Private ruling: GST and mixed supplies of accommodation and services
Date of advice: 6 July 2016
Published: August 2016

Ruling: Q1: Is your supply of accommodation and other services under Program B for $X per week, a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services tax) Act 1999 (GST Act)? | A1: Yes, in part. You are making a mixed supply of: • support services (taxable) • accommodation (input taxed). You need to apportion the consideration for the supply between the two different supplies. Your supply of accommodation is an input taxed supply and no GST is applicable to this portion. In addition you are not entitled to any GST credits associated with the acquisitions you make to supply the accommodation. The support services will be taxable supplies and you will be entitled to GST credits on any creditable acquisitions, associated with the supply of these services.

Relevant facts and circumstances: You are registered for GST. You operate a rehabilitation program and you are not a charity or a hospital and you do not receive government funding for your operations. You have two areas of operations: 1) Program A. 2) Program B (the Share House). Prior to entry into Program A your clients enter into a Financial Agreement (the Agreement) that covers both Program A and Program B at the Share House. The Agreement The Agreement provides an estimate of costs for both Programs. The charges will vary depending on the client's needs and responses to the treatment. Where clients successfully complete Program A they are eligible to be considered for Program B. Program B provides attendees with support services and accommodation in the Share House. There is single fee of $X for both of these aspects of Program B. There may be additional supplies associated with stays which may include any transport to and from doctors, court, medical appointments or airports. These additional services are not part of the single fee considered in this ruling. This ruling only considers the GST status of the supplies made under Program B associated with the single fee of $X. Program B Program B is characterised as follows: • There is the option of a three or six month program. • Residents must abide by set rules and responsibilities set out in the Guidelines Agreement. • Residents are responsible for keeping their rooms tidy and for minor maintenance of the Share House such as changing lightbulbs. • Residents attend house meetings per week facilitated by a case worker, designed to establish, teach and promote healthy communication and dynamics, support compliance with abstinence from substances, and support and monitor general living skills. • A weekly therapy group with therapists. • One on one case management involving the consideration of the problems needs and adjustments of the resident to support them in their transition back into the community. This may include support around abstinence, 12 step meeting attendance, advocacy with employment, welfare or studies. • Access to monthly workshops. • Peer support. • 12 Step meetings. The case workers and therapists, only hold a Certificate IV in Drug & Alcohol and for GST purposes, are not recognised professionals under section 38-10 of the GST Act. Any services supplied by recognised professionals as set out in section 38-10 of the GST Act are separately billed to the resident and do not form part of the single $X fee for Program B. These supplies are not considered in this ruling. No Medicare rebates are claimable by the residents for any of the services supplied under Program B within the $X Fee. The Accommodation The Share House is only available to individuals that have completed Program A. The Share House is a X bedroom, two bathroom residence, with an open plan lounge, dining and kitchen area and large undercover outdoor veranda. Each bedroom has X beds and residents are accommodated in 'share' accommodation. You can accommodate up to X residents in the X bedrooms in the house. There is no onsite manager and residents do not pay a bond. The following facilities, services are provided in the Share House and are included in the fee for Program B: • All utilities, gas, electricity and water. • All linen and furnishings. • Wi-Fi. • Outdoor pizza oven. • Sauna. Residents are required to purchase all of their own food and work collectively to prepare their meals and do their own laundry.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 9-5 | A New Tax System (Goods and Services Tax) Act 1999 38-B | A New Tax System (Goods and Services Tax) Act 1999 40-35, and | A New Tax System (Goods and Services Tax) Act 1999 195-1.

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 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 You must pay the GST payable on any taxable supply that you make. Section 9-5 provides that you make a taxable supply if: a) you make the supply for consideration b) the supply is made in the course or furtherance of an 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. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. In your case, your supply under Program B, consists of accommodation, support counselling and other services, and is made • for consideration • in the course of your enterprise • in Australia, and • you are registered for GST. Therefore to the extent these supplies are not GST free or input taxed they will be taxable supplies. However it is also necessary to consider what is being supplied under Program B and whether there is a single 'composite' supply or a 'mixed' supply comprised of separately identifiable parts with different GST treatment. | Detailed Reasoning - Composite or mixed supplies: Goods and Services Tax Ruling GSTR 2001/8 Goods and services tax: Apportioning the consideration for a supply that includes taxable and non-taxable parts (GSTR 2001/8) explains how you can identify whether a supply contains taxable and non-taxable parts. It refers to such a supply as a 'mixed supply'. A 'mixed supply' is a supply that has to be separated or unbundled as it contains separately identifiable taxable and non-taxable parts that need to be individually recognised. It also describes the characteristics of a supply that appears to have more than one part but is essentially a supply of one thing. This type of supply is referred to as a 'composite supply'. A 'composite supply' is a supply that contains a dominant part and includes something that is integral, ancillary or incidental to that part. You treat a composite supply as a supply of a single thing. Paragraphs 19 and 19A of GSTR 2001/8 state: 19 Where a transaction comprises a bundle of features and acts, it may be necessary to characterise what is supplied to determine whether a particular provision applies in whole or in part. The characterisation should be undertaken in a manner that is consistent with the object of the particular statutory provision in issue. For example, if a provision specifically requires different treatment of two components of a transaction, this will mean that the two components must necessarily be separately recognised. However, that does not mean that the two components need to be separately recognised for all purposes of the GST Act. 19A. An identification of the essential character of what is supplied may inform whether (and to which extent) a particular transaction falls within the terms of a specific statutory provision. You must consider all of the circumstances of the transaction to ascertain its essential character.… 19B. Having regard to the essential character and with regard to the statutory provision in issue, you can then determine whether the transaction is a mixed supply because it has separately identifiable parts that the GST Act treats as taxable and non-taxable, or whether it is a composite supply because one part of the supply should be regarded as being the dominant part, with the other parts being integral, ancillary or incidental to that dominant part. Your supply of Program B comprises two major components being the supply of accommodation in the Share House and the supply of support services. The supply of accommodation in the Share House includes: • All utilities, gas, electricity and water. • Wi-Fi. • Outdoor pizza oven and sauna. • All linen and furnishings. • As part of the training residents do their own laundry and cook their own meals. The supply of support services may include: • Three house meetings per week with case worker. • Weekly therapy group with therapists. • One on one case management with a case manager. • Access to monthly workshops. • 12 Step Meetings. Residents enter Program B for the purpose of receiving assistance and support to learn how to live an 'addiction free' life in the Share House. However, despite the purpose and design of Program B, the supply of the accommodation in the Share House is separately identifiable and significantly different in nature to the support services included in the charge. While both supplies contribute to learning how to live an 'addiction free' life in the Share House neither the accommodation nor the support services are integral, ancillary or incidental to each other. That is, neither part is the dominant part, with the other part being integral, ancillary or incidental to that dominant part. Therefore we have concluded that you are making a mixed supply of accommodation and a supply of support services. Where your supplies of support services are not GST free they will be taxable supplies. | Detailed Reasoning - GST free supplies: GST free supplies are considered under Division 38. There are a number of sections that consider care services in Division 38. Section 38-10 provides that the supply of a service specified in the table by a recognised professional is GST free subject to paragraph 38-10(1)(c). Where you make supplies that meet the criteria in section 38-10 those supplies will be GST free. In particular if any of the residents acquire the services of a Social worker or a Psychologist that is a recognised professional and those supplies meet the requirements' of section 38-10 those services will be GST-free. You have advised that where these services are required they are billed separately and that they are not included in the weekly charge. In addition none of the case workers are accredited social workers as they only hold a Certificate IV in Drugs and Alcohol. Therefore, there are no GST-free supplies under Program B within the $X Fee. | Detailed Reasoning - Input taxed supplies of real property: 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 premises from which the accommodation is supplied, satisfies the definition of residential premises under section 195-1 and you are supplying accommodation in those residential premises. The question to be determined is whether the residential premises are commercial residential premises. If the premises are commercial residential premises, your supplies of accommodation are taxable supplies. | Detailed Reasoning - 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). … 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 12 of GSTR 2012/6 lists the 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. In this case, the operation of the Share House has some features of commercial residential premises including: • commercial intention • multiple occupancy, and • the provision of, or arrangement for, services. However, the Share House accommodation is: • not low cost • there is only minimal supervision • meals are not supplied • there is no onsite manager, and • although utilities are included in the tariff, the other services supplied to residents relate to assisting them to transition to independent living rather than being services of the kind supplied in commercial premises such as hotels, motels or hostels. In addition paragraph 41 of GSTR 2012/6 provides indicators that would show that premises are not something similar to commercial residential premises. Factors taken into account are: • the operator and occupant agree for accommodation to be supplied for a periodic term such as in a residential lease, and • the occupant is responsible for the cleaning and minor maintenance of the premises, such as changing light bulbs in their room. On balance we consider that the Share House does not have sufficient similar features to hotels, motels, inns, hostels and boarding houses to be classified as 'commercial residential premises' for GST purposes. This is because: • you enter into agreements for a fixed period of accommodation • meals are not supplied • there is no onsite manager • the occupants are responsible for their own cleaning, food preparation, minor maintenance and laundry, and • the accommodation is not supplied to guests or travellers. Therefore your supply of accommodation in the Share House will not be a supply of accommodation in commercial residential premises and therefore will be an input taxed supply pursuant to section 40-35. | Detailed Reasoning - Conclusion: Your supply of Program B to residents will be a mixed supply. The portion that relates to accommodation is input taxed pursuant to section 40-35 and you are not entitled to GST credits on any acquisitions associated with these supplies. The portion that relates to support services such as case meetings will be taxable supplies under section 9-5. Paragraphs 25 to 27 of GSTR 2001/8 provide that you may use any reasonable basis to apportion the fee between the taxable and input taxed portions of your supply. These paragraphs are reproduced below: 25. GST is payable on a mixed supply that you make, but only to the extent that the supply is taxable. You need to apportion the consideration for a mixed supply between the taxable and non-taxable parts to find the consideration for the taxable part. 26. Apportionment must be undertaken as a matter of practical common sense. You can use any reasonable basis to apportion the consideration. Depending on the facts and circumstances of the supply, a direct or indirect method may be an appropriate basis upon which to apportion the consideration and ascertain the value of the taxable part of the supply. The basis you choose must be supportable in the particular circumstances. 27. You should keep records that explain the basis used to apportion the consideration between the taxable and non-taxable parts of a supply.