Private ruling: Goods and Services Tax (GST) and the supply of student accommodation
Date of advice: 8 August 2018
Published: September 2018

Ruling: Q1: Will supplies of accommodation at the Property by Entity A (“A”) be taxable supplies of ‘commercial accommodation provided in commercial residential premises’ for the purposes of sections 9-5, 87-15 and 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes, the supplies of accommodation at the Property by A will be taxable supplies of ‘commercial accommodation provided in commercial residential premises’ for the purposes of sections 9-5, 87-15 and 195-1 of the GST Act. | Q2: Under Division 87 of the GST Act, will the value of A’s taxable supplies of accommodation provided to individuals for a continuous period of 28 days or more be reduced to 50% of the price of the supply? | A2: Yes, under Division 87 of the GST Act, the value of A’s taxable supplies of accommodation provided to individuals for a continuous period of 28 days or more will be reduced to 50% of the price of the supply (provided, as expected, more than 70% of these individuals are provided with long-term accommodation). | Q3: For the purposes of subsection 87-20(3) of the GST Act, can A rely on the agreement with occupants to occupy the premises for a continuous term of 28 days or more? | A3: Yes, for the purposes of subsection 87-20(3) of the GST Act, A can rely on the agreement with occupants to occupy the premises for a continuous term of 28 days or more.

Relevant facts and circumstances: You provided the following background facts and information: ● A is developing two buildings as part of Stage X of the development of the land (‘the Property’). The Property ● The Property will be a new purpose built student accommodation development. ● The Property will have links to the tertiary institutions in Australia. However, the Property will not have any connection with a specific education institution. ● The Property will comprise a variety of student rooms, X in total, complemented by retail space on the ground level and communal areas including a gym, theatrette, laundry, games room, music room and several study areas. ● Each floor has common rooms and student lounges, which are typically shared by X to Y students. The Property is designed to reflect low - cost accommodation. There are five types of student living and amenity, ranging from: a) a standard bedroom, containing a single bed, desk and wardrobe; b) a studio, containing a single bed, desk, wardrobe and ensuite; c) a studio double, containing a double bed, desk, wardrobe, ensuite and kitchenette; d) a studio double (corner), containing the same features as a studio double but marginally more floor space; and e) a studio (accessible) containing the same features as a studio but with access for individuals with disabilities (including for hearing and speech impaired and vision impaired). Proposed arrangement with Entity C (“C) ● A will contract with C to manage the Property (‘the Manager’). ● The Manager will enter into the contracts with guests as agent for A. ● The contract between A (as principal) and the guests will be for the licence to occupy a part of the Property. ● Most of the accommodation will be supplied to students studying at tertiary level. The premises will not be available exclusively for students, but this is the expected market, and the Property has been designed for this market. A will pay a management fee to the Manager for its services. The management services will include the following: ● The Manager will maintain a reception in the office accommodation on the ground floor of the Property, providing reception and residential advice services between the hours of 9am and 5pm, Monday-Friday. ● The Manager will organise social events and activities for the guests. ● The Manager will subcontract other personnel to provide cleaning, maintenance and security services for the Property. ● The Manager will organise an onsite residential manager so that guests can always contact someone on the Property (e.g. if a guest's swipe card does not work late at night). ● The Manager will not provide food to the guests. A expects that at least some of the retail lots on the ground floor will be leased by a convenience store and low-cost restaurants.

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 40-35 | A New Tax System (Goods and Services Tax) Act 1999 Paragraph 40-35(1)(b) | A New Tax System (Goods and Services Tax) Act 1999 Division 87 | A New Tax System (Goods and Services Tax) Act 1999 Subsection 87-5(1) | A New Tax System (Goods and Services Tax) Act 1999 Section 87-15 | A New Tax System (Goods and Services Tax) Act 1999 Section 87-20 | A New Tax System (Goods and Services Tax) Act 1999 Subsection 87-20(3) | A New Tax System (Goods and Services Tax) Act 1999 Section 87-25 | A New Tax System (Goods and Services Tax) Act 1999 Section 195-1

Reasons for decision: Summary: The key issues for this arrangement are in relation to GST and the supply of student accommodation. From the information you have provided: ● We consider the supplies of accommodation at the Property by A will be taxable supplies of ‘commercial accommodation provided in commercial residential premises’ for the purposes of sections 9-5, 87-15 and 195-1 of the GST Act. ● Under Division 87 of the GST Act, the value of A’s taxable supplies of accommodation provided to individuals for a continuous period of 28 days or more will be reduced to 50% of the price of the supply (provided, as expected, more than 70% of these individuals are provided with long-term accommodation). ● For the purposes of subsection 87-20(3) of the GST Act, A can rely on the agreement with occupants to occupy the premises for a continuous term of 28 days or more. | Detailed Reasoning - Detailed reasoning: In the reasoning unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) all reference materials referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act | Detailed Reasoning - Taxable supplies of commercial accommodation: You must pay the GST payable on any taxable supply that you make. Section 9-5 states that 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 (c) you *carry on; and (d) the supply is *connected with the indirect tax zone; and (e) you are *registered, or *required to be registered. However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed. From the information you provided, you satisfy the requirements under section 9-5 because of the following: ● The supply of the accommodation will be for monetary consideration; ● A is making the supply in the course of its property enterprise that it carries on; ● As the Property is located in Australia, supplies of accommodation in the Property will be connected with the indirect tax zone; and ● A is currently registered for GST. Furthermore we consider that in your circumstances, the supply of student accommodation will not be GST-free. Therefore, it remains to be determined if, by providing student accommodation, you will be making input taxed supplies. Section 40-35 provides: (1) A supply of premises that is by way of lease, hire or licence (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 (b) the supply is of *commercial accommodation and Division 87 (which is about long-term accommodation in commercial premises) would apply to the supply but for a choice made by the supplier under section 87-25. Residential premises Section 195-1 provides that ‘residential premises’ means land or a building that is either occupied as a residence or for residential accommodation or is intended to be occupied, and is capable of being occupied, as such, regardless of the term of occupation or intended occupation. Commercial residential premises ‘Commercial residential premises’ under section 195-1 relevantly is defined to mean a hotel, motel, inn, hostel or boarding house or premises used to provide accommodation in connection with a school. Further under section 195-1, commercial residential premises 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 . ‘Hotel, motel, inn, hostel or boarding house’ The Goods and Services Tax Ruling GSTR 2012/6: Goods and Services Tax: commercial residential premises (GSTR 2012/6) provide guidance on commercial residential premises. Paragraphs 11 and 12, provides the characteristics of operating hotels, motels, inns, hostels, boarding houses or similar premises which are considered to be commercial residential premises. Paragraph 11 states: The tests to be applied are whether the premises are a hotel, motel, inn, hostel or boarding house for the purposes of paragraph (a), or whether the premises are similar to these types of premises, in the sense that they have a sufficient likeness or resemblance to any of these types of establishments for the purposes of paragraph (f). These tests necessarily raise questions of fact involving matters of impression and degree. From the information you have provided, we considered the factors and their application (refer to paragraph 12 of GSTR 2012/6) to the Property as per below: ● Commercial intention: The Property will be operated by A (and C) in a business-like manner as the purpose of the Property will be to earn a profit by providing student accommodation. ● Multiple occupancy –The Property will have approximately X rooms so the Property will clearly be able to provide occupancy to a large number of unrelated people in separate rooms. ● Holding out to the public – The Property will be available to the public and will be marketed to a significant segment of the public, namely tertiary students. ● Accommodation is the main purpose – The main purpose of the Property is to provide student accommodation. ● Central management – C, on behalf of A, will act as the central management for the Property. C will operate a reception, will organise maintenance, cleaning and security of the Property and will organise for an onsite manager for after-hours requests. ● Management offers accommodation in its own right – A will offer the accommodation to students and other guests in their own right. C will enter into any contracts with students/guests as agent for A. ● Provision of, or arrangement for, services – As stated above, C on behalf of A, will arrange services for the guests such as cleaning, maintenance, replacing lost keys etc. C will also organise activities and events to enhance the sense of a student community. ● Occupants have the status as guests – The students may or may not have their principal place of residence elsewhere and this would depend on their own personal circumstances. A student who stays for a semester may (or may not) maintain their principal place of residence elsewhere during that period. Conversely, a student may stay for X years, and not maintain any other principal place of residence during that period. The relevant case law on the issue of student accommodation is found in ECG Southbank Pty Ltd as trustee for Nest Southbank Unit Trust v Federal Commissioner of Taxation [2012] FCA 795 (Southbank case). In this court case, the trustee of the Nest Southbank Unit Trust (NSUT) had premises constructed that were designed for student accommodation and serviced apartments. Thereafter, NSUT entered into a lease arrangement 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 in this case consisted of X shared apartments, X studio apartments and various common areas. The shared apartments incorporated a cluster of study/bedrooms (in various 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. His Honour 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. (emphasis added). From the information you provided, the type of physical accommodations you offer at the Property will have the basic features of residential premises such as a place to sleep, bathroom and access to a kitchenette. We considered the application of the legal principles in the Southbank case and guidance from GSTR 2012/6. We consider that the Property demonstrates the characteristics of ‘commercial residential premises’, being premises that is a ‘hostel’ or ‘similar’ under section 195-1. Premises used to provide accommodation to students in connection with an education institution that is not a school In order to be ‘commercial residential premises’, the premises must not be used to provide accommodation to students in connection with an education institution that is not a ‘school’. For GST purposes, ‘school’ is specifically defined in section 195-1 to mean an institution that supplies pre-school, primary, secondary and special education courses but does not include other education courses such as tertiary education courses. Paragraph 150 of Goods and Services Tax Ruling (2001/1): Goods and services tax: supplies that are GST-free for tertiary education courses contains a list of factors that are considered in determining whether a supply is in connection with an education institution that is not a school as per extracted below: | Detailed Reasoning - Determining whether a supply is 'in connection with an education institution that is not a school': 150. Some of the factors to be considered in determining whether a supply is in connection with an education institution that is not a school include ● Whether the education institution has any input in the running of the accommodation facility including the setting of rental charges and determining the relationship between the supplier of the accommodation and the occupier. The input may be made through a third party. ● Whether there is any specific or implied requirement that preference must be given to students of the education institution. ● Whether the housing facility is constructed on land owned by the education institution. ● Whether the land has been acquired or utilised by the education institution for the purpose of entering into agreements for the construction and running of the housing facility. ● Whether the facility is in fact to be occupied by students of the education institution during the academic year or at other times. ● Whether the education institution has any interest in the entity that is providing the accommodation. The interest may not always be directly reflected. ● How the housing facility is marketed. ● The identity of the operator and the nature of their business (is their business the supply of accommodation to students). ● The intention of the education institution in entering into any arrangements and any relevant agreements relating to the housing facility. ● Whether the provision of the facility reflects an education institution's charter or other governing instruments. You advised that the Property is not physically located on a particular education institution’s land even though the Property is conveniently located at a transport hub with public transport links to tertiary institutions. Further, the Property does not have an exclusive arrangement with one particular education institution for its students to occupy the premises. No education institution has any input into running the student accommodation premises (either directly or through a third party). We consider that the Property is a hostel or similar and is not premises used to provide accommodation to students in connection with an education institution that is not a school, and will satisfy the requirements of ‘commercial residential premises’ for the purposes of sections 9-5 and 195-1 of the GST Act. It follows that under the arrangement, A will be providing, through C, commercial accommodation* as defined in section 87-15 (see below) to students in commercial residential premises. Choice made by the supplier under section 87-25 Pursuant to section 87-25, a supplier of commercial accommodation can choose not to apply the provisions in Division 87 (making their supplies of the commercial accommodation input taxed under paragraph 40-35(1)(b)). A will choose to apply Division 87, effectively choosing to treat all of their supplies of commercial accommodation as taxable supplies (and not input taxed supplies). Therefore, from the information you have provided, the supplies of accommodation by A at the Property will not satisfy the requirements of section 40-35 and should not be regarded as input taxed supplies. We consider that the Property satisfies the requirements of commercial residential premises and supplies of accommodation at the Property should be taxable supplies under section 9-5. | Detailed Reasoning - Application of Division 87 to long-term commercial accommodation: Subsection 87-5(1) relevantly provides that: The value of a taxable supply of commercial accommodation that: (a) is provided in commercial residential premises that are predominantly for long-term accommodation; and (b) is provided to an individual as long-term accommodation; (c) is 50%, or such other percentage as is specified in the regulations, of what would be the price of the supply if this Division did not apply. *Commercial accommodation is defined in section 87-15 to mean the right to occupy the whole or any part of commercial residential premises, including, if it is provided as part of the right so to occupy, the supply of: (a) cleaning and maintenance; or (b) electricity, gas, air-conditioning or heating; or (c) telephone, television, radio or any other similar thing. The Commissioner provides guidance in relation to commercial accommodation in Goods and Services Tax Ruling (GSTR 2012/7) Goods and services tax: long-term accommodation in commercial residential premises and paragraph 33 states: The Commissioner considers that Greenwood J's reference to 'residence' in this context is consistent with the term 'living accommodation' as discussed in GSTR 2012/5 in the context of the definition of 'residential premises'. [9] Living accommodation does not require any degree of permanence of occupation. It includes lodging, sleeping or overnight accommodation. Therefore, for an entity to provide commercial accommodation to an individual, the individual must be provided with a right to occupy the whole or any part of the commercial residential premises for living accommodation (that is, in the sense of a right to stay). From the information you have submitted, we consider that A will be supplying commercial accommodation to the occupants of the Property since: ● A will be supplying accommodation in commercial residential premises; and ● A will be supplying the occupants a licence (i.e. a right) to occupy their room and the common areas of the Property. | Detailed Reasoning - Predominantly for long-term accommodation: Long-term accommodation is defined in section 87-20 to mean commercial accommodation that is provided to an individual for a continuous period of 28 days or more. Further subsection 87-20(3) states that commercial residential premises are predominantly for long-term accommodation if at least 70% of the individuals who are provided with commercial accommodation in the premises are provided with long-term accommodation. You stated that A expects 100% of the individuals that will be provided with commercial accommodation at the Property will be provided with long-term accommodation. A will continuously monitor how many individuals are provided with commercial accommodation in applying the provisions of Division 87. Therefore, on the basis of your expectation about the percentage of individuals to be provided with long-term accommodation, the Property will be predominantly for long-term accommodation. Accordingly, the value of your taxable supplies of commercial accommodation at the Property will be 50% of what the price of the supply would have been if Division 87 did not apply. | Detailed Reasoning - The 70% requirement for premises that are predominantly for long-term accommodation: At paragraph 54 of GSTR 2012/7, the Commissioner states: Any fair and reasonable method may be used to determine whether the 70% requirement is satisfied. The Commissioner accepts that one of the following methods or a combination of both can be used: (a) the actual occupancy of the premises for the twelve months preceding the month for which the booking is made; or (b) the projected occupancy for the twelve months following the month in which the booking is made You stated that the 100% requirement will be satisfied by monitoring the percentage of recipients that agree to a continuous term of occupation of 28 days or more. We consider this to be a fair and reasonable method.