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PAUL J CASTAN & SON PTY LTD ATF CASTAN INVESTMENTS UNIT TRUST v FC OF T

Members:
E Fice SM

Tribunal:
Administrative Appeals Tribunal, Melbourne

MEDIA NEUTRAL CITATION: [2016] AATA 298

Decision date: 11 May 2016

E Fice (Senior Member)

1. Paul J Castan & Son Pty Ltd (the Trustee) is the freehold owner of a hotel known as Hotel Sophia which is situated at 277-287 King Street, Melbourne. It is comprised of 49 furnished rooms and a number of facilities including: 24 hour reception; business centre and meeting rooms; security card access; cafe style menu; bar service; billiard table; plasma televisions; wireless internet access; and bar fridge.

2. It appears that in May 2014 the Trustee entered into a Management Agreement with P. and M. Castan Pty Ltd as trustee for Castan Family (Discretionary) Trust (the Operator). I have used the word appears because the document states that the Management

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Agreement was made on the [blank] day of May 2014, but at clause 2 states that the agreement is deemed to have commenced on 29 September 2006.

3. Under the Management Agreement, the Operator is said to be the exclusive operator of Hotel Sophia (clause 3.1). The Operator was to have such control and discretion in the operation, direction, management and supervision of the Hotel Sophia as was required to give effect to the terms of the Management Agreement (clause 3.3). In performing its duties as Operator, the Operator acted solely as the agent of the Trustee (clause 4.1).

4. In a letter dated 25 August 2014 from Moore Stephens, Accountants & Advisers, who acted for the Trustee, the accountants notified the Commissioner of Taxation (the Commissioner) that their client was entitled to a refund of incorrectly paid GST. The refund was in respect to supplies of accommodation made at the Hotel Sophia. Moore Stevens said, at paragraph 5:

… The Taxpayer incorrectly accounted for GST on its supplies of accommodation, because, pursuant to s 40-35(1)(a), the Operator is the entity providing accommodation in the premises, but it is not the entity that owns or controls the premises. Consequently, the Taxpayer is the entity making supplies of input taxed residential premises. (emphasis in original)

5. In its letter, Moore Stephens claimed that the Trustee overpaid GST for periods between 1 July 2010 and 31 December 2013 totalling $476,610.

6. Following a suggestion made by the Regional Director, Indirect Taxes of the Australian Taxation Office (ATO), Moore Stephens sent an email to the Regional Director which was referred to as a summary of the factual circumstances, issues and technical analysis. On receiving that letter, the Regional Director responded by stating that the ATO would treat that as an application for a Private Binding Ruling (PBR).

7. The questions put by Moore Stephens were: whether there had been a supply of commercial residential premises; or whether there had been a supply of accommodation in commercial residential premises which was provided to an individual by the entity which owned or controlled the commercial residential premises. According to Moore Stephens, both questions should be answered in the negative which would result in the exceptions set out in s 40-35(1)(a) of A New tax System (Goods and Services Tax) Act 1999 (Cth) (the GST Act) being inapplicable to the Trustee.

8. The ATO handed down the PBR in a letter dated 8 December 2014. It ruled that the Trustee was making a taxable supply of accommodation in commercial residential premises for the purposes of the GST Act.

9. On 24 February 2015 Moore Stephens lodged with the ATO an objection to the PBR dated 8 December 2014 in accordance with s 359-60 of Schedule 1 to the Taxation Administration Act 1953 (the Administration Act). That section of the Administration Act provides that a taxpayer may object to a private ruling applying to it in the manner set out in Part IVC of the Administration Act.

10. In a letter dated 23 July 2015 the ATO notified the Trustee that its objection to the PBR was disallowed. On 17 September 2015 solicitors acting for the Trustee lodged an application with the Tribunal seeking review of the Commissioner's objection decision.

11. According to s 14ZZK(b)(ii) of the Administration Act, on an application for review of reviewable objection decision, the applicant has the burden of proving that the taxation decision concerned should not have been made or should have been made differently. The standard of proof which applies is what is usually referred to as the civil standard, that is, on the balance of probabilities.

12. The only issue I am required to determine is whether the supply of accommodation in Hotel Sophia by the Trustee from May 2014 was correctly described as a supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises. If it was so, then the Trustee cannot claim that the supply was input taxed for the purposes of s 40-35(1)(a) of the GST Act. The result would be that GST was payable on the supply of the accommodation.

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LIMITATIONS ATTACHED TO A PRIVATE BINDING RULING

13. As is explained in s 359-1 of Schedule 1 to the Administration Act:

A private ruling is an expression of the Commissioner's opinion of the way in which the relevant provision applies, or would apply, to you in relation to a specified scheme.

14. It is important to understand that the ruling given by the Commissioner relates only to the scheme identified and put forward by the taxpayer. Section 359-20 of Schedule 1 to the Administration Act provides:

  • (1) A *private ruling must state that it is a private ruling.
  • (2) A *private ruling must identify the entity to whom it applies and specify the relevant *scheme and the relevant provision to which it relates.

15. The word scheme is defined in s 995-1 of the Income Tax Assessment Act 1997 (ITAA 97) in the following way:

scheme means:

  • (a) any *arrangements; or
  • (b) any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise.

16. In the PBR provided by the Commissioner, the arrangement or scheme was identified as follows:

  • (a) Paul J Castan and Pty Ltd as Trustee for the Castan Investment Unit Trust… is the freehold owner of the hotel located in the Melbourne CBD at 277-278 King Street, Melbourne, Victoria 3000 Australia.
  • (b) P and M Castan Pty Ltd as trustee for the Castan Family (Discretionary) Trust ('Operator') is the operator of the hotel.
  • (c)The hotel comprises 49 furnished rooms, including the following facilities…
  • (d) The tax invoices to guests contain the Operator's ABN.
  • (e) Reservations in the hotel are made through the Operator.
  • (f) There is a management agreement currently in place between you [the Trustee] and the Operator.
  • (g) Relevant clauses of the Management Agreement which you supplied are as follows… [Clauses 3, 4, 5, 8 and 12 are referred to].

17. The Commissioner may consider new information on an objection lodged by the taxpayer. This may include information which the Commissioner did not consider when making the ruling (s 359-65 of Schedule 1 to the Administration Act). However any additional information provided on objection may not be considered by the Commissioner if he considers that the scheme to which the application related is then materially different from the scheme to which the ruling relates. In those circumstances, the Commissioner must request the taxpayer make a new application for a private ruling.

THE RELEVANT GST PROVISION AND ITS APPLICATION

18. Subdivision 40-B of the GST Act deals with the residential rent. Relevantly, s 40-35 provides:

  • (1) A supply of premises that is by way of lease, hire or license (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…

19. GST is payable on what is described in the GST Act as taxable supplies. Section 9-5 describes a taxable supply in the following way:

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 Australia; and
  • (d) you are *registered, or *required to be registered.

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

20. Section 9-30 of the GST Act provides that a supply is input taxed if it is input taxed under Division 40 or under a provision of another Act, or it is a supply of a right to receive a supply that would be input taxed. Division 40 deals with residential rent which is the subject matter in this case.

21. The expression residential premises is defined in s 195-1 of the GST Act in the following way:

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.

22. The expression commercial residential premises is also defined in s 195-1 of the GST Act, and relevant to this matter, is said to mean:

  • (a) a hotel, motel, inn, hostel or boarding house; or…

23. In the matter before me, I am only concerned with the exclusion set out in s 40-35(1)(a) the GST Act. Mr C M Sievers of counsel, who appeared on behalf of the Trustee, explained in his written submissions that s 40-35(1)(a) was amended in 2006 following the decision of the Full Court of the Federal Court in
Marana Holdings Pty Ltd v Commission of Taxation (2004) 141 FCR 299. Prior to its amendment, the exclusion in s 40-35(1)(a) simply referred to: other than *commercial residential premises.

24. The Full Court apparently considered that the terms reside and residence connoted a permanent, or at least long-term, commitment to dwelling in a particular place. Other than that, there was no change. Therefore, the supply of accommodation provided to an individual in commercial residential premises by the person that owns or controls the commercial residential premises is subject to GST. It is of some interest to note that the Explanatory Memorandum to the amending legislation (Tax Laws Amendment (2006 Measures No. 3) Bill 2006 (Cth) and New Business Tax System (Untainting Tax) Bill 2006) (Cth) (the Amendment Bill 2006)) refers to the operator rather than the words used in the amended legislation (owns or controls).

25. It is clear from the GST Act as amended that the exclusionary provision now includes the words provided to an individual as well as referring to the supply of accommodation in commercial residential premises. There was no dispute between the parties that the supply of a room in Hotel Sophia constituted a supply of accommodation in commercial residential premises for the purposes of s 40-35(1)(a). According to Mr Sievers, unless there was a supply of accommodation in commercial residential premises and the accommodation was provided to an individual by the entity that owns and controls of commercial residential premises, the supply would be input taxed under s 40-35.

26. Ms M Baker of counsel, who appeared on behalf of the Commissioner, accepted it was common ground that in the context of the GST Act, a distinction may be drawn between the provision of a supply and the making of a supply. The distinction, according to Ms Baker, was between the actual flow of goods or services between two entities and the contractual arrangement between one or more different entities which she described as the contractual flow or the making of the supply. The Explanatory Memorandum to the Amendment Bill 2006 explains:

15.10 However, supplies of accommodation provided to individuals in commercial residential premises by an entity that owns or controls the premises remain subject to GST in accordance with the existing rules. This means that supplies by an entity that, for example, owns a hotel and supplies accommodation in the hotel to guests, are not input taxed (unless the existing option to input tax long-term commercial accommodation is exercised). An entity that owns or controls commercial residential premises may provide accommodation to an

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individual such as an employee of a company even though the supply of accommodation is made by the entity to the employer company.

27. The above quoted statement in the Explanatory Memorandum, in my opinion, accurately describes the operation of s 40-35(1)(a) of the GST Act in its current form. After all, GST is said to be payable on taxable supplies and taxable importations (GST Act s 7-1). The only qualification is that supply of accommodation provided to an individual must be by the entity that owns or controls the commercial residential premises.

28. However, Mr Sievers submitted that accommodation in commercial residential premises may be supplied by one entity and provided by another. This is commonly referred to as a tripartite agreement. The Commissioner made a GST ruling (GSTR 2006/9) on 25 October 2006 which has been reviewed on a number of occasions since. That ruling is a public ruling for the purposes of Division 358 of Schedule 1 to the Administration Act. Where a taxpayer relies on a public ruling, the Commissioner must apply the law to the taxpayer in the way set out in the ruling. In dealing with a tripartite agreement, the Commissioner said, at paragraphs 132 and 133:

132. 'Provide' is used to contrast with 'made' - it distinguishes between the contractual flow of the supply to the recipient (the entity to which the supply is made) and the actual flow of the supply to another entity (the entity to which the supply is provided).

133. The Commissioner uses 'made' and 'provide' in analysing tripartite arrangements in the sense given to those words by the subsection 38-190 (3) context, similar to the sense in which those words were used by Neuberger LJ in WHA Ltd & Anor v. Customs & Excise [2004] EWCA Civ 559 (WHA). At paragraph 38, Neuberger LJ said 'the services in question are 'supplied' to WHA… [T]he fact that they are also provided to the vehicle owner does not, to my mind, prevent them from being treated as 'supplied' to WHA'.

29. The Commissioner issued a further public ruling, GSTR 2012/6, 19 December 2012 which was consolidated on 20 December 2013. It dealt specifically with GST in respect of commercial residential premises. Regarding the exclusion set out in s 40-35(1)(a), the ruling states at paragraphs 112 and 113:

112. Paragraph 40-35(1)(a) refers to accommodation in commercial residential premises being provided to an individual as opposed to being supplied to the individual. Accordingly, the supply of accommodation in commercial residential premises may be made to an entity other than the individual to whom the accommodation is provided. For example, the entity that owns or controls commercial residential premises may provide accommodation to an employee of a company, even though the supply of accommodation is made to the company itself.

113. A supply of a right to accommodation in commercial residential premises located in Australia that is supplied to an accommodation wholesaler who then on-supplies that right to an individual is a taxable supply. This is because the accommodation is provided to the individual by the entity that owns or controls the commercial residential premises.

30. It is clear that the entity which makes a taxable supply is not precluded from also providing the relevant goods or services to an individual. The provider and the supplier may not be the same entity, but there will be circumstances where they are.

31. In his written submissions Mr Sievers referred to the paragraphs which I have set out above from GSTR 2012/6 and also the example set out at the conclusion of those paragraphs. It is informative to set it out in full because it demonstrates a fallacy in reasoning which appears to underlie Mr Sievers' submissions.

Example 17 - accommodation provided by the entity that owns or controls the commercial residential premises (tour package)

114. Greater Hotels Pty Ltd (Greater Hotels) operates a hotel in Australia and sells rights to accommodation in its hotel to a provider, Cruisey Trips Pty Ltd (Cruisey Trips).

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115. Cruisey Trips supplies the accommodation rights to Australian tourists as part of a holiday package. Greater Hotels subsequently provides accommodation to the tourists.

116. The supply made by Greater Hotels to Cruisey Trips is a taxable supply. It is a supply of a right to accommodation in commercial residential premises that will be provided to an individual (that is, the tourist) by an entity that owns or controls the commercial residential premises (that is, Greater Hotels).

117. The supply made by Cruisey Trips to the tourist is a taxable supply. It is a supply of a right to accommodation in commercial residential premises that will be provided to an individual (that is, the tourist) by an entity that owns or controls the commercial residential premises (that is, Greater Hotels).

32. In response to the above example, Mr Sievers submitted:

In this example the supply of accommodation in the hotel is made by the tour provider, but the accommodation is provided by the owner of the hotel.

33. In the example, it is plain that the supply of accommodation is made by Greater Hotels, the entity that owns or controls the hotel. That is in spite of the fact that rooms at the hotel are provided to tourists by Cruisey Trips. It clearly involves a tripartite arrangement. The supply of that accommodation, being accommodation in a commercial residential premises, is not input taxed but rather, it is a taxable supply. Similarly, the provision of accommodation by Cruisey Trips to tourists is also a taxable supply. The provision of that accommodation is made by the entity that owns or controls the commercial residential premises. That simply means Cruisey Trips may claim an input tax credit because its acquisition of the accommodation falls within s 11-5 of the GST Act. The reference in paragraph 117 to the supply being made by Cruisey Trips is simply the second part of the transaction. The provision of that accommodation by Cruisey Trips is treated as a taxable supply to the tourist. The example simply follows the words found in s 40-35 of the GST Act.

34. Mr Sievers also applied significant effort when attempting to distinguish the use of the word provide from supply as those words appear in the GST Act. He pointed to the fact that in the GST Act, the word supply is defined at s 9-10 while the word provide is not defined. Mr Sievers correctly identified that both words have, substantially, the same dictionary meaning. However, as the High Court of Australia (Brennan CJ, Dawson, Toohey, Gaudron and McHugh JJ) cautioned in
Collector of Customs v Agfa-Gevaert Ltd (1996) 186 CLR 389, at 396 - 397:

The meaning attributed to individual words in a phrase ultimately dictates the effect or construction one gives to the phrase when taken as a whole and the approach that one adopts in determining the meaning of the individual words of that phrase is bound up in the syntactical construction of the phrase in question. In R v Brown, a recent House of Lords decision, Lord Hoffmann said:

"The fallacy in the Crown's argument is, I think, one common among lawyers, namely to treat the words of an English sentence as building blocks whose meaning cannot be affected by the rest of the sentence… This is not the way language works. The unit of communication by means of language is the sentence and not the parts of which it is composed. The significance of individual words is affected by other words and the syntax of the whole".

35. I should also refer to the Full Court of the Federal Court of Australia (Emmett, Stone and Perram JJ) decision in
St George Bank Ltd v Federal Commission of Taxation (2009) 176 FCR 424, where Stone J said at 431:

The long-standing tension in the construction of statutes (and other legal documents) between giving words their "literal" meaning and construing them in the context of the document in which they appear is well-known. However, this way of articulating the problem is somewhat misleading. While words may have a stand-alone meaning or meanings which may be found in a dictionary, generally oral or verbal communication does not proceed by way of individual words but by language; by

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words used in conjunction with one another to express propositions or sentiments or otherwise communicate meaning. The task of a court in construing a statute is to construe the language of the statute, not the individual words.

36. In my opinion, s 40-35(1)(a) is concerned with the supply of premises by way of lease, hire or licence in the context of Part 2-2, Division 9 the GST Act. That is, it is concerned with taxable supplies and those supplies which are said to be input taxed and are therefore not regarded as taxable supplies. It deals with the supply of commercial residential premises and, also, the supply of accommodation in commercial residential premises. The use of the word provided is in fact embedded in that part of the phrase which deals with the supply of accommodation in commercial residential premises. The statute does not attempt to distinguish the supply of accommodation from its provision to an individual. In fact, it simply deals with a single concept, that being the provision of accommodation in commercial residential premises to an individual by the entity that owns or controls that premises. The supply of accommodation in those circumstances constitutes a taxable supply for the purposes of the GST Act.

37. The only issue in this matter is whether the supply of the accommodation in question was provided by an entity which owns or controls the commercial residential premises.

38. Difficulties may well arise where a tripartite agreement exists. That is because the entity which physically arranges the provision of the accommodation to the individual may not be the owner or control of the commercial residence. This kind of arrangement was anticipated and provision is made for it under subdivision 153-B of the GST Act. Relevantly, s 153-50 provides:

(1) And entity (the principal ) may, in writing, entered into an arrangement with another entity (the intermediary ) under which:

  • (a) the intermediary will, on the principle's behalf, do any or all of the following:
    • (i) make supplies to third parties;
    • (ii) facilitate supplies to third parties (including by issuing *invoices relating to, or receiving*consideration before, such supplies);
    • (iii) …
    • (iv) … and
  • (b) the kinds of supplies or acquisitions, or the kinds of supplies and acquisitions, to which the arrangement applies are specified; and
  • (c) for the purposes of the GST Law:
    • (i) the intermediary will be treated as making the supplies to the third parties, or acquisitions from the third parties, or both; and
    • (ii) the principal will be treated as making corresponding supplies to the intermediary, or corresponding acquisitions from the intermediary, or both; and
  • (d) in the case of supplies to third parties:
    • (i) the intermediary will issue to the third parties in the intermediary's own name, all the *tax invoices and *adjustment notes relating to those supplies; and
    • (ii) the principal will not issue to the third parties any tax invoices and adjustment note relating to those supplies;…

39. However, in my opinion, s 153-50 of the GST Act has no application in this case. That is because an agent is not regarded as an intermediary. Contrary to what Mr Sievers submitted, the common law dealing with agency has application by reason of the Management Agreement entered into between the Trustee and the Operator. Clause 4.1 of the Management Agreement provides:

4.1 In the performance of its duties as the Operator of the Hotel the Operator shall act solely as the agent of the Owner. Nothing in this Agreement shall constitute or be constituted to create a partnership or joint venture relationship between the Owner and the Operator. All reasonable debts and liabilities to third parties incurred by the Operator in the course of its operation and management of the Hotel shall be the debts and liabilities of the Owner only, and the

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Operator shall not be liable for any such debts and liabilities reasonably incurred by reason of its management, supervision, direction and/or operation of the Hotel. The Operator may so inform third parties with whom it deals on behalf of the Owner, and may take all other reasonable steps as are required to perform the agency contract.

40. The learned author of the authoritative text on agency, Bowstead & Reynolds on Agency, 18th edition, Sweet & Maxwell 2006, explains the fundamental role of consensual agency in the following way, at 1-004:

The basic notion behind the common law of agency can be explained along the following lines. The mature law recognises that a person need not always do things that change his legal relations himself: he may utilise the services of another to change them, or to do something during the course of which they may be changed. Thus where one person, the principal, requests or authorises another, the agent, to act on his behalf, and the other agrees or does so, the law recognises that the agent has power to affect the principal's legal position by acts which, though performed by the agent, are to be treated in certain respects as if they were acts of the principal.

41. The High Court of Australia (Dixon CJ, McTiernan, Williams, Fullagar and Taylor JJ) in
International Harvester Company of Australia Pty Ltd v Carrigan's Hazeldean Pastoral Company (1958) 100 CLR 644 dealt with an agency relationship in the context of a commercial sale agreement. The Court said, at 652:

Agency is a word used in the law to connote an authority or capacity in one person to create legal relations between a person occupying the position of principal and third parties.

42. The principle to which I have referred above was applied by the Full Court of the Federal Court of Australia (Edmonds, Graham and Perram JJ) in
Lilyvale Hotel Pty Ltd v Federal Commission of Taxation (2009) 175 FCR 491. The context in which that case was decided is not dissimilar to the one before me. Perram J said this about activities carried out through the means of an agent, at 507:

As to the former, it is true in a sense that Enterprises Australia did operate the hotel but that operation was not its own business. The business it conducted for itself (as opposed to the business it conducted for Lilyvale) was the business of providing management services to Lilyvale. As to the latter, a person does not cease to carry out an activity because he or she carries out the activity through an agent. The whole point of the law of agency involves the attribution of the activities in fact carried out by one person to the legal account of another. Were it otherwise, the fact that bus companies employ drivers to operate buses on their behalf would mean that the bus companies are not bus operators, a conclusion which is neither plausible nor palatable.

43. Mr Sievers also referred to a Tribunal decision in
Crown Estates (Sales) Pty Ltd and Commission of Taxation [2015] AATA 949 (Crown Estates). In that case, the question dealt with by Senior Member McCabe was whether the taxpayer's property management business referred to as TPM, which let and managed properties on behalf of property owners, was acting as principal when it acquired goods and services from third parties and on-supplied those to its owner-clients. He found that TPM routinely acted as agent for its own clients and it did not make creditable acquisitions in its own right in the course of its business. Therefore, it was not entitled to claim input tax credits. Senior Member McCabe found that the transactions entered into with third parties on behalf of property-owning clients under the terms of the agency arrangement were not taxable supplies of things to the agent. He found they were taxable supplies of things to the principal [at 21].

44. While in this case we are concerned with the supply of accommodation rather than its acquisition, the agency principle does not alter. There was no question in Crown Estates that TPM, on acquiring goods or services, then provided those goods or services to its owner-clients who were the principals in the transaction. TPM was merely the conduit. Applying agency law principles, plainly TPM did not make a taxable supply to its principals. The goods or services obtained were provided by TPM to its owner-clients because, under the

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agency agreement, the owner-clients were the principals. In that case, TPM was not liable to pay for the goods and services it had obtained and, logically, it could not claim an input tax credit. The supply of those goods and services was from third parties to the owner-clients.

45. In this case, although the transaction is in reverse, and the agency agreement expressly provides for payment by the owner to the operator for the provision of its services, the transaction which is the supply of commercial residential accommodation must be a taxable supply to individuals who take up the accommodation.

46. Perhaps the most significant aspect of this case is the fact that the owner of Hotel Sophia has appointed the operator to act solely as its agent. The owner does not supply the accommodation to an independent intermediary under a discrete agreement. It is, in my opinion, inescapable that the relationship which arises out of that agreement results in a contract entered into for accommodation by the operator with an individual guest legally binding the owner principal. The common law principle of agency must apply in those circumstances.

47. Both parties referred to the Full Court of the Federal Court of Australia (Finn, Emmett and Edmonds JJ) decision in the case
South Steyne Hotel Pty Ltd and Others v Federal Commission of Taxation (2009) 180 FCR 409. The essential facts in that case were:

  • (a) South Steyne Hotel became the owner of the Sebel Manly Beach Hotel which included some 83 individual apartments, and the reception area, offices and car parking spaces referred to as the management lot;
  • (b) South Steyne Hotel transferred the management lot to Mirvac Hotels Pty Ltd (MHL) and granted a separate lease to Mirvac Management Pty Ltd (MML) in respect of the 83 apartment lots;
  • (c) under a Serviced Apartment Management Agreement between MML and MHL, MML appointed MHL as its exclusive agent to manage and operate the service department business which MHL did from the management lot; and
  • (d) on 17-18 October 2007 Ms Emily Young stayed at Apartment 403 and made use of various services available to guests at the Hotel.

48. Although the South Steyne Hotel case also involved the sale of some of the serviced apartments, for the purposes of the case before me, it is only the provision of accommodation to Ms Young in Apartment 403 which is relevant. The Serviced Apartment Management Agreement, at clause 3.1, provided that MML appointed MHL as its exclusive agent to manage and operate the serviced apartment business. At the time Ms Young stayed in one of the serviced departments, MHL was the owner of the management lot. MHL also exercised control over the conduct of the restaurant which form part of the Siebel Hotel, the provision of room service and the service of alcohol in the restaurant, bar and minibar facility within the apartments.

49. A tax invoice was given to Ms Young for her accommodation and it was provided by MHL. That was consistent with clause 4.2 of the serviced Apartment Management Agreement which gave MHL exclusive control and discretionary operation of the serviced apartment business, including entry into contracts in its own name.

50. The Commissioner contended that the supply of accommodation in commercial residential premises provided to Ms Young was provided by MHL as principal in its own name rather than as agent for MML. The Commissioner claimed that MHL exercised such practical control of the Siebel hotel that it was the entity that relevantly controlled the commercial residential premises.

51. The majority, Finn and Emmett JJ, found for the Commissioner. That was because MHL, although not the owner of the commercial residential premises, clearly controlled the serviced apartments and it was the entity which supplied accommodation in those premises. It could make that supply because it controlled the premises (Finn at 411 and Emmett at 418).

52. However, Ms Baker directed my attention to the dissenting judgement of Edmonds J. His Honour said, at 435 - 436:

Having regard to these terms [of the Serviced Apartment Management Agreement], there can be no doubt that in carrying out the management and operation

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of the Serviced Apartment Business, MHL is doing so as the agent of MML. The relationship so established is truly one of principal and agent; the term "agent" is not used as a mere nomenclature for some other relationship as in
International Harvester Company of Australia Pty Ltd v Carrigan's Hazeldene Pastoral Company (1958) 100 CLR 644. See too
Lilyvale Hotel Pty Ltd v Federal Commission of Taxation (2009) 175 FCR 491.

…

In my view, the supply of accommodation to Ms Young was made by MML through the instrumentality of MHL as its agent and as there was no contention by the Commissioner that MML controlled the Hotel, accepted as being commercial residential premises, the second parenthetical exception to s 40-35(1)(a) had no operation.

53. The significance of the dissenting decision expressed by Edmonds J is that where the relationship between two entities is truly one of principal and agent, then, provided that the principal or the owner controls the commercial residential accommodation, for the purposes of the GST Act, there would be a supply of commercial residential accommodation made by the principal to whomever the agent provided the accommodation. Accordingly, as Baker submitted, given there was no dispute about the fact that the operator acted solely as the agent of the owner in this case, and in fact the owner also controlled Hotel Sophia, the exclusion set out in s 40-35(1)(a) is engaged.

54. With respect to Mr Sievers, I accept the construction of s 40-35(1)(a) in this case contended for by the Commissioner. The exclusion contained in that section of the GST Act is plainly concerned with the supply of accommodation in commercial residential premises in the context of whether that supply was properly construed as a taxable supply the purpose of s 9-10 of the GST Act. It includes the supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls commercial residential premises. The supply this case is made by the owner of Hotel Sophia (the Trustee) through its agent, the Operator. That construction is consistent with the intention expressed by the words used in s 40-35 of the GST Act.

CONCLUSION

55. I have found that the Trustee has failed to discharge the onus it bears under s 14ZZK(b)(ii) of the Administration Act to prove, on the balance of probabilities, that the taxation decision concerned should not have been made or should have been made differently. I find that the objection decision made by the Commissioner on 23 July 2015 was the correct decision. I affirm that decision.


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