your supply of the premises will be an input taxed supply of residential premises under section 40-35 of the GST Act.

Question 3

Are you entitled to claim input tax credits under section 11-5 of the GST Act for acquisitions relating to the purchase or construction of the premises?

Answer

No. You will not be entitled to claim any input tax credits relating to the purchase or construction of the premises or any ongoing acquisitions related to the ongoing lease of the residential premises as these acquisitions relate to making an input taxed supply.

This ruling applies for the following period:

XX July 20YY to XX July 20YY

The scheme commences on:

DD MM YYYY

Relevant facts and circumstances

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

You are constructing a single story residential premises through a builder.

The premises will meet specialist disability standards and will be leased to a specialist disability accommodation (SDA) provider registered with the NDIS who will sublease the property to a NDIS participant.

You are not a registered SDA provider with the NDIS.

You provided copies of various agreements.

The construction of the premises is being financed by a mortgage.

The purpose of the loan is to build an investment property. You are currently not planning on building any other properties. You do not hold any other investment properties. The sole purpose of the project is to achieve a high rental yield for the foreseeable future.

The building and leasing of the premises are the only activity being undertaken by you.

Relevant legislative provisions

A New Tax System (Goods and Services tax) Act 1999 section 9-20

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 section 11-20

A New Tax System (Goods and Services tax) Act 1999 section 23-5

A New Tax System (Goods and Services tax) Act 1999 section 23-10

A New Tax System (Goods and Services tax) Act 1999 section 23-15

A New Tax System (Goods and Services tax) Act 1999 section 40-35

A New Tax System (Goods and Services tax) Act 1999 section 40-65

A New Tax System (Goods and Services tax) Act 1999 section 188-10

A New Tax System (Goods and Services tax) Act 1999 section 188-15

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

Reasons for decision

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

Question 1

Are you entitled to be registered for GST under section 23-10?

Detailed reasoning

Section 23-10 provides who may be registered for GST. You may be registered if you carry on an enterprise (whether or not your turnover is at, above or below the registration turnover threshold).

Enterprise

The term 'enterprise' is defined in section 9-20. Subsection 9-20(1) states:

An enterprise is an activity, or series of activities, done:

(a) in the form of a * business; or

(b) in the form of an adventure or concern in the nature of trade; or

(c) on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property; or

...

You will be leasing the premises upon completion. This is an enterprise as it meets paragraph 9-20(1)(c). That is, the property will be supplied on a regular or continuous basis in the form of a lease.

Therefore, we consider you are carrying on an enterprise. The acquisition of the land, construction of the residential premises and its supply by lease would all be considered to be a series of activities done in the course or furtherance of your enterprise. You are entitled to be registered for GST.

Question 2

Will your supply of the premises by lease be an input taxed supply of residential premises under section 40-35?

Detailed reasoning

Residential premises

Subsection 40-35(1) 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 (per paragraph 15 of GSTR 2012/5).

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

For completeness, we will address whether the premises is a commercial residential premises.

Commercial residential premises

Under section 195-1, 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 will lease the premises to an SDA provider registered with the NDIS and not to the NDIS participants. The premises 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 premises by you to the SDA provider registered with the NDIS cannot satisfy the characteristics outlined in paragraph 12 of GSTR 2012/6.

Question 3

Are you entitled to claim input tax credits under section 11-5 of the GST Act for acquisitions relating to the purchase or construction of the premises?

Detailed reasoning

Claiming input tax credits

Under section 11-20, you are entitled to an input tax credit for any creditable acquisition that you make.

Section 11-5 provides that you make a creditable acquisition if:

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

(b) the supply of the thing to you is a taxable supply,

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

(d) you are registered or required to be registered for GST.

Under subsection 11-15(1), you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise.

However, under subsection 11-15(2), you do not acquire the thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed or the acquisition is of a private or domestic nature.

As you provide input taxed supplies of residential premises, you will not be entitled to claim any input tax credits relating to the purchase or construction of the premises or any ongoing acquisitions related to the ongoing lease of the residential premises.