Private ruling: GST and commercial residential premises
Date of advice: 28 July 2016
Published: September 2016

Ruling: Q1: Are the supplies of accommodation by Entity A to guests input taxed under section 40-35 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: No.

Relevant facts and circumstances: Entity A (You) is registered for GST. You earn income from various activities you conduct in relation to the building and grounds (the Building). The Building is a residential apartment complex consisting of X self-contained units. The Building complex contains the following physical features: • communal underground security parking for unit owners and occupiers of all units • a communal pool • a communal BBQ area and adjoining garden • a coin operated communal computer (which is not operated or maintained by you) located in the common foyer • a reception office located within the common lobby, which is operated by you, and for which you have exclusive use of pursuant to an agreement between you and Entity B You earn income in three ways in respect of activities you conduct in relation to the Building: • Management Income - from managing the maintenance of grounds of the Building for the relevant Management • Commission Income - from commissions paid by owners of units when that owners individual unit is rented to a third party for a fee • Lease Income - from renting units (which you have possession of pursuant to General Tenancy Agreements with the owners) to third parties for a fee You charge and remit GST in respect of the Management Income, Commissions Income and Lease Income. This private ruling will only consider supplies whereby you are in receipt of the Lease Income. You are the lessee of X units (Lease Units) located on various floors pursuant to General Tenancy Agreements (Lease). You have provided a copy of a representative Lease. You earn the Lease Income in respect of the Lease Units only. You offer the Lease Units as serviced apartments available for short term rental. You also have arrangements with the owners of a further X units within the Building (Non-lease Units). Your arrangements with the owners of the Non-lease Units are to the effect that you, whilst not a lessee of the Non-lease Units, facilitate the offering of the Non-lease Units for rental as serviced apartments in the same way as you offer the Lease Units. Physically, the Non-lease Units are located on various floors of the Building. You earn the Commission Income from this activity. The Lease Units are self-contained apartments, each comprising of: • 2 bedrooms • 3 balconies • 2 bathrooms • a lounge room • a full kitchen including stove, full-sized fridge, microwave, cooking utensils, crockery and cutlery, and • a laundry. The Lease Units do not have stocked bar fridges but only an empty standard large sized fridge. The remaining units in the Building, which are not part of the Lease Units or the Non-lease Units, are either owner/occupied, tenant occupied on a long-term permanent residential letting or used by the owner of the unit for purposes not associated with you (that is, holiday lettings not associated with your activities or simply vacant). In relation to the Lease Units (and the Non-lease Units), you operate a website offering those units (only) for rental as serviced apartments within the Building. Bookings for a unit can be made via that website. Bookings can also be made via phone or via other online booking agents. You engage a Manager who lives on-site at the Building. The Manager performs functions in relation to both: • the arrangements you have with the Relevant Management of the Building for the general maintenance of the complex (for which you earn the Management Income) • the offering of the Lease Units and Non-lease Units for rent (for which you earn the Lease Income and Commission Income). The reception office operated by you is open between 8.30am-5.30pm Monday to Friday and 8.30am-12.30pm on Saturday. The reception office is staffed by the Manager on an as needs basis (that is, the reception office is not staffed full-time but on an ad-hoc basis when a guest of one of the Lease Units or Non-lease Units arrives to collect the keys for a unit). When the reception office is not open, a night service provider can handle bookings and arrange for the pickup of unit keys. That is arranged from a remote location. You provide the following services to guests staying in one of the Lease Units or Non-lease Units: • on arrival, the keys to the unit • on arrival, linen and towels (which are generally not replaced during the rest of the stay as the units have laundry facilities) • broadband internet access and limited cable TV channels • if requested, tips and assistance with booking sightseeing tours. • rooms are not cleaned daily, or at all, during a person's stay but are cleaned only when a person's stay is over • no housekeeping or laundry services are provided during a person's stay • there is no café, restaurant or bar facilities and no room service or in-complex dining options offered or available at the Building. The Lease Units and Non-lease units have self-contained cooking facilities. The accommodation in the units supplied to guests is not typically for a periodic term (which may be for a period of months or years at a time), such as in a residential lease. You have in the past had tenants under a residential lease where rent is charged under a lease agreement. Lease agreements will generally only be short term for three or six months duration. Currently, you have one guest under a three month lease agreement. For holiday lettings, management and the guest do not document the condition of the unit under a written contract before the accommodation is initially supplied and when the guest ceases to occupy the unit. This will occur if the unit is let out for a longer period. You do not impose a cleaning fee on the guest when they vacate. Guests (including short or long term tenants or holiday lettings) are not permitted to alter the unit such as by attaching hanging devices on a wall. The Building does not permit pets. Guests do not separately arrange and pay for the connection of a telephone, electricity, or gas service. However, where a tenant is under a lease arrangement this will be subject to the lease and what price has been negotiated. For holiday lettings, guests are not responsible for cleaning and minor maintenance of the unit, such as changing light bulbs. This may occur if a lease exists for a longer period. All the units are furnished.

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

Reasons for decision: Summary: In this reasoning: • unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) • all terms marked by an asterisk are defined terms in the GST Act • all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on ato.gov.au Under section 9-5, 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 the indirect tax zone (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 issue in this case is whether your supply of accommodation in the Lease Units 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. 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). 'Residential premises' is defined in section 195-1 as land or a building that: • is occupied as a residence or for residential accommodation, or • 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). Paragraphs 9 and 15 of Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) explain that a single test looking at the physical characteristics of the property will determine the premises suitability and capability for residential premises. To satisfy the definition of residential premises, the premises must provide shelter and basic living facilities. The Lease Units satisfy the definition of 'residential premises'. The next step is to consider whether the Lease Units also fall within the scope of being 'commercial residential premises'. Commercial residential premises are defined, in part, in section 195-1 as: (a) a hotel, motel, inn, hostel or boarding house; or (b) … | Detailed Reasoning - …: (f) anything similar to *residential premises described in paragraphs (a) to (e). … 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 hotels, motels, inns, hostels and boarding houses. Premises that are 'similar' to establishments that are commercial residential premises must have sufficient characteristics in common with the class of premises described. Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises (GSTR 2012/6) provides the ATO view on how the GST applies to supplies of commercial residential premises and supplies of accommodation in commercial residential premises. Paragraph 10 of GSTR 2012/6 explains that the objective factors that are 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. Paragraph 12 of GSTR 2012/6 list the following eight characteristics common to operating hotels, motels, inns, hostels and boarding houses: • 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 • occupants have status as guests. Of relevance is whether the Lease Units are similar to a hotel, motel or inn as outlined in paragraphs 13 to 24 of GSTR 2012/6. A motel is a particular type of hotel that primarily caters to the needs of motorists seeking roadside accommodation. An inn is a small hotel at which board (meals) and lodging are provided to travellers. Subject to those qualifications, the following features of hotels are equally relevant to motels and inns: • Hotels provide accommodation for a commercial purpose. • Hotels have the capacity to supply accommodation for multiple occupancies. • Hotels usually offer meals to guests and they usually have a kitchen where meals are prepared for guests. The premises usually include a restaurant or dining room for guests. A motel does not necessarily have a dining room, but guests of the motel may still be provided meals. • The guest rooms in a hotel are invariably furnished, and always include a bed, and some living area, and usually an adjoining bathroom. In some cases, hotel rooms may also have a kitchenette for self-catering. • Linen and towels are usually supplied. The rooms are usually cleaned and serviced by staff on a daily basis, with the costs of these services being included in the tariff. • Predominantly, the guests of hotels are travellers who ordinarily have their principal place of residence elsewhere, and who need or desire accommodation while away for business or pleasure. • Guests of hotels do not usually enjoy an exclusive right to occupy any particular part of the premises in the same way as a tenant to whom a house or apartment is let. Nor does a guest of a hotel usually let a room for a term. The guest is usually charged at a daily rate multiplied by the number of days of occupancy. However, it is not essential that all guests in a hotel stay for a short period. This feature may not be evident in hotels that provide accommodation to long-term residents. • Hotels usually have a reception desk to handle the requirements of both management and guests, particularly when guests check in or check out of the establishment. Hotels may also offer concierge services either at the reception desk or at a separate concierge's desk. • A hotel is centrally managed by the operator, typically having at least one person present, or offsite but readily accessible, to manage the accommodation and arrange or provide services. • Accommodation in a hotel is supplied by the operator of the hotel in its own right and not in the capacity of agent for a third party. Paragraph 25 of GSTR 2012/6 states that when determining whether premises are, or are similar to, a hotel, motel or inn, it is necessary to consider the premises in its entirety. It is not sufficient to only consider the features of part of the premises, such as an individual room, in which accommodation is provided. The Lease Units exhibits all of the features of hotels, motels and inns outlined in paragraphs 13 to 24 of GSTR 2012/4, with the exception that meals are not provided. Paragraphs 95 and 96 of GSTR 2012/6 provide clarification on the attributes of commercial residential premises such as hotels, motels, inns, hostels and boarding houses for separately titled rooms, apartments, cottages or villas, and states: 95. In addition to living accommodation areas, premises that are commercial residential premises include commercial infrastructure to support the commercial operation of the premises. This infrastructure may include (but is not limited to) reception areas, dining and bar areas, meeting/function areas, kitchens, laundry facilities, storage areas and car parks. This infrastructure is used to provide services to occupants. Premises described in paragraph (a) and similar premises under paragraph (f) of the definition contain some or all of these areas to some degree. 96. Separately titled rooms, apartments, or adjacent cottages or villas located on adjoining or abutting land can be combined with sufficient commercial infrastructure (as discussed in paragraph 95 of this Ruling) so that, as a whole, it can be operated similarly to a hotel, motel, inn, or hostel. Supplies of accommodation in premises operated in this way are supplies of accommodation in commercial residential premises. In your case, having acquired the Lease Units under lease you provide accommodation on a commercial basis to guests who are temporarily away from their usual homes. The accommodation is advertised and can be booked through your website and other accommodation websites. You have a reception office and onsite manager available to provide keys to guests on arrival and offer tips and assistance with booking sightseeing tours. Linen and towels are provided and the units are cleaned between stays. Guests are also provided with other services including internet access and cable TV. On balance we consider that the Lease Units, as a whole, are operated similarly to a hotel or motel and consequently you are making supplies of accommodation in commercial residential premises. Your supply of accommodation in the Lease Units is not input taxed pursuant to paragraph 40-35(1)(a). Therefore, the supply of your accommodation in commercial residential premises will be a taxable supply where the requirements of section 9-5 are satisfied. | Detailed Reasoning - Further information - long-term accommodation in commercial residential premises: Long-term stays in commercial residential premises that are for 28 days or more receive concessional treatment under Division 87 reducing the amount of GST payable. Further information is available in GSTR 2012/7 Goods and Services Tax Ruling Goods and services tax: long-term accommodation in commercial residential premises and GST Bulletin GSTB 2001/2 Accommodation in caravan parks and camping grounds .