Private ruling: GST and commercial residential premises
Published: June 2015

Ruling: Q1: Are you making taxable supplies of accommodation in commercial residential premises? | A1: No, your supplies of accommodation are input taxed pursuant to section 40-35 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Relevant facts and circumstances: You are registered for GST. You own a property (the Property) which has XX bedrooms and communal kitchen, dining, bathroom and laundry facilities. The Property is currently used as to provide accommodation to multiple tenants. The use of the Property in providing accommodation to multiple tenants is not contrary to the current council zoning. The Property is managed by you and your spouse. You are responsible for the collection of rent, sourcing tenants, preparing leases, and the ongoing maintenance of the Property. Maintenance of the Property is generally outsourced and you or your spouse arrange quotes and payment of accounts in relation to maintenance issues and services. The premises are furnished. You do not provide any other services, for example, food/meals, linen and towels are not provided. You are responsible for the cleaning the common areas of the premises with the tenants responsible for their individual rooms. Tenants are not responsible for arranging their own utility services such as gas, electricity, water, phone and Foxtel. Such services are included in the rental tariff paid by the tenant. You as manager of the Property do not reside on-site however you are available to be contacted and to attend to the requirements of the Property and tenants as required. The premises are designed to be a low cost option of accommodation suitable primarily for students. However the tenancy is not provided in connection with an education institution. You enter into a written lease agreement with the tenants. The tenants are required to pay a bond and a property inspection report is completed prior to the tenant moving in and again at the conclusion of their tenancy.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 9-40 | A New Tax System (Goods and Services Tax) Act 1999 Section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 Section 40-35, and | A New Tax System (Goods and Services Tax) Act 1999 Section 195-1.

Reasons for decision: Summary: Note: In this reasoning, unless otherwise stated, • all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) • reference material(s) referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au Section 9-40 provides that you are liable for GST on any taxable supplies that you make. Section 9-5 provides you make a taxable supply if: • you make the supply for consideration • the supply is made in the course or furtherance of an enterprise that you carry on • the supply is connected with Australia, and • you are 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. The primary issue in this case is whether your supply of the premises is an input taxed supply. Input taxed means that GST is not payable on the supply and there is no entitlement to an input tax credit for anything acquired to make the supply. Under subsection 40-35(1), a supply of residential premises by way of lease, hire or licence (other than a supply of commercial residential premises or a supply of accommodation in commercial residential premises provided to an individual by an entity that owns or controls the commercial residential premises) is input taxed. The supply will only be input taxed to the extent the premises are to be used predominately for residential accommodation (regardless of the term of occupation). The definition of residential premises in section 195-1 refers to land or a building that is occupied as a residence, or for residential accommodation, or is intended and capable of being occupied as a residence or for residential accommodation (regardless of the term of occupation). Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) outlines the characteristics of residential premises. Paragraph 9 of GSTR 2012/5 explains that the requirement that the residential premises are to be used predominately for residential accommodation in section 40-35 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 15 of GSTR 2012/5 continues by stating that to satisfy the definition of residential premises, premises must provide shelter and basic living facilities. In this case the Property will satisfy the definition of 'residential premises' as the premises provide shelter and basic living facilities. The next step is to consider whether the Property also falls within the scope of being 'commercial residential premises'. Commercial residential premises are defined in section 195-1 to include, amongst other things: (a) a hotel, motel, inn, hostel or boarding house, or (b) … … (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. The definition of 'commercial residential premises' encompasses similar establishments or establishments that exhibit characteristics that place them on a similar footing to hotels, motels, inns, hostels and boarding houses. Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises (GSTR 2012/6) outlines 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. The Macquarie Dictionary 5 th Edition provides the following definitions: 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. a dwelling, usually a private house, in which board and lodging are provided for payment In their ordinary meanings, these terms share the common attribute of providing accommodation to guests. Paragraph (f) of the definition of commercial residential premises extends the scope of the definition to premises that are 'similar' to the class of establishments described in paragraphs (a) to (e). Premises that are 'similar' to establishments that are commercial residential premises must have sufficient characteristics in common with the class of premises described. Given the facts provided we do not consider the premises to be a hotel, motel or inn or anything similar (paragraphs 13 - 25 of GSTR 2012/6). In addition, as meals are not provided, we do not consider the premises to be a boarding house or similar (paragraph 36 and 181 of GSTR 2012/6). We consider the premises in question bear the closest resemblance to a 'hostel'. The term 'hostel' includes premises that can be described as a hostel, a hotel or inn and also includes a supervised place of accommodation usually supplying board and lodging provided at a comparatively low cost. Paragraphs 26 through 35 of GSTR 2012/6 describe the features typical of hostels. In considering those features the following is noted: • The physical characteristics of a hostel, or premises similar to a hostel, reflect that the premises are designed to supply accommodation at a comparatively low cost to the occupants. In this case, the physical characteristics include a communal laundry and communal dining and social areas with the premises designed and configured to be a low cost option of accommodation suitable primarily for students. • Hostels are typically centrally managed by an on-site manager who manages the accommodation and arranges or provides services. The feature that a hostel, or premises similar to a hostel, be a supervised place of accommodation can be evident where occupants can raise queries and concerns pertaining to the management of the premises with an on-site manager. In this case you, as manager, do not reside on-site although you are available to be contacted and attend the premises whenever required. • Occupants of a hostel may be provided with meals by the operator of the premises. However the provision of meals is not an essential feature of a hostel (paragraph 35 and 180 of GSTR 2012/6). In this case you do not provide food or meals to the residents. Whilst the physical characteristics of the Property are similar to those of a typical 'hostel', the premises do not have a level of supervision necessary to be classified as a hostel or anything similar to a hostel for GST purposes. As the Property falls within the definition of residential premises and is neither a supply of commercial residential premises nor a supply of accommodation in commercial residential premises provided to an individual by an entity that owns or controls the commercial residential premises, your supply of accommodation is input taxed pursuant to section 40-35. Therefore, your supply of accommodation does not satisfy the definition of a taxable supply in section 9-5 and GST is not payable on the supply.