Private ruling: GST and commercial residential premises
Published: July 2014

Ruling: Q1: Is your supply of accommodation a taxable supply? | A1: Yes | Q2: Are you required to be registered for GST? | A2: Yes, unless Division 87 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) applies and you treat supplies covered by Division 87 as input taxed.

Relevant facts and circumstances: You are not registered for GST. Your annual turnover is expected to meet $75,000. You own and operate a 'rooming house' (the premises). The premises are zoned residential and is approved as 'multiple dwelling' with the relevant local Council. Fire Safety Regulations apply whereby you must maintain certain specifications in relation to hard wired alarms, etc. You engage with fire regulators who check the property and supply compliance reports. The premises consist of a main dwelling containing five rooms suitable for accommodation, a communal kitchen, toilet, shower and laundry. An addition was built which contains six rooms suitable for accommodation with a communal kitchen and bathroom. The premises have capacity to accommodate a maximum of X individuals. The occupants are typically male and are generally disadvantaged in society. You are not affiliated with any Government agencies however occupants may receive Government assistance with specified payments. You provide housing to clients of Government and Welfare agencies The 11 rooms suitable for accommodation each contain a bed, fridge and wardrobe. You have an informal arrangement with the former manager to keep you informed of any issues relating to the property in order that you may address any issues as soon as possible. This individual resides on site and has lived at the premises for a number of years. You do not provide any meals to the occupants. The occupants are expected to maintain the common areas in a clean and tidy state. The only service you provide is a weekly clean of common areas. On occasion you will provide towels and bed linen to an incoming resident if they do not have such items. The incoming resident is not charged for these items and the items are provided as a one-off charitable gesture. The majority of occupants enter a periodic tenancy agreement (Agreement) detailing the commencement date of the agreement, weekly rental amount and bond amount. The Agreement provides that the landlord and tenant must comply with the provisions of the Residential Tenancies Act 1995 and the associated Regulations. The Agreement is not for a fixed term and may be terminated by either party in accordance with the terms and conditions of the Agreement. You currently have less than ten occupants residing at the premises. Some of the occupants have lived at the premises in excess of 2 years. The other individuals have been at the premises for a few weeks. The Agreement provides that the landlord must take all reasonable steps so as not to cause or allow any interference with the peace, comfort or privacy of the tenant (quiet enjoyment). Occupants may also reside at the premises on a short term basis or as a result of welfare and emergency housing.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 9-5 | Section 9-40 | Section 23-5 | Section 40-35 | Division 87 | Section 195-1

Reasons for decision: Summary: Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you are liable for GST on any taxable supplies that you make. The term 'taxable supply' is defined in section 9-5 of the GST Act. Under section 9-5 of the GST Act, 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 is not a *taxable supply to the extent that it is *GST-free or *input taxed. Asterisked terms are defined in section 195-1 of the GST Act. The supply of the accommodation by way of lease will not be GST free under Division 38 of the GST Act. The issue in this case is whether this supply will be 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 paragraph 40-35(1)(a) of the GST Act, 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 supply will only be input taxed to the extent the premises are to be used predominately for residential accommodation (regardless of the term of occupation). Given the facts provided in this case, the premises will satisfy the definition of residential premises for GST purposes. As such, the next step is to determine whether the supply constitutes a taxable supply of accommodation in commercial residential premises provided to an individual by an entity that owns or controls the commercial residential premises, or is a supply of 'commercial residential premises'. The term 'commercial residential premises' is defined in section 195-1 of the GST Act as follows: commercial residential premises means: (a) a hotel, motel, inn, hostel or boarding house, or (b) ….. (f) anything similar to *residential premises described in paragraphs (a) to (e). However it 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. This definition 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) provides the Tax Office view of the characteristics of commercial residential premises. Of particular relevance in this case are the terms 'boarding house' and 'hostel'. Neither term is defined in the GST Act and therefore take on their ordinary meanings in context. Paragraph 141 of GSTR 2012/6 provides a number of meanings as sourced from the Macquarie Dictionary 5th Edition (Macquarie), the Oxford English Dictionary 2nd and 3rd editions (OED) and the Shorter Oxford English Dictionary 5th Edition (SOED) as follows: Hostel • a supervised place of accommodation, usually supplying board and lodging, provided at a comparatively low cost, as one for students, nurses, etc. (Macquarie)… • a public house of lodging and entertainment for strangers and travellers; an inn, a hotel. (OED) • a house of residence for students at a university or on a course, esp. at a non-residential college, or for some other special class of people. (SOED) Boarding House • a dwelling in which lodging is provided to paying residents who share common facilities such as a kitchen, laundry, living room, etc. (Macquarie) … a dwelling, usually a private house, in which board and lodging are provided for payment. (Macquarie) • a house offering board and lodging for paying guests. (SOED) | Detailed Reasoning - Boarding house: Whilst in this case the premises may appear to be similar to the Macquarie definition of a 'boarding house' above, as meals/board is not provided we do not consider the premises in question to be classified as being either a boarding house or similar to a boarding house. Paragraph 184 of GSTR 2012/6 explains that this concept was considered in a number of court cases finding that the establishments in question were not boarding houses as the owners were not required to provide meals to the occupants. | Detailed Reasoning - Hostel: Paragraphs 26 to 35 of GSTR 2012/6 list a number of characteristics or features the ATO considers common to a hostel. These characteristics include the Macquarie definition above, being 'a supervised place of accommodation usually supplying board and lodging provided at a comparatively low cost'. We consider however that the provision of meals is not an essential feature of a hostel (based on paragraph 35 of GSTR 2012/6). This issue was also considered by Nicholas J in ECC Southbank Pty Ltd as trustee for Nest Southbank Unit Trust v. Commissioner of Taxation [2012] FCA 795 (ECC Southbank decision). Whilst considering the classification of predominately student accommodation, Nicholas J explained at paragraph 67 of the ECC Southbank decision that although meals were not provided to residents as might usually be the case in a more traditional hostel, this does not mean that the premises may not be fairly described as a hostel or, at least, being similar to a hostel. We also consider that the premises in this case are supervised in the sense that there is an individual who resides at the premises (referred to in your original submission as the 'current manager') who, when any issues are raised regarding the premises, will contact you to address/rectify the issues raised. In addition we consider that the nature of the accommodation is intended to be comparatively low in cost offering a viable alternative to market rate accommodation to your clientele. Given the above we would classify your premises for GST purposes as 'commercial residential premises' being either a hostel or something similar to a hostel and as such your supply of accommodation would not be input taxed under paragraph 40-35(1)(a) of the GST Act. Your supply of accommodation will be a taxable supply of commercial residential premises where you satisfy criteria of section 9-5 of the GST Act listed above. Therefore you will be liable for the GST on the supply. | Detailed Reasoning - Further issues for you to consider: Division 87 of the GST Act contains provisions regarding long-term accommodation in commercial residential premises where such supplies are given a lower value than would otherwise apply, thus reducing the amount of GST payable. | Detailed Reasoning - Summary of Division 87: If your premises provides predominantly long-term accommodation you can choose to treat your long-term stays by either: • charging GST on a reduced value (that is, 50% of the GST inclusive price of the long-term accommodation) for the supply of accommodation for the guest's entire stay; or • treating all of these supplies as input taxed in the same way as residential rent. Predominantly long-term accommodation applies where 70% or more of your stays are made for a continuous period of 28 days or more. If you do not meet the predominantly long-term accommodation test, you can choose to: • charge GST on: • the full value of the supply for the first 27 days of continuous accommodation of long-term guests; plus • a reduced value (that is, 50% of the GST inclusive price of the long-term accommodation) from the 28th day of the stay; or • treat all of these supplies as input taxed in the same way as residential rent. For further details on this issue you may refer to Goods and Services Tax Ruling GSTR 2012/7 Goods and services tax: long-term accommodation in commercial residential premises (GSTR 2012/7) and Goods and Services Tax Bulletin GSTB 2001/2 Accommodation in caravan parks and camping grounds (GSTB 2001/2) both of which are available on our website at www.ato.gov.au . Whilst GSTB 2001/2 describes the situation in regard to caravan parks and camping grounds, the principles of Division 87 of the GST Act are equally applicable to other types of commercial residential premises such as hostels. Where you choose to treat your supplies of long-term accommodation as input taxed supplies, you will not be liable for GST on such supplies. Please note however that for accommodation less than 28 days, normal GST rules will apply. If you do not choose to treat your supplies of long-term accommodation as input taxed supplies and treat the supplies as taxable supplies of commercial accommodation you may be entitled to claim input tax credits (ITCs) for any GST included in the price of purchases that you make in carrying on your enterprise. | Detailed Reasoning - Question 2: Under the GST legislation you are required to be registered for GST where you carry on an enterprise and your turnover meets the registration threshold (currently $75,000 (unless you are a non-profit body)). You are carrying on an enterprise of providing accommodation in commercial residential premises and your turnover will reach/exceed $75,000. As such you are required to register for GST. However, as discussed earlier, where you provide long term commercial accommodation in commercial residential premises you have the choice to treat such supplies as being input taxed supplies. Certain supplies are disregarded for the GST turnover calculation when determining whether you are required to be registered for GST. Supplies that are input taxed are one such class of supplies that are disregarded. Therefore, where you supply long term commercial accommodation in commercial residential premises and you choose to treat those supplies as input taxed supplies in accordance with Division 87 of the GST Act, you do not include such supplies when calculating your turnover for GST registration purposes. If this is the case, you will not be required to register for GST unless your turnover from your other supplies (effectively the supplies of accommodation for a period of less than 28 days) is $75,000 or more.