ECC Southbank Pty Ltd as trustee for Nest Southbank Unit Trust & Anor v Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Federal Court of Australia (NSD 1569 of 2010)
Judgment date: 31 July 2012
Date published: 12 February 2013

Summary of decision:
Outlines the ATO's response to this case which concerned whether premises designed and operated to provide student accommodation are commercial residential premises.

Overview of facts:
Under the terms of a development lease entered into with the State of Queensland, the trustee of the Nest Southbank Unit Trust (NSUT) had premises constructed that were designed for student accommodation and serviced apartments. | NSUT entered into a lease 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 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 and a kitchen. | The premises incorporated within its common areas: • a coin operated laundry, • games rooms, • TV areas, • external garden with barbeque areas, • group study rooms and individual study booths, • library, • meeting and presentation rooms, • a bike storage room, • a cafeteria-style eating area, and • a reception desk, operating 24 hours per day, which provided various services. | • a coin operated laundry, • games rooms, • TV areas, • external garden with barbeque areas, • group study rooms and individual study booths, • library, • meeting and presentation rooms, • a bike storage room, • a cafeteria-style eating area, and • a reception desk, operating 24 hours per day, which provided various services. | Accommodation was provided by USLT in the premises pursuant to a Rooming Accommodation Agreement (for shared apartments) or a Studio Accommodation Agreement, both incorporating terms mandated by the Residential Tenancies and Rooming Accommodation Act 2008 (Qld). The Rooming Accommodation Agreement required residents to comply with house rules. | USLT supplied accommodation to two individuals pursuant to Rooming Accommodation Agreements and to another individual pursuant to the Studio Accommodation Agreement. | Issues decided by the court | The issues in dispute were whether: • the supply, by way of sub-lease, by NSUT to USLT of the premises was a supply of commercial residential premises for the purposes of section 40-35 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act); and • the supplies of accommodation made to the three individuals were supplies of accommodation in commercial residential premises provided to individuals by the entity that owns or controls the commercial residential premises for the purposes of section 40-35 of the GST Act. | • the supply, by way of sub-lease, by NSUT to USLT of the premises was a supply of commercial residential premises for the purposes of section 40-35 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act); and • the supplies of accommodation made to the three individuals were supplies of accommodation in commercial residential premises provided to individuals by the entity that owns or controls the commercial residential premises for the purposes of section 40-35 of the GST Act. | If the supplies were of commercial residential premises and accommodation in commercial residential premises respectively, the supplies would be taxable supplies under section 9-5 of the GST Act. If not, the supplies would be input taxed supplies by operation of section 40-35 of the GST Act. | NSUT and USLT sought declarations from the Federal Court that each of the supplies was a taxable supply. | Section 195-1 of the GST Act relevantly defines commercial residential premises as meaning: (a) a hotel, motel, inn, hostel or boarding house; or ... (f) anything similar to residential premises described in paragraph (a). | Nicholas J decided at [67] that the premises supplied by way of sub-lease by NSUT to USLT was either a hostel, or very similar to a hostel. The premises were therefore properly regarded as commercial residential premises for the purposes of the GST Act at [70]. In forming this view, his Honour considered the Macquarie Dictionary 5th Edition definition of the term 'hostel', being a supervised place of accommodation, usually supplying board and lodging, provided at a comparatively low cost, as one for students, nurses, etc. | His Honour concluded at [66] that the accommodation available at the premises was intended to be (at least in the case of the shared apartments) comparatively low in cost and was obviously configured with the needs of students seeking low cost accommodation in mind. The accommodation provided was supervised in the sense that the reception desk was staffed 24 hours a day. His Honour inferred 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. The fact that meals were not provided to residents did not mean that the premises could not be described as a hostel, or similar to a hostel. | Nicholas J observed at [71] "that the legislature has drawn a distinction between residential premises and commercial residential premises such that accommodation provided in commercial residential premises, even if of a long-term nature, is taxable if the entity that supplies the accommodation owns or controls the commercial residential premises in which such accommodation is provided. The fact that such accommodation (which might as in this case take the form of either a shared apartment or a self-contained apartment) is the principal place of residence of the individual concerned does not mean that the supply is not taxable." | His Honour determined that there are a number of features that distinguish hotels and motels from the premises supplied by NSUT at [51 to 64]. His Honour also found that the premises were not similar to an inn or a boarding house at [68]. | His Honour further found at [72] that each supply made to each of the three individuals was a supply to an individual of accommodation in commercial residential premises made by the entity (USLT) that controlled the premises. Accordingly, the supplies of accommodation were not input taxed by operation of paragraph 40-35(1)(a) of the GST Act and were therefore taxable supplies.

Issues decided:
The issues in dispute were whether: • the supply, by way of sub-lease, by NSUT to USLT of the premises was a supply of commercial residential premises for the purposes of section 40-35 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act); and • the supplies of accommodation made to the three individuals were supplies of accommodation in commercial residential premises provided to individuals by the entity that owns or controls the commercial residential premises for the purposes of section 40-35 of the GST Act. • the supply, by way of sub-lease, by NSUT to USLT of the premises was a supply of commercial residential premises for the purposes of section 40-35 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act); and • the supplies of accommodation made to the three individuals were supplies of accommodation in commercial residential premises provided to individuals by the entity that owns or controls the commercial residential premises for the purposes of section 40-35 of the GST Act. If the supplies were of commercial residential premises and accommodation in commercial residential premises respectively, the supplies would be taxable supplies under section 9-5 of the GST Act. If not, the supplies would be input taxed supplies by operation of section 40-35 of the GST Act. NSUT and USLT sought declarations from the Federal Court that each of the supplies was a taxable supply. Section 195-1 of the GST Act relevantly defines commercial residential premises as meaning: (a) a hotel, motel, inn, hostel or boarding house; or ... (f) anything similar to residential premises described in paragraph (a). Nicholas J decided at [67] that the premises supplied by way of sub-lease by NSUT to USLT was either a hostel, or very similar to a hostel. The premises were therefore properly regarded as commercial residential premises for the purposes of the GST Act at [70]. In forming this view, his Honour considered the Macquarie Dictionary 5th Edition definition of the term 'hostel', being a supervised place of accommodation, usually supplying board and lodging, provided at a comparatively low cost, as one for students, nurses, etc. His Honour concluded at [66] that the accommodation available at the premises was intended to be (at least in the case of the shared apartments) comparatively low in cost and was obviously configured with the needs of students seeking low cost accommodation in mind. The accommodation provided was supervised in the sense that the reception desk was staffed 24 hours a day. His Honour inferred 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. The fact that meals were not provided to residents did not mean that the premises could not be described as a hostel, or similar to a hostel. Nicholas J observed at [71] "that the legislature has drawn a distinction between residential premises and commercial residential premises such that accommodation provided in commercial residential premises, even if of a long-term nature, is taxable if the entity that supplies the accommodation owns or controls the commercial residential premises in which such accommodation is provided. The fact that such accommodation (which might as in this case take the form of either a shared apartment or a self-contained apartment) is the principal place of residence of the individual concerned does not mean that the supply is not taxable." His Honour determined that there are a number of features that distinguish hotels and motels from the premises supplied by NSUT at [51 to 64]. His Honour also found that the premises were not similar to an inn or a boarding house at [68]. His Honour further found at [72] that each supply made to each of the three individuals was a supply to an individual of accommodation in commercial residential premises made by the entity (USLT) that controlled the premises. Accordingly, the supplies of accommodation were not input taxed by operation of paragraph 40-35(1)(a) of the GST Act and were therefore taxable supplies.

ATO view of decision:
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. | On the facts of this matter, it was open to the Court to conclude that the premises met the ordinary meaning of the term 'hostel', or were similar to a hostel, and therefore commercial residential premises. His Honour's decision focuses upon a specific dictionary meaning of the term 'hostel' that is relevant to premises used to provide accommodation to students.

Administrative treatment:
Implications for ATO Precedential documents (Public Rulings & Determinations etc) | The Commissioner issued GSTR 2012/6 on 19 December 2012 which sets out the Commissioner's views on how section 9-5, Subdivision 40-B, and Subdivision 40-C of the GST Act apply to supplies of commercial residential premises and supplies of accommodation in commercial residential premises. The views set out in GSTR 2012/6 apply the Court's decision. | Implications for Law Administration Practice Statements | N/A

Legislative references: A New Tax System (Goods and Services Tax) 1999 (Cth) 9-5 9-30(2) s9-40 11-15 15-10 Pt 2-5 38-1 40-35 40-35(1)(a) Div 87 87-1 87-5 87-20 87-25(1) 87-25(2) 87-25(3) 195-1 Residential Tenancies and Rooming Accommodation Act 2008 (Qld) s10-40, s247, s249, s253
Case references: Meridien Marinas Horizon Shores Pty Ltd v Federal Commissioner of Taxation [2009] FCA 1594 2009 ATC 20-158 (2009) 74 ATR 787 Marana Holdings Pty Ltd v Commissioner of Taxation (2004) 141 FCR 299 2004 ATC 5068 (2004) 57 ATR 521
Subject references: Goods and Services Tax Commercial residential premises Premises that are, or similar, to a hotel, motel, inn, hostel or boarding house Shared apartments and studio style apartments