Private ruling: GST and Property
Date of advice: 13 August 2018
Published: October 2018

Ruling: Q1: Will your supplies of accommodation at the renovated premises (the Premises), be taxable supplies of accommodation in commercial residential premises under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: No. | Q2: Can you claim input tax credits pursuant to section 11-5 of the GST Act for any costs incurred for the renovation and operation of the Premises? | A2: No. | Q3: If the answer to question 1 is yes, will division 87 of the GST Act apply? | A3: Not applicable.

Relevant facts and circumstances: You are registered for goods and services tax (GST). You purchased a residential property (the Premises) with the intention of undertaking the following activities to convert the existing house into an approved boarding house which will be operated for the long term: ● Obtaining development approval to convert the existing house into a boarding house. ● Renovating the house internally. ● Building an extension to the back of the house. The Contract of Sale is dated XXYYYY and settlement took place on XXYYYY. From XXYYYY to XXYYYY, the Premises will be rented out as a standard residential property while you wait for the Development Approval and before renovation and building works begin. Gross rent (including GST) on the completed boarding house will be approximately $XX per year. The boarding house will be rented to long term residents (minimum 3 months) only. In an email dated XXYYYY, you provided the following table of additional information addressing the characteristics listed in paragraph 12 of GSTR 2012/6 Goods and services tax: commercial residential premises : GSTR 2012/6 characterising of commercial residential premises Response Commercial intention The premises are operated on a commercial basis or in a business-like manner even if they are operated by a non-profit body. Yes Multiple occupancy The premises have the capacity to provide accommodation to multiple, unrelated guests or residents at once in separate rooms, or in a dormitory. Yes. X bed and X bath Holding out to the public The premises offer accommodation to the public or a segment of the public. Yes – anyone can apply to live there Accommodation is the main purpose Yes Central management The premises have central management to accept reservations, allocate rooms, receive payments and perform or arrange services. This can be provided through facilities on-site or off-site. A manager will be appointed to operate the boarding house. Management offers accommodation in its own right. The entity operating the premises supplies accommodation in its own right rather than as an agent. A manager will be appointed to operate boarding house. Provision of, or arrangement for, services Management provides guests and residents with some services and facilities, or arranges for third parties to provide them. A manager will be appointed to operate boarding house. Occupants have status as guests Predominantly, the occupants are travellers who have their principal place of residence elsewhere. The occupants do not usually enjoy an exclusive right to occupy any particular part of the premises in the same way as a tenant Yes – they are classified as an occupant under the boarding house rules. They have exclusive use of their room only. You confirmed that no meals will be provided to residents. The following information, relevant to this ruling application, has been extracted from the documents provided. Statement of Environmental Effects … INTRODUCTION … application seeks approval for a change of use of the dwelling to a boarding house. … The site contains an existing dwelling that has been used for private residential purposes. The site is located in the … zone as identified in the below extract of the zoning map. … …The property has an existing double garage and parking at the front of the double garage. Development in the immediate locality predominantly consists of detached dwellings. THE PROPOSAL It is proposed to carry out additions and alterations to the existing dwelling... Further, the use of the building is proposed to be changed to a boarding house. The building was previously used as a private dwelling. The full details of the work proposed in order to facilitate the planned new occupation of the building are detailed on the submitted plans. Once the proposed work is complete, the boarding house will contain: ● X single rooms (with two fully self-contained) and X double room (accessible and fully self-contained); ● X bathrooms; ● a kitchen; ● a communal living area; and ● outdoor communal open space The parking needs of the development will be catered for by the two existing garage spaces, an uncovered space designated for disabled parking, bicycle racks and X motorbike parking spaces. REASONS AND JUSTIFICATION FOR THE PROPOSAL … The subject land is zoned … and boarding houses are a permitted use within that zone. … PLANNING LEGISLATION AND POLICY CONSIDERATIONS … The relevant legislation allows for development for the purpose of boarding houses to be carried out by any person with consent on land in a prescribed zone. Zone … is a prescribed zone. … The relevant legislation provides that a consent authority must not refuse consent to a boarding house to which the division applies if it complies with certain standards. We address each of these conditions below: Standard Comment … … Private open space. … ● If accommodation is provided on site for a boarding house manager… There is no accommodation for a boarding house manager. … … … The relevant legislation provides that a consent authority must not consent to a boarding house to which the division applies unless it is satisfied of the listed matters. We respond to each of these matters in the table below: Matter to be satisfied Comment If a boarding house has 5 or more boarding rooms, at least one communal living room will be provided. The proposed boarding house has more than 5 rooms and a communal living area is provided adjoining the kitchen. No boarding room will have a gross floor area (excluding any area used for the purposes of private kitchen or bathroom facilities) of more than 25 square metres. There are no boarding rooms in the proposed boarding house with a gross floor area of more than 25 square metres. No boarding room will be occupied by more than 2 adult lodgers. There are no boarding rooms in the proposed boarding house with a gross floor area of more than 25 square metres. Adequate bathroom and kitchen facilities will be available within the boarding house for the use of each lodger. The boarding house proposes separate bathroom facilities for each room. There are three self-contained rooms containing kitchen facilities and one communal kitchen. If the boarding house is on land within a zone where residential flat buildings are permissible, no new car parking for lodgers will be provided on the site. There is no new car parking to be provided on the site. At least one parking space will be provided for a bicycle, and one will be provided for a motorcycle, for every 5 boarding rooms. Bicycle racks and X motorbike parking spaces are proposed for the development. … The relevant legislation has development controls for the location, setbacks and minimum facilities for boarding houses. The proposed boarding house complies with the location controls given its close proximity to the … town centre and positioning on the bus route. The availability of transport ensures occupants of the proposed facility can easily access the …The boarding house also complies with required setbacks. The table below responds to the… minimum facility requirements that are relevant to this proposal. Matter to be satisfied Comment The design of boarding houses must demonstrate the balance between the shared and private areas. The proposed boarding house has a balance between private and shared space. The private bedrooms are balanced by the inclusion of the communal kitchen, communal laundry, external landscaped areas, communal vegetable garden and barbecue area. Boarding rooms shall be a minimum of 12m2 for 1 person or 16m2 for 2. The proposed boarding rooms comply with these requirements. The maximum lodgers per room is 2. The proposed boarding rooms comply with these requirements. Communal kitchens must be: ● supplied with cupboards, kitchen sink, food preparation benches and cooking facilities plus tables and chairs in a central location accessible to all residents; ● a minimum area of 11m2 for more than 6 residents up to 12 residents; ● where minor kitchenette facilities are provided within bedrooms they shall be comprised of a fridge, adequate cupboards and shelves and a microwave. The proposed communal kitchen and kitchenette facilities comply with these requirements. 1 washing machine, washing tub and clothes dryer or 30m of clothes line is to be provided for every 10 rooms. X of the proposed rooms have their own washer dryer. There is a communal washer and dryer to be installed above a washing tub. A living room of sufficient size to accommodate the proposed number of residents. There is a communal living area of approximately Xm 2 that adjoins the communal kitchen. A communal living room should receive a minimum of 3 hours direct sunlight between 9am and 3pm on 22 June. The communal living area faces the east and will satisfy these sunlight requirements. Communal living rooms should be appropriately located to minimise impacts on adjoining properties. The communal living area is located on the north east side of the property and will not cause any substantial impact on the neighbours. Private open space is to be located in the rear setback. There is private open space located in the rear setback. A minimum of one private open space area of 20m2 with a minimum dimension of 3 metres is to be provided for use by lodgers. There is communal open space area in the rear yard to comply with this requirement. Landscaping in the front setback. There will be landscaping on the south side of the front setback. The front of the dwelling will only have minor changes to accommodate the proposed boarding house. Car parking in accordance with Chapter E3 Car Parking (1 car parking space per 5 beds and 1 bicycle space per bed). The parking objectives are met through the existing garage, parking space and additional bike parking that is proposed. Disabled access arrangements. Disable access arrangements are proposed by way of a stair lift. The relevant legislation also requires a statement of justification. We respond on each of these points below: Point of address Response What are the key objectives of the boarding house? (i.e. Is it consistent with localised housing needs and demands? Does it increase housing stock? Will it provide affordable options? Who will it accommodate? Is it for a special needs group, providing housing for groups otherwise disadvantaged or providing wider social benefit?) The proposed boarding house is intended to provide suitable accommodation for individuals and a couple who are on low incomes. The proposed facilities of the boarding house ensure that all occupants are provided with a high standard of internal and external facilities. The boarding house will provide a substantial social benefit as it will provide an affordable, high quality housing option for those who would otherwise be unable to afford to rent a dwelling or unit in the private market. What are the local area characteristics? (i.e. streetscape character, visual catchments, dominant style of surrounding built form) The proposed development is located in a residential area with close proximity to the … commercial precinct. The dominant style of surrounding built form is freestanding dwelling. The proposed development will only involve very minor amendments to the streetscape and has no material impact on the visual character of the neighbourhood. What are the likely physical and social characteristics of the proposed boarding house? (i.e. what is the development physical form (eg. Number of bedrooms, type etc) change the size and characteristics of the population?) The proposed development has X bedrooms and will accommodate X people. The existing residential dwelling has X bedrooms. Whilst the development will increase the occupants of the building this is unlikely to have a material impact on the neighbourhood given: ● it is intended that occupants of the development will be utilising public transport and bicycle transportation rather than increasing vehicle traffic; ● the proposed development has sufficient facilities to provide for the needs of the occupants which will ensure that impact on neighbours is minimised; and ● proposed landscaping and existing tree coverage ensures that the physical characteristics of the site lessen the impact of the proposed development. … CONCLUSION Development consent from … City Council is sought to lawfully change the use of the building located at …so it may be used as a boarding house. The development application submitted to … City Council for its consideration addresses in detail those matters considered to be of importance to the proposal. Architectural Plans … have prepared Ground & Lower Ground Floor Plans dated XXYYYY which you have provided. Boarding House Management Plan The document includes the following information: … Management arrangements (a) The boarding house is to be managed by suitable real estate agent or experienced manager who will be familiar with the content of this management plan and enforce the requirements outlined within. [Insert name, address and contact details of manager]. (b) The manager will ensure their contact details are made available and displayed externally at the front entrance of the boarding house and internally within the communal living area. (c) The manager will conduct inspections/visitations by providing notice to the resident as specified in the occupancy agreement and keep record of these in a log book. (d) The boarding house will not otherwise be staffed. (e) The manager will maintain an incident register and make it available if requested during inspection. (f) The manager is responsible for organising any maintenance required, waste collection and other facility needs. (g) The manager must notify Council in writing if there is any change to management arrangements or contact details within 1 month of the change. … … Occupancy agreements The occupancy agreement is at Appendix X. At no time is any room to be advertised or made available for short stay accommodation such as that associated with backpacker hostels, motels or hotels. … … FURNITURE AND FACILITIES The boarding house is equipped with the following furniture in each bed room: ● a suitable bed including base, mattress and mattress protector; ● wardrobe; ● mirror; ● table and chair; ● suitable lighting including night light; ● waste receptacles including recyclables; ● curtains/blinds or other suitable privacy device; ● fully self-contained rooms also hold: ● a kitchenette including a bench, storage, bar fridge and microwave; and ● a washing machines. No boarder may bring their own furniture to the boarding house. No furniture (except for a table and chairs) or storage of any household items are permitted at the rear or the front of the property. The boarders shall advise the Manager of any broken furniture or faulty services within each room or laundry without delay. The Manager is responsible for replacement of furniture as required. … … CLEANING AND MAINTENANCE For the health and safety of residents and any staff, all communal areas of the boarding house are to be cleaned to a professional standard at least once a week. The cleaner will be responsible for taking garbage bins out for collection to the … and returning once collected. All residents are responsible for disposing their waste to the garbage store. (a) Name and contact details of cleaner will be supplied in common room with the weekly communal area cleaning times. (b) Resident will be responsible for cleaning their own bedroom to a satisfactory standard and Inspection times by agent will be notified to Lodgers in advance as required by law. (c) Tenants may be asked to improve the state of cleanliness of their room if its effects the other people living in the property (d) Frequency of gardening (lawns, hedge trimming, watering etc) will occur on a fortnightly basis in summer and three weekly in winter. Or as required if needed. (e) Lodgers are responsible for the cleaning of their linen on a regular basis with the washing machine provided in the communal laundry. (f) Record and management of breakages and repairs is kept in a standard log book in the communal area. These repairs are checked on a regular basis and any serious repair for water, electricity or safety issue can phone a 24-hour number for assistance. … … COMPLAINTS HANDLING The Manager is responsible for: providing adjoining residences with a copy of the management plan and its contact details; (a) establishing a forum for adjoining neighbours to discuss concerns; (b) recording any complaints in a complaints register which is to be available to surrounding neighbours and Council upon request. The register shall detail how and when any complaints are dealt with. The Leasing Manager will be available during business hours 9 am to 5pm, Monday to Saturday, to deal with complaints. An after-hours number is also to be provided, with such phone number being publicly available in the common room. APPENDIX X – LODGING AGREEMENT Room Number: Commencement date Term of agreement Occupation Fee $ / week. To be paid each … TERMS … … Condition of the Premises … The proprietor agrees to provide and maintain the premises so that they are in a reasonable state of repair, are reasonably clean and reasonably secure. … House Rules … The resident agrees to comply with all the rules of the boarding house (“the rules”),… If the resident does not comply with any or all the rules the proprietor agrees, in the first instance, to give a written warning to the resident. However, if the breach of any or all the rules continues or, if a breach of any or all the rules is serious, in that it puts the safety of other people in the premises or the actual premises at risk, then the proprietor may issue a termination notice immediately. … No Penalties … The resident is not required to pay a penalty for a breach of the occupation agreement or a breach of the rules. … Quiet Enjoyment … The proprietor agrees not to cause or permit any interference with the resident’s quiet enjoyment of the premises. … … Inspection and Access … The proprietor may enter the resident’s room, at a reasonable time, with reasonable notice and on reasonable grounds. Agreed access and notice periods as follows: Reasons for Access Notice to be given To clean the premises, 24 hours To carry out inspections 48 hours To carry out repairs 24 hours To show the room to a prospective resident 24 hours In the case of an emergency, including emergency repairs Immediate access … Notice of Fee Increase … The resident is entitled to 4 weeks written notice of any proposed increase to the occupancy fee. … Utility Charges … The proprietor may charge an additional amount for utilities if the resident is made aware of the charge on signing this agreement AND the resident has been informed as to how the charge will be calculated… … Security Deposit … The proprietor is entitled to receive a security deposit of $____ this amount being no more than the sum of 2 weeks occupation fee. The security deposit is payable on the day the agreement is signed or on the following day. The security bond will be returned to the resident when s/he moves out of the boarding house within 14 days of the agreement ending unless it is claimed by the proprietor for a reason allowed for … (for example for damage caused to the premises by the resident.) … Termination … The proprietor or resident may terminate the agreement by giving written notice to the other. The notice will include the reason for the termination and a reasonable notice period. … Boarding House Rules The document includes the following information: … KEEPING OF PETS With permission only from manager – No Dogs or Cats allowed. …

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 9-40 | A New Tax System (Goods and Services Tax) Act 1999 Section 11-5 | A New Tax System (Goods and Services Tax) Act 1999 Section 40-35 | A New Tax System (Goods and Services Tax) Act 1999 Division 87

Reasons for decision: Summary: 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: a) you make the supply for consideration b) the supply is made in the course or furtherance of your enterprise that you carry on c) the supply is connected with the indirect tax zone (Australia), and d) 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 You are registered for GST and will be making supplies of accommodation in Australia for consideration in the course or furtherance of your enterprise. Further, the supply of the Premises will not be GST-free. Therefore, the supply of accommodation will be a taxable supply unless it is input taxed. The primary issue in this case is whether the supply of accommodation by you 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 section 40-35, a supply of premises that is by way of lease, hire or licence is input taxed if 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). Paragraph 40-35(2)(a), further clarifies that the supply will only be input taxed to the extent that the premises are to be used predominantly 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 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 Premises will satisfy the definition of ‘residential premises’ as the Premises provide shelter and basic living facilities. The next step is to consider whether the Premises also fall 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). 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 provides the ATO view of the characteristics of commercial residential premises. Paragraph 8 of GSTR 2012/6 states that a supply by way of sale or lease of commercial residential premises is a taxable supply. A supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises is also a taxable supply. Paragraph 140 of GSTR 2012/6 explains that the terms hotel, motel, inn, hostel and boarding house are not defined in the GST Act and therefore take their ordinary meanings in context. 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. 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). In your case, the redeveloped Premises will not be a hotel, motel or inn or something similar to that class of establishment. We will consider whether the redeveloped Premises fall within the meaning of hostel or boarding house or something similar to those establishments. Paragraphs 10 and 11 of GSTR 2012/6 provide that the tests to be applied in determining whether premises fall within either paragraph (a) or (f) of the definition of ‘commercial residential premises’ necessarily raise questions of fact involving matters of impression and degree. Objective factors that are relevant to characterising premises as falling within either paragraph (a) or (f) of the definition include the overall physical character of the premises and how the premises are operated. Where these objective factors do not give a clear characterisation, the following may also be considered: ● contractual documentation that provides evidence of current or future use, and ● government zoning and planning permissions. Premises that are ‘similar’ to establishments that are commercial residential premises must have sufficient characteristics in common with the class of premises described. Paragraphs 86 to 88 of GSTR 2012/6 discuss premises that are not operating and state: | Detailed Reasoning - Characterising premises that are not operating: 86. Premises may be characterised under paragraphs (a) or (f) of the definition of commercial residential premises when they are not operating. Premises that are not being operated at the time of supply may be classified by their overall physical character, considered with other objective characteristics. 87. 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. These types of evidence may be relevant where the premises have been newly constructed and not yet operated. Where these indicators reveal that the premises have been specifically constructed for a different purpose (for example, to be used as a retirement village), or not designed as a hotel, motel, inn, hostel, boarding house or similar premises, the non-operating premises are not commercial residential premises. 88. The supply of a vacant house that was not designed, built or modified as a boarding house is not a supply of commercial residential premises. Therefore, in the absence of contractual documentation and council or other government planning and zoning restrictions or approvals or permissions that objectively evidence that the premises are to be operated as a boarding house, the supply of a vacant house is not the supply of commercial residential premises. You have provided the following documentation evidencing the premises physical characteristics and how it will be operated in the future: 1. An architectural plan. 2. Statement of Environmental Effects. 3. Boarding House Management Plan. In addition to the physical characteristics of the premises, paragraph 12 of GSTR 2012/6 lists the following eight characteristics that are considered to be 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, and ● occupants have the status of guests. Paragraphs 36 - 40 of GSTR 2012/6 discuss the features of boarding houses and provides the following: ● A boarding house is a dwelling at which board (meals) and lodging are provided to guests or residents. Paragraph 184 of GSTR 2012/6 explains further: 184. The meaning of the term 'boarding house' in the context of the definition of commercial residential premises was also considered in Re Karmel & Co Pty Ltd (as trustee for Urbanski Property Trust) v. FC of T (' Karmel' ). … In this case, a property owner rented out a dwelling's two garages which had been converted into accommodation units. The rent included utilities, and the use of facilities such as a clothes drier. The occupants were offered a choice of hiring furnishings or using their own. The Tribunal held that the garage premises were not a boarding house because the property owner was not required to provide meals to the occupants. The Tribunal cited with approval … the following passage from the judgment of Hope JA in Roberts v. Waverley Municipal Council (Roberts ): In ordinary parlance a boarding-house is a place where a business is carried on of providing food and lodging to the boarders, and the food comprises meals. It is a place where the boarders pay for their board and lodging, and the concept of a place where the boarders are not required to pay anything and do their own cooking is inconsistent with the natural meaning. … ● A boarding house provides accommodation for a commercial purpose. Non-profit entities can also operate commercial residential premises. For example, various non-profit organisations operate boarding houses in a business-like manner. ● A boarding house has the capacity to supply accommodation for multiple occupancies. ● A boarding house may provide accommodation to occupants as the occupant's principal place of residence. It is not necessary for accommodation in the premises to be limited to guests who need or desire accommodation while away for business or pleasure. Example 8 in GSTR 2012/6 (paragraphs 67 and 68), provides an example of a boarding house and states: Example 8 - boarding house 67. Sandy operates premises that have the capacity to provide board and lodging to 25 occupants. She markets the accommodation as a boarding house. The average stay of a resident is six months. Under state law, a landlord is required to enter into a rooming agreement. The rooming agreement requires Sandy to ensure that residents are given quiet enjoyment of their rooms. Each resident is provided with daily meals . 68. Despite the rooming agreements providing the residents with the right to quiet enjoyment of their rooms, the premises are a boarding house. The supply of accommodation by Sandy is a taxable supply of accommodation in commercial residential premises by the entity that owns or controls the commercial residential premises. … The supply of meals made by Sandy to the residents is a taxable supply . In considering these features the following is noted: ● You will have X single rooms and one double room providing lodging to guests who remain resident for three months or longer. You will not provide meals to residents. ● The nature of the proposed development and intended arrangements indicate that there is a commercial purpose. ● There will be X single rooms and X double room supplying accommodation for multiple occupancies. ● The proposed boarding house may provide accommodation to occupants as the occupants principle place of residence. The Statement of Environmental Effects outlines that the proposed boarding house is intended to provide suitable accommodation for individuals and a couple who are on low incomes. Clause X of the Boarding House Management Plan advises that at no time will any room be advertised or made available for short stay accommodation such as that associated with backpacker hostels, motels or hotels. Despite the proposed redeveloped Premises exhibiting some of the characteristics of a boarding house, you will not be providing meals/board to residents. As discussed above, paragraph 11 of GSTR 2012/6, when determining whether the premises are a hotel, motel, inn, hostel or boarding house or whether premises are similar to these types of premises, it is a question of fact involving matters of impression and degree. Consequently, on balance, we do not consider the redeveloped Premises to be a boarding house or something similar to a boarding house. In considering your circumstances, we have also examined whether or not the redeveloped Premises can be considered to be a hostel or something similar to a hostel. Paragraphs 26 to 35 of GSTR 2012/6 outline the features of hostels and provide as follows: Features of hostels 26. The term 'hostel' includes premises that can be described as a hostel, a hotel or inn. … 27. The term 'hostel' also includes a supervised place of accommodation usually supplying board and lodging provided at a comparatively low cost. 28. 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. Physical characteristics may include a commercial kitchen where meals are prepared, a communal area suitable for a dining area for occupants, and a communal laundry. 29. 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. 30. Hostels provide accommodation for a commercial purpose. Non-profit entities can also operate commercial residential premises. For example, various non-profit organisations operate hostels in a business-like manner. 31. Hostels have the capacity to supply accommodation for multiple occupancies. 32. Accommodation in hostels may be provided either in a dormitory environment or in separate bedrooms. 33. Accommodation may be supplied within a hostel to occupants as the occupant's principal place of residence. It is not necessary for accommodation in the premises to be limited to guests who need or desire accommodation while away for business or pleasure. 34. The operator of the hostel supplies the accommodation in its own right and not in the capacity of agent for a third party. The arrangement between the parties will reveal whether there is an agent-principal relationship. 35. Occupants of a hostel may be provided meals by the operator of the premises. However, the provision of meals is not an essential feature of a hostel. In your case, there will not be on-site supervision by a manager who manages the accommodation and provides services. This is outlined in the Statement of Environmental Effects which states that there is no accommodation for a boarding house manager. The management of the boarding house is also outlined in the Boarding House Management Plan and states at clause X: (a) The boarding house is to be managed by suitable real estate agent or experienced manager who will be familiar with the content of this management plan and enforce the requirements outlined within. [Insert name, address and contact details of manager]. (b) The manager will ensure their contact details are made available and displayed externally at the front entrance of the boarding house and internally within the communal living area. (a) … (b) The boarding house will not otherwise be staffed. (c) The manager will maintain an incident register and make it available if requested during inspection. (d) The manager is responsible for organising any maintenance required, waste collection and other facility needs. (e) The manager must notify Council in writing if there is any change to management arrangements or contact details within 1 month of the change. Clause X of the Boarding House Management Plan outlines the manager is responsible for: (a) providing adjoining residences with a copy of the management plan and its contact details; (b) establishing a forum for adjoining neighbours to discuss concerns; (c) recording any complaints in a complaints register which is to be available to surrounding neighbours and Council upon request. The register shall detail how and when any complaints are dealt with. The Leasing Manager will be available during business hours 9 am to 5pm, Monday to Saturday, to deal with complaints. An after-hours number is also to be provided, with such phone number being publicly available in the common room. Despite the proposed redeveloped Premises exhibiting some of the characteristics of a hostel, there will be not be on-site management. As discussed above, paragraph 11 of GSTR 2012/6, when determining whether the premises are a hotel, motel, inn, hostel or boarding house or whether premises are similar to these types of premises, it is a question of fact involving matters of impression and degree. Consequently, on balance, we do not consider the redeveloped Premises to be a hostel or something similar to a hostel. Further, paragraph 41 of GSTR 2012/6 provides a list of factors that may indicate that premises are not a hotel, motel, inn, hostel, boarding house or similar premises: ● the operator and occupant agree for accommodation to be supplied for a periodic term (which may be for a period of months or years at a time), such as in a residential lease In your case, the Lodging Agreement clearly stipulates the Commencement Date, Term of agreement and Occupation Fee. Further, under Clause X of the Lodging Agreement, the Proprietor is entitled to receive a security deposit, being an amount not more than the sum of two weeks occupation fee. The security bond will be returned to the resident when they move out of the boarding house within 14 days of the agreement ending unless it is claimed by the proprietor for a reason allowed for …(for example for damage caused to the premises by the resident). Clause X of the Lodging Agreement provides that the resident is entitled to four weeks’ notice of any proposed increase in the occupancy fee. Clause X of the Lodging Agreement outlines the notice period to be given by the respective parties on terminating the Lodging Agreement. ● the operator and occupant document the condition of the premises under a written contract before the accommodation is initially supplied and when the occupant ceases to occupy premises Pursuant to Clause X of the Lodging Agreement, the proprietor agrees to provide and maintain the premises so that they are in a reasonable state of repair, are reasonably clean and reasonably secure. Clause X of the Boarding House Management Plan also outlines the respective parties obligations in regard to the cleaning and maintenance of the premises. In particular: (i) The resident will be responsible for cleaning their own bedroom to a satisfactory standard and inspection times by the agent will be notified to lodgers in advance as required by law. (ii) Tenants may be asked to improve the state of cleanliness of their room if it affects the other people living in the property. (iii) Lodgers are responsible for the cleaning of their linen on a regular basis with the washing machine provided in the communal laundry. ● the operator has the right to impose a cleaning fee on the occupant when the occupant ceases to occupy the premises Pursuant to Clause X of the Lodging Agreement, the resident is not required to pay a penalty for a breach of the Lodging Agreement or a breach of the rules. ● the occupant is permitted, subject to the terms of the lease or licence, to alter the part of the premises occupied by the occupant, such as by attaching hanging devices on a wall No information is provided in the Lodging Agreement in this regard. ● the occupant is permitted, subject to the terms of the lease or licence, to keep pets in the premises The Boarding House Rules provide that the keeping of pets is allowed with permission from the manager. However, no dogs or cats are allowed. ● the occupant must separately arrange and pay for the connection of a telephone, electricity, or gas service Clause X of the Lodging Agreement provides that the proprietor may charge an additional amount for utilities if the resident is made aware of the charge on signing the agreement and is informed as to how the charge will be calculated. ● the occupant is responsible for the cleaning and minor maintenance of the premises, such as changing light bulbs in their room. As outlined above, the resident is responsible for cleaning their own bedroom and linen. ● the premises are unfurnished. The premises are furnished. The absence of one or more of the above features does not mean that premises are similar to a hotel, motel, inn, hostel, or boarding house. In this case, you are supplying furnished rental accommodation under a tenancy-type arrangement. There are insufficient aspects of the arrangement to support the view that the supplies made fall within the character of commercial residential premises for the purposes of the GST Act. | Detailed Reasoning - Conclusion: We do not consider that the redeveloped Premises are commercial residential premises as outlined in GSTR 2012/6. Consequently, the supply of accommodation by you will be an input taxed supply under section 40-35. | Detailed Reasoning - Question 2: Section 11-20 states that an entity is entitled to an input tax credit for any creditable acquisitions that it makes. Section 11-5 defines a ‘creditable acquisition’ and states: You make a creditable acquisition if: (a) you acquire anything solely or partly for a *creditable purpose; and (b) the supply of the thing to you is a *taxable supply; and (c) you provide, or are liable to provide *consideration for the supply; and (d) you are *registered, or *required to be registered. You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, you do not acquire a thing for a creditable purpose to the extent that: (a) the acquisition relates to making supplies that would be input taxed; or (b) the acquisition is of a private or domestic nature. As discussed above, the supply of accommodation at the Premises will be an input taxed supply. Consequently, you will not be entitled to claim input tax credits in relation to any costs incurred for the renovation, and operation of the Premises. | Detailed Reasoning - Question 3: We have determined in Question 1 that you will be making input taxed supplies of residential premises, therefore Division 87 is not applicable to your circumstances.

Reasons for decision: In this reasoning, please note: | ● all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) | ● all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act | ● reference material(s) referred to are available on the Australian Taxation Office (ATO) website ato.gov.au