Edited version of private advice

Authorisation Number: 1052293331710

Date of advice: 03 September 2024

Ruling

Subject: Supply of student accommodation

Question 1

Will your supplies of student accommodation at the proposed property be taxable supplies of 'commercial accommodation provided in commercial residential premises' for the purposes of sections 9-5 and 87-15 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer 1

Yes, your supplies of student accommodation at the proposed property will be taxable supplies of 'commercial accommodation provided in commercial residential premises' for the purposes of sections 9-5 and 87-15 of the GST Act.

Question 2

Under Division 87 of the GST Act, will the value of your taxable supplies of student accommodation provided to individuals at the proposed property for a continuous period of 28 days or more be reduced to 50% of the price of the supply?

Answer 2

Yes, under Division 87 of the GST Act, the value of your taxable supplies of student accommodation provided to individuals at the proposed property for a continuous period of 28 days or more will be reduced to 50% of the price of the supply provided, more than 70% of these individuals are provided with long-term accommodation.

This ruling applies for the specified period.

Not applicable

Relevant facts and circumstances

You own a residential property located at xxx (the proposed property). You intend to demolish the property and develop it into a new purpose-built student accommodation building.

The property is situated across the road from a university and is within walking distance. The property is not physically located on a particular education institution's land and no education institution has any input into running the student accommodation premises (either directly or through a third party).

The property is not yet operating and is in the construction phase. You anticipate that construction will be completed in 20YY.

The proposed student accommodation complex will be a X storey residential building comprising of XY rooms.

The building will feature a mix of studio and ensuite rooms, along with access to communal spaces such as: lounges, quiet study areas, laundry, storage, open garden terrace, communal dining and barbeque areas. It will offer 4 types of student living and amenity options. Each floor will have common areas shared by individuals with varying configurations of communal spaces on each floor. You have provided the floor plans and interior design report.

The rooms will be fully furnished and will include a bed, living area, bathroom and kitchen. Additionally, each room will come with a study table and chair, dining table and chairs, a table lamp, air conditioning, and a built-in wardrobe. There will be a designated study area and a shared laundry facility in the common spaces. A limited number of onsite parking spots will be available. The property will also provide disability access, including special rooms designed for wheelchair access.

You expect that 100% of the individuals that will be provided will commercial accommodation at the property will be for a period of 28 days or more. Typical length of occupancy will be either 26 or 52 weeks depending on the individual's study requirements. This percentage can be verified independently either by sighting the number of individuals and/or confirmed agreements.

Most of the accommodation will be provided to students at the tertiary level. While the premises will not be exclusively for students, they have been designed with this market in mind. You do not have an exclusive agreement with any particular institution for its students to occupy the property.

You are currently registered for GST.

You will not be making a choice pursuant to section 87-25 of the GST Act to treat the supplies of accommodation as input taxed.

You have provided us with a copy of the Accommodation Agreement (draft).

The proposed arrangements under the Accommodation Agreement (the agreement) include:

•                You will appoint another party, referred to as "the manager" to manage property. The manager, acting as your agent will enter into contracts with the guest (the individual). These contracts will grant the individuals a license to occupy a part of the property. The contract is between you (as principal) and the individual.

•                You will grant the individual a licence to occupy the room on the terms of the agreement

•                The individual will pay the fees to the manager (on behalf of you) monthly in advance by way of direct debit or electronic funds transfer.

•                The individual must only use the room for permitted use, keep the room and common services clean, orderly and free of rubbish and debris at all times, pay or reimburse you demand of any loss or claim suffered or incurred by you as a result of the individual's use or occupation of the room etc.

•                You will pay the manager a management fee for their services, which will include:

o        maintaining a reception and office on the ground floor, providing reception and residential advice services during specified hours.

o        organising an on-site residential manager and caretaker to ensure that someone is always available on the property.

o        subcontracting personnel for cleaning, maintenance, key replacement and security services.

o        providing cleaning services for all communal areas of the property.

o        managing security services, including issuing resident cards, CCTV monitoring and security guards.

o        repairing and maintaining fixed assets and the building.

o        conducting random apartment inspections with the individual's permission to ensure cleanliness.

•                The manager will assume the risks associated with the day-to-day management of the accommodation. You will bear the financial risks associated.

•                The manager will collect revenue from the accommodation and pay related expenses. Each month, the manager will prepare a cash position document reflecting the surplus amount after deducting all expenses. Surplus funds will be transferred to you and you will also cover any shortfall amounts.

•                You will continuously monitor the number/percentage of individuals supplied with commercial accommodation in accordance with the provisions of Division 87 of the GST Act.

•                Rent paid by the tenants cover the following costs: electricity, water, hot water (gas), internet, air conditioning, furniture and appliances.

•                Any usage of utilities during the term which exceed the utilities threshold will incur costs which are to be paid by the individual by way of electronic funds transfer to the manager (on behalf of you) within three (3) business days of written notice of those amounts from the manager to the individual.

•                You and the manager and your respective employees, officers, agents, contractors and invitees shall be entitled to access to the room at all times for cleaning purposes, emergencies and all urgent repairs.

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 87-5

A New Tax System (Goods and Services Tax) Act 1999 section 87-15

A New Tax System (Goods and Services Tax) Act 1999 section 87-20

A New Tax System (Goods and Services Tax) Act 1999 section 87-25

Question 1

Summary

Your supply of student accommodation will be a taxable supply under section 9-5 as it is a supply of accommodation in commercial residential premises.

Detailed reasoning

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.

Your supply of student accommodation will satisfy the requirements under section 9-5 because of the following:

•                the supply will be for monetary consideration;

•                you will be making the supply in the course of your property enterprise that you carry on;

•                as the property is located in Australia, supply of student accommodation at the premises will be connected with the indirect tax zone (Australia); and

•                you are registered for GST.

In your circumstances, the supply of student accommodation will not be GST-free. Therefore, it remains to be determined if, by providing student accommodation, you will be making input taxed supplies.

Subsection 40-35(1) states:

(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.

Residential premises

The definition of residential premises in section 195-1 refers to land or a building that is either occupied as a residence or for residential accommodation or is intended to be occupied, and is capable of being occupied, as such, regardless of the term or occupation or intended occupation.

To satisfy the definition of residential premises, premises must provide shelter and basic living facilities. The premises must be fit for human habitation in order to be suitable for, and capable of, being occupied as a residence or for residential accommodation.

In this case, the premises are residential premises as they are intended to be occupied, and are capable of being occupied, as a residence or for residential accommodation and provides shelter and basic living facilities.

Your supply of student accommodation in the premises to occupants will be input taxed unless the premises satisfy the definition of 'commercial residential premises.'

Commercial residential premises

'Commercial residential premises' under section 195-1 is defined to mean:

(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.

'Hotel, motel, inn, hostel or boarding house'

Goods and Services Tax Ruling GSTR 2012/6 Goods and services Tax: commercial residential premises (GSTR 2012/6) provides guidance on commercial residential premises. Paragraphs 11 and 12 of GSTR 2012/6 provide the characteristics of operating hotels, motels, inn, hostels, boarding houses or similar premises which are considered to be commercial residential premises.

Paragraph 11 of GSTR 2012/6 states:

The test to be applied are 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 of these types of establishments for the purposes of paragraph (f). These tests necessarily raise questions of fact involving matters of impression and degree.

We have considered the factors listed under paragraph 12 of GSTR 2012/6 and their application to the property as per below:

•                Commercial intention - the property will be operated by you (and the manager) in a business-like manner as the purpose of the property will be to earn a profit by providing student accommodation.

•                Multiple occupancy - the property will be able to provide occupancy to a number of unrelated people in separate rooms.

•                Holding out to the public - the property will be available to the public and will be marketed to a significant segment of the public, namely tertiary students.

•                Accommodation is the main purpose - the main purpose of the property is to provide student accommodation.

•                Central management - the manager, on behalf of you, will act as the central management for the property. The manager will operate a reception, organise maintenance, cleaning and security of the property and will organise for an onsite manager for after hour requests.

•                Management offers accommodation in its own right - you will offer the accommodation to students and other guests in their own right. The manager will enter into any contracts with individuals as your agent.

•                Provision of, or arrangement for, services - as stated above, the manager will on your behalf, arrange services for the individuals such as reception, cleaning, maintenance, etc. Meals will not be provided but GSTR 2012/6 confirms that the provision of meals is not an essential feature of a hostel (paragraph 35). The premises will have communal spaces.

•                Occupants have the status as guests - the students may or may not have their principal place of residence elsewhere and this would depend on their own personal circumstances. A student who stays for a semester may (or may not) maintain their principal place of resident elsewhere during that period. Conversely, a student may stay for a longer duration, and not maintain any other principal place of residence during that period.

The relevant case law on the issue of student accommodation is explored in ECG Southbank Pty Ltd as trustee for Nest Southbank Unit Trust v Federal Commissioner of Taxation [2012] FCA 795 (Southbank case). In this case, the trustee of the Nest Southbank Unit Trust (NSUT) had premises constructed that were designed for student accommodation and serviced apartments. Thereafter, NSUT entered into a lease arrangement with the State of Queensland under which the premises were able to be operated for student accommodation and/or serviced apartment purposes. NSUT subsequently granted a sub-lease of the premises to the trustee of the Urbanest Southbank Leasing Trust (USLT) under which the premises were permitted to be used for managed residential accommodation.

The premises in this case consisted of 132 shared apartments, 27 studio apartments and various common areas. The shared apartments incorporated a cluster of study/bedrooms (in 4,5 or 6 room configurations) with a shared kitchen and living facilities. Some study/bedrooms were double occupancy rooms. Each study/bedroom included a single bed or bunk bed, private ensuite bathroom, study desk, air-conditioning and storage area. The studio apartments consisted of a bedroom with ensuite bathroom, private study and living space with a kitchen. His Honour Nicholas J observed at [50] that in considering whether premises are, or are similar to, a hotel, motel, inn, hostel or boarding house, the application of the test raises questions of fact involving matters of impression and degree.

Paragraphs 86 and 87 of GSTR 2012/6 provide guidance on characterising premises that are not operating. 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 your circumstances, the type of physical accommodations you offer at the premises will have the basic features of residential premises such as a place to sleep, bathroom and access to a kitchenette. On application of the legal principals in the Southbank case and the guidance from GSTR 2012/6, we consider that the property demonstrates the characteristics of 'commercial residential premises,' being premises that closely resembles those of a hostel or boarding house, such that it is within paragraph (f) of the definition of commercial residential premises.

Premises used to provide accommodation to students in connection with an education institution that is not a school

In order to be 'commercial residential premises', the premises must not be used to provide accommodation to students in connection with an education institution that is not a 'school.' For GST purposes, 'school' is specifically defined in section 195-1 to mean an institution that supplies pre-school, primary, secondary and special education courses but does not include other education courses such as tertiary education courses.

Paragraph 150 of the Goods and Services Tax Ruling GSTR 2001/1 Goods and services tax: supplies that are GST-free for tertiary education courses contains a list of factors that are considered in determining whether a supply is in connection with an education institution that is not a school.

The property is not physically located on a particular education institution's land even though the property is conveniently located across (within walking distance) to a university. Furthermore, the property does not have an exclusive arrangement with one particular education institution (i.e. university or TAFE) for its students to occupy the premises. No education institution has any input into running the student accommodation premises (either directly or through a third party). The property will be marketed to tertiary students but will not be exclusively only for tertiary students.

Choice made by the supplier under section 87-25

Pursuant to section 87-25, a supplier of commercial accommodation can choose not to apply the provisions in Division 87 (making their supplies of commercial accommodation as input taxed under paragraph 40-35(1)(b)). You will not exercise the choice available under section 87-25 such that Division 87 will not apply to the supply of student accommodation.

Conclusion

There is a supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises. Your supply of student accommodation will be a taxable supply under section 9-5.

Question 2

Summary

The value of the supply will be reduced to 50% of the price under Division 87 as there will be a supply of accommodation in commercial residential premises that are predominately for long-term accommodation.

Detailed reasoning

Subsection 87-5(1) relevantly states that:

The value of a taxable supply of commercial accommodation that:

(a)           is provided in commercial residential premises that are predominately for long-term accommodation; and

(b)           is provided to an individual as long-term accommodation;

(c)            is 50%, or such other percentage as is specified in the regulations, of what would be the price of the supply if this Division did not apply.

Commercial accommodation is defined in section 87-15 to mean the right to occupy the whole or any part of commercial residential premises, including, if it is provided as part of the right so to occupy, the supply of:

(a)           cleaning and maintenance; or

(b)           electricity, gas, air-conditioning or heating; or

(c)            telephone, television, radio or any other similar thing.

Predominantly for long-term accommodation

Long-term accommodation is defined in section 87-20 to mean commercial accommodation that is provided to an individual for a continuous period of 28 days or more. Further subsection 87-20(3) states that commercial residential premises are predominately for long-term accommodation if at least 70% of the individuals who are provided with commercial accommodation in the premises are provided with long-term accommodation.

You expect that all of the individuals that will be provided with commercial accommodation at the property will be provided with long-term accommodation. You will continuously monitor how many individuals are provided with commercial accommodation in applying the provisions of Division 87. Therefore, on the basis of your expectation about the percentage of individuals to be provided with long-term accommodation, the property will be predominately for long-term accommodation.

Accordingly, the value of your taxable supplies of commercial accommodation at the proposed property will be 50% of what the price of the supply would have been if Division 87 did not apply.

The 70% requirement for premises that are predominately for long-term accommodation

Paragraph 54 of GSTR 2012/7 states:

Any fair and reasonable method may be used to determine whether the 70% requirement is satisfied. The Commissioner accepts that one of the following methods or a combination of both can be used:

(a)           the actual occupancy of the premises for the twelve month preceding the month for which the booking is made; or

(b)           the projected occupancy for the twelve months following the month in which the booking is made.

You stated that the 70% requirement will be satisfied by independent verification by you or the manager checking the number of individuals occupying rooms. We consider this to be a fair and reasonable method.

Conclusion

You are providing accommodation in commercial residential premises that are predominantly for long-term accommodation. Therefore, the supply falls within the scope of section 87-5 so that the value of the taxable supply is 50% of what the price of the supply would have been if Division 87 did not apply.