Private ruling: Goods and services tax and property
Date of advice: 5 October 2018
Published: November 2018

Ruling: Q1: Will you be liable to pay GST (if any), under section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), on the supply of premises by way of lease? | A1: No, you will not be liable to pay GST (if any), under section 9-40 of the GST Act, on the supply of premises by way of lease.

Relevant facts and circumstances: You are registered for the Goods and Services Tax (GST). You intend purchasing a business that supplies accommodation or setting up such a business in Australia. Regardless of whether you set up or purchase an accommodation supply business, you expect to only supply accommodation in apartments. The apartments are expected to have specified number bedrooms. You expect to lease the premises from the owner. You expect the owners to grant you renewable specified period leases. The owner may be represented by a real estate agent in some instances. You then plan to sublease the premises to the occupant. You will mark up on the rent and make on the margin. You have to still pay rent to the owner if you cannot find any occupants for the premises. You assume the business risk of not finding any occupants. You can assign your rights as lessee to another entity provided the property owner has given consent. You intend to furnish these residences. Therefore, you will lease the apartments fully furnished. However, in other instances the apartment owners would have already furnished the residences. You intend to pay for gas, electricity, telephone and insurance. The apartment owners pay for water, council rates and any other expenses not covered by you. You will advertise via your website on the internet. Bookings for an apartment can be made via the website. Bookings can also be made via the phone or via other on-line booking agents. There are no restaurants, reception areas or concierges at any of the premises. Some buildings may have a pool or fitness centre. In other buildings, you can arrange for the occupant to have access to an offsite pool or offsite fitness centre. The occupant will have swipe card or some other form of access to the apartments in the buildings. Some of buildings may have a building manager on site to deal with body corporate affairs. You do not have control of the common areas. You are not responsible for cleaning and maintaining the common areas. This is the responsibility of the owners' corporation in the various buildings. You expect to lease, as a maximum, specified number per cent of the total number of apartments in a particular building. You will not provide commercial infrastructure, if they exist, with the lease of these apartments to the occupants. The term ‘commercial infrastructure’ includes reception areas, dining and bar areas, meeting/function areas, communal kitchens, communal laundry facilities and communal storage areas. You will not lease or otherwise take control of an entire apartment building. Some of the apartments you intend offering for lease may be in buildings that are next to each other. The other apartments you intend offering for lease are expected to be in buildings that are located on different streets or in different suburbs. You will have no staff, such as a receptionist or concierge, working on the premises leased to the occupant. You intend operating from an office with reception services. Your office can be located at an address next to a building where some apartments are managed. Alternatively your office could be located remotely from where the managed apartments are located. The office will be open between specified time on weekdays and specified time on Saturdays. The office will be closed on Sundays. The office will be staffed on an ‘as needs’ basis. Therefore, the office is only staffed on an ad-hoc basis when an occupant of one of the apartments arrives to collect the keys. When the office is not open, an occupant can get the apartment keys from a lock box outside the office. You will have a store room. The store room may be remotely located from the office or be part of the office. A night emergency service will be available via mobile phone to the ‘on call’ staff member. Typically, an occupant is expected to stay between specified number days. However, the occupant is able to stay a maximum of specified number days. All the apartments are expected to be self-contained. They are expected to have bathroom facilities, a balcony, barbecue facilities, a lounge room, laundry facilities and a full kitchen. The kitchen should include a stove, a full-sized fridge (not stocked), a microwave, a coffee machine, small appliances, cooking utensils, crockery and cutlery. A secure 24 hour dedicated car space will be available for those arriving by car. You intend to provide the occupant with your contact details by way of a welcome letter and a business card. The occupant will know who to contact in case of an emergency or when reporting faults. You can give advice to the occupant on places to eat and provide some general tourist information. You expect to direct occupants to the relevant tourist information centre in order for them to make further enquiries and bookings. A potential occupant will not be admitted to the apartment unless you receive full payment (including the bond). Basic amenities such as cleaning liquids, laundry powder, toilet paper, shampoo, conditioner, cereal packs, bread, milk, tea and coffee will be provided free of charge. Pay television and internet access will be provided in all the apartments. Housekeeping services will only be provided on demand. There will be a charge for each service. Housekeeping services are not provided weekly unless requested by the occupant. You will not ordinarily enter the premises during an occupant’s stay. The occupant will have the exclusive right to occupy the apartment. Smoking is not permitted indoors and pets are not allowed. The occupant is expected to leave the apartments in a reasonably clean state on departure. The occupant is responsible for any damage to the apartment. You have the right to charge a cleaning fee and/or damage fee if required. The occupant is required to return the key to your office on the day of their departure. If your office is not open or attended at the time of departure then the occupant can leave the key in the drop box located outside your office. You will check the condition of the apartment after the premises are vacated. The bond is released when you are satisfied with the condition of the apartment.

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 40-35 | A New Tax System (Goods and Services Tax) Act 1999 subsection 40-35(1) | A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Reasons for decision: Summary: In this ruling: ● 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, and ● all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on the ATO website ato.gov.au Section 9-40 provides that you are liable for GST on any taxable supplies that you make. Section 9-5 provides you make a taxable supply if: ● you make the supply for consideration ● the supply is made in the course or furtherance of an enterprise that you carry on ● the supply is connected with the indirect tax zone, 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. Subsection 40-35(1) provides that a supply of premises by lease, hire or licence 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 an entity that owns or controls the commercial residential premises). The premises from which the accommodation will be supplied satisfy the definition of ‘residential premises’ under section 195-1 and you will be supplying accommodation in those residential premises. The issue is whether the residential premises are 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) … … (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 Paragraph (f) of the definition of commercial residential premises extends the scope of the definition to premises that are ‘similar’ to any of the types of establishments described in paragraphs (a) to (e). Premises that are ‘similar’ must have sufficient, but not necessarily all, characteristics in common with any of the types of premises. The issue is whether there are supplies of accommodation in commercial residential premises. The Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises (GSTR 2012/6) provides the Australian Tax Office’s view of the factors to consider and the characteristics of 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 of ‘commercial residential premises’ include the overall physical character of the premises and how the premises are operated. Paragraph 11 of GSTR 2012/6 provides that 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. 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 ● occupants have status of guests. Paragraphs 13 to 24 of GSTR 2012/6 explain and list the following features which are typical in a hotel, motel or inn: ● Hotels provide accommodation for a commercial purpose. ● Hotels have the capacity to provide for multiple occupancy. ● 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. ● Rooms are invariably furnished. ● 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, 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. ● 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. As stated in paragraph 25 of GSTR 2012/6, 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. Further, paragraph 41 of GSTR 2012/6 provides a list of the relevant factors that may indicate that premises are not a hotel, motel, inn, hostel or boarding house including: ● 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; ● 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; ● the operator has the right to impose a cleaning fee on the occupant when the occupant ceases to occupy the premises; ● 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; ● the occupant is permitted, subject to the terms of the lease or licence, to keep pets in the premises; ● the occupant must separately arrange and pay for the connection of a telephone, electricity, or gas service; ● the occupant is responsible for the cleaning and minor maintenance of the premises, such as changing light bulbs in their room; and ● the premises are unfurnished. Paragraph 95 of GSTR 2012/6 provides that: 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. In addition, paragraph 201 of GSTR 2012/6 provides, among other things, that A supply by sale or lease of strata titled rooms, apartments, cottages or villas without sufficient commercial infrastructure referred to at paragraphs 95 and 196 of this Ruling is an input taxed supply of residential premises to be used predominantly for residential accommodation regardless of whether the building complex, or any part of it, is being, or will be, operated as commercial residential premises. We are of the view that you will not be making supplies of accommodation in commercial residential premises after considering: ● all of the physical and operating characteristics of the lease of the properties and ● the lack of sufficient commercial infrastructure supplied. You will be providing accommodation in residential premises that are not commercial residential premises. The premises do not share sufficient similarities with hotels, motels, inns, hostels or boarding houses to meet paragraph (f) of the definition of commercial residential premises. In addition, you will not supply sufficient commercial infrastructure with the lease of the apartments. Therefore, you will be making input taxed supplies of premises by way of lease, under section 40-35. You will be acting in your own capacity as principal when making input taxed supplies of premises by way of lease.