Private ruling: GST and residential premises
Published: March 2014

Ruling: Q1: Are you liable for GST on your supply of your premises (apartment)? | A1: No | Q2: Should your managing agent be collecting GST on the supply of your apartment to paying guests then deducting 1/11 th of the monthly gross and forwarding it to the ATO as collected GST? | A2: The ATO is unable to provide you with information in respect of the GST liabilities of another entity.

Relevant facts and circumstances: You are not registered for GST. You do not carry on a business and are usually employed as a salary and wage earner. You recently purchased (with your spouse) one apartment situated within a complex containing a number of separately titled apartments. The apartment is a fully furnished self-contained unit containing two bedrooms, kitchen, bathroom and living room. You, as Principal, entered into an Agreement with an Agent authorising the Agent (and employees of the Agent) to let and manage the premises in accordance with the terms of the Agreement. The Agreement contains the following terms and conditions: • the Agent is authorised to let the premises for short term rental at market value or a rate otherwise instructed by you; • the Agent is entitled to a management fee; • the Agent is entitled to a specified amount for the purposes of marketing the premises payable at the end of each month; • the Agent may erect 'For lease' signage however is not responsible for any liability, damages or injuries incurred as a result of the erection of the signage; • the Agent is authorised to: • arrange inspection by prospective tenants; • collect rent; • exercise the Principal's right to enforce or terminate Tenancy Agreements including the service of notices as necessary; • forward to the Principal copies of any document signed by the Agent on behalf of the Principal; and • undertake periodic inspections. • the Agent is authorised to arrange and pay for repairs and maintenance not exceeding a specified amount except in an emergency situation. Otherwise, repair and maintenance expenses exceeding the specified amount require prior approval of the Principal. • the Principal undertakes to indemnify and keep indemnified the Agent against all actions, suits, proceedings, claims demands, costs and expenses whatsoever which may be taken or made against the Agent in the course of or arising out of the proper performance or exercise of any powers, duties or authorities of the Agent. The Agent has advised that they have received an independent ruling, finding that they have a GST liability in regard to the supply of the apartment.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 9-5 | Section 9-40 | Division 40 | Section 40-35 | Section 195-1 | Paragraph 9-20(1)(c)

Reasons for decision: Summary: Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states that you must pay the GST payable on any 'taxable supply' that you make. Section 9-5 of the GST Act provides 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 you carry on; and c) the supply is connected with Australia; and d) you are registered or required to be registered for GST. However, the supply will not be a taxable supply to the extent the supply is GST-free or input taxed. In the first instance we will discuss the negative limbs of section 9-5 of the GST Act. There are no provisions in the GST Act that would make the supply of your apartment GST-free. Therefore in this case, the primary issue to be considered is whether your supply of your apartment is an input taxed supply. | Detailed Reasoning - Input taxed supplies: Supplies that are input taxed are contained in Division 40 of the GST Act. Specifically, section 40-35 provides that a supply of premises by way of lease, hire or licence is input taxed if it is a supply 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 and controls the commercial residential premises). The term 'residential premises' is defined in section 195-1 of the GST Act as land or a building that: (a) is occupied as a residence or for residential accommodation; or (b) is intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation; (regardless of the term of the occupation or intended occupation). Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) contains the Tax Office view of the characteristics of residential premises. Paragraph 9 of GSTR 2012/5 provides that the requirement in section 40-35 that premises be 'residential premises to be used predominantly for residential accommodation (regardless of the term of occupation)' 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. In order to satisfy the definition of residential premises, premises must provide shelter and basic living facilities (paragraph 15 of GSTR 2012/5). Given the physical characteristics of your apartment it is considered that the apartment satisfies the definition of 'residential premises'. 'Commercial residential premises' is also defined in section 195-1 of the GST Act and includes a hotel, motel, inn, hostel or boarding house or anything similar. 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 (GSTR 2012/6) contains the Tax Office view of the characteristics of commercial residential premises. The issue of whether a single apartment or room in a larger complex can be categorised as 'commercial residential premises' is discussed at paragraphs 156 and 157 of GSTR 2012/6 with reference to South Steyne Hotel Pty Ltd v. Federal Commissioner of Taxation [2009] FCA 13 (South Steyne) and South Steyne Hotel Pty Ltd v. Federal Commissioner of Taxation [2009] FCAFC 155 (South Steyne FFC). 156. Hotels have the capacity to supply accommodation for multiple occupancies. In South Steyne Hotel Pty Ltd v. Federal Commissioner of Taxation (South Steyne ), Stone J considered whether a supply of an apartment in a complex was a supply of 'anything similar to' a hotel, motel, inn, hostel or boarding house under paragraph (f) of the definition. Her Honour commented: The definitions of motels, inns, hostels and boarding houses indicate that, in common with hotels, they provide accommodation, although of varying types. In addition to providing accommodation they also have in common that, large or small, they provide for multiple occupancies. The terms are not used where only one apartment, room or other space is provided. 157. On appeal to the Full Federal Court, Emmett J noted in South Steyne Hotel Pty Ltd v. Federal Commissioner of Taxation (South Steyne FFC ): 28. The term hotel or motel would not be used, as a matter of ordinary English, where a single apartment, room or other space is supplied. 29. The fact that the use and occupation by guests of an apartment in the Sebel Hotel may be similar to the use and occupation by guests of a room in a hotel or motel does not make an individual apartment similar to a hotel or motel. It might be appropriate to describe an individual apartment as being similar to part of a hotel, namely a hotel room. It is not an ordinary use of English to describe a single or individual apartment as being similar to a hotel or motel. Given the above we do not consider your supply of a single apartment to be a supply of commercial residential premises. Therefore it is considered to be an input taxed supply of residential premises under section 40-35 of the GST Act. As your supply of your apartment is an input taxed supply, it is excluded from the definition of a taxable supply. Therefore you would not be liable for GST in regard to the supply of your apartment if the positive limbs of section 9-5 of the GST Act had been met | Detailed Reasoning - Further issues for you to consider: In regard to the positive limbs of section 9-5 of the GST Act, you make the supply of your apartment for consideration and as the apartment is in Australia, your supply is connected to Australia. On the point of whether your supply is made in the course or furtherance of an enterprise that you carry on, paragraph 9-20(1)(c) of the GST Act provides that an enterprise is an activity, or series of activities, done on a regular or continuous basis in the form of a lease, licence or other grant of an interest in property. As such, we consider that you are carrying on an enterprise with the supply of your apartment made in the course of carrying on that enterprise. Under Division 23 of the GST Act an entity is required to register for GST if they carry on an enterprise and their GST turnover is $75,000 or more ($150,000 for non-profit bodies). However, in calculating your GST turnover you disregard a number of categories of supplies, one of which includes input taxed supplies. As your only enterprise involves the input taxed supply of residential premises, you are not required to register for GST. | Detailed Reasoning - Question 2: Practice Statement Law Administration PS LA 2008/3 Provision of advice and guidance by the Australian Taxation Office ( PS LA 2008/3) discusses the forms of advice the ATO provides about the application of laws administered by the Commissioner. Paragraph 80 of PS LA 2008/3 states in part: A private ruling is a written expression of the Commissioner's opinion on how a relevant provision applies, or would apply, to a particular entity in relation to a specified scheme, arrangement or transaction. It provides the taxpayer with advice on how the Commissioner will apply the tax law (which includes its administration or collection) to their particular circumstances. The taxpayer or their agent, may apply for a private ruling under Division 359 in the form approved by the Commissioner. As discussed above, the liability for GST is imposed on an entity making a taxable supply (section 9-40 of the GST Act). As such we are unable to provide to you a ruling on whether your managing agent should be collecting GST on the supply of your apartment and forwarding it to the ATO as collected GST. Your Agent has advised that they have received a ruling finding that they do have a GST liability in regard to the supply of the apartment and are acting in accordance with that ruling. Given that the supply of residential premises is an input taxed supply (and does not attract GST) it can be taken that your Agent was found to be making a supply of accommodation in commercial residential premises where they either own or control the commercial residential premises. In such a case, provided that the criteria for making a taxable supply in section 9-5 of the GST Act is satisfied, the supplier would have a GST liability in regard to the supply. Under an agreement between the Principal and Agent, an Agent may be entitled to deduct from gross proceeds certain fees and expenses with the residual amount passed on to a Principal. For example, the Agent's fees and expenses may include a management fee, postage and petties and these fees will include taxes such as GST. This issue is however a contractual matter between the parties to the agreement and not an issue the ATO can comment on.