Private ruling: GST and the supply of services related to accommodation in commercial residential premises
Published: December 2013

Ruling: Q1: 1. Is The Hotel, located in the Complex, commercial residential premises, as defined in section 195-1 of the GST Act? 2. Are you, Entity A, making a taxable supply of accommodation in commercial residential premises to guests of the Hotel in the Complex? 3. Are you, Entity A, making taxable supplies of accommodation in commercial residential premises to guests of the Villas in the Complex? | A1: 1. Yes. 2. No. 3. No.

Relevant facts and circumstances: Entity A is registered for GST. Pursuant to an Assignment Deed, and associated Agreements entered into by previous operators and owners, Entity A is the operator and manager of the Hotel, which is located within the Complex. The agreements are set out below. 1 Management Agreement 2 Management Services Agreement 3 Reservation Services Contract 4 License Agreement These agreements are known as The Agreements. Pursuant to the Management Agreement, Entity A as the operator and manager, are charged with the operation, direction, management and supervision of the Hotel. Entity A has wide powers, including the determination of labour policies, credit policies, terms of admittance, charges for rooms and so on, although in some instances only after consultation with and the agreement of The Owner and Entity B Pursuant to the Management Services Agreement, Entity C will provide assistance and supervision of the Hotel to Entity A to enable it to manage the Hotel. Under the Reservation Services Agreement, Entity A is entitled to use the reservation system of Entity D. The Complex is located in Australia . The complex comprises: § A Hotel (with X rooms), § Villas, and § various resort facilities, including pools, bars and restaurants. The provision of accommodation in the Hotel includes the right or license to occupy a room and in addition the supply of other services such as cleaning and linen services, access to common areas and facilities such as pools, restaurants and various services including concierge services. The Owner of the Complex holds the leasehold title to the land on which the Complex is located under a lease in perpetuity from the Crown. The Owner leases the villas on extended leases to various entities who are called Villa Owners. Some of the Villa Owners have appointed Entity B as their agent in regards to the letting and management of their Villas. The owners that have appointed entity B as their agent will be called the Participating Villa Owners. Entity B is authorized to engage the Operator to provide assistance. Entity B also has employer obligations in relation to the Hotel and the Villas. Under a deed of Variation, the Owner is authorized to enter into agreements with the Villa owners and to engage Entity A, the operator to provide assistance. The Hotel Agreements The Management Agreement Parties to the agreement: 1 The Owner 2 The Operator. 3 The Trustee The purpose of the Management Agreement was to document the appointment by the Owner of an Operator (Entity A). The Witnesses set out that the Owner will be the lessee of the Premises (B) and will engage the Operator to plan decorate and equip the hotel (D) and take control of the premises and operate it for a fee (E). The articles set out that: o It is the Owners' intention that a strata plan be registered in respect of the Villas and the same be sold to individual purchasers independent of the operator or the Operation of the Hotel. o If the strata plan is registered the Owner will procure that the body corporate will be obliged to maintain all property to the same standard as the Hotel. o the agreement will terminate x years after the opening date. However there are opportunities to extend the term o The Operator is engaged as the exclusive Operator of the Hotel and...shall have exclusive control and discretion in the operation, direction, management and supervision of the Hotel. Such control and discretion shall include without limitation, determination of labour policies (including the hiring and discharging of all employees) but consultation with Owner is required for certain matters. o The control and discretion extends to charges for rooms - but only after consultation with the Owner. o In exercising its controls and discretions, the Operator may negotiate such contracts on behalf of the Owner, but must submit the agreements to the Owner for execution. o The Operator is to act solely as agent of the Owner o Nothing in the Agreement creates a partnership or joint venture between the Owner and the Operator o All debts and liabilities incurred by the Operator in the course of its operations shall be the debts and liabilities of owner only o Hotel employees are employees of the Owner and not the Operator. o In performing its duties during the Operating Term, the Operator acts solely on the account of the Owner o All operating expenses incurred by the operator in performing its duties shall be borne exclusively by the owner o Any necessary funds that are not generated by the hotel operations will be supplied by the owner to the operatorI o The operator has the right, but shall in no event be required, to advance its own funds for the operation of the hotel. The owner will repay any such advance, with interest o All operating funds and working capital shall be paid into a specified account. Monies received by the Operator in the operation of the Hotel are deposited into the specified account held in the name of the Hotel. o These funds are not to be mingled with the Operator's or the Owner's funds. o The Operator shall pay the operating expenses out of the specified Account. o Any cheques or other documents of withdrawal may bear an appropriate legend indicating that the hotel is managed by Operator as agent of Owner. o The Owner bears responsibility for any losses arising from the failure or insolvency or the institution holding the account. o The Operator will maintain the books for the Owner. o The Owner will pay the Operator a management fee calculated as a % of Gross profit. o The schedule of fees payable extends for X years and ends on a level of X%. o The Operator can extend the Operating Term for two successive periods with each extension to be otherwise on the same terms. Management Services Agreement Parties to the agreement. 1 Entity E 2 The owner 3 The Trustee The Management Services Agreement sets out in the recitals that: § The Owner is or will be entitled to use and occupy the premises § The Hotel is to be Operated under a management agreement § The Owner desires to benefit from Entity E's experience in operating hotels The Articles provide that o Entity E will provide assistance and supervision of the Hotel and will supply the necessary support to enable the Operator to manage the Hotel o the compensation to be paid to Entity E o Entity E is to Act solely as agent of the owner. Reservations Service Contract The Owner Entity D and the Trustee entered into an agreement with Entity D, an international entity, to enrol in their reservation system. Villa Accommodation The Owner leases the villas to the individual owners. Some of the Villa Owners have entered into an agreement to appoint Pearls 2 as their agent. These owners will be know as the Participating Villa owners The agreement is known as the Agent agreement. Entity A asked the ATO to rule only on their relationship (if any) with the Participating Villa owners. The Agent agreement identifies the Villa Owner and the Agent (Entity B) and provides details of the agreed commission for the services. Annexure to the Agent Agreement The Annexure provides that: o The client agrees to contribute the Lot to form part of the letting business conducted from the Complex and authorises Entity B, to the exclusion of others, to manage the Lot for that purpose and to use the Lot with other participating Lots to provide accommodation to the public on such terms as Entity B thinks fit. o The Villa owners return is the monthly rent less the monthly deductible expenses. o Where the return is negative for a particular month the Villa owner will pay the amount to Entity B. o the Villa owner acknowledges that it will not share in any of the revenues from the provision of the Hotels services or from any Hotels placement items. o Entity B or Entity A shall have the right, at its sole expense to § place and maintain in the lot marketing or promotional material relating to products or services of the hotel and § Mini bar item, pay per view TV systems or other in-room sales or service products. o The Villa owner are required to acquire and install and (keep installed) in the lot a furniture package that complies with the brand standard. o Entity A is not a party to this agreement in any manner and does not have any contractual relationship with or obligations to the Villa owner. o There is no guarantee to the Participating Villa owner or any other lot owner concerning the period of time during which. § Entity A or its affiliates will provide management service with respect to the hotel or the letting program or § The Hotel including the Lot will be associated with or included in the Hotel brand. o At the date of this agreement, entity B may (to the extent that it is lawfully able) be assisted by Entity A in the performance of its obligations…. o Entity B does not represent or guarantee any amount or Receipts or income will be achieved. o Entity B will use reasonable endeavors to include the Lot in the Hotels reservations system for rental by Guests during the term. o The Participating Villa owner acknowledges that Entity A has entered into an agreement with Entity B and its affiliate which allows such owners use of the trade names. Under a Deed of Variation dated ddmmyyyy, the Owner is authorised to enter into agency agreements with the Villa owners and to engage Entity A to provide assistance.

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

Reasons for decision: Summary: Is the Hotel commercial residential premises, as defined in section 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? The definition of commercial residential premises, contained in section 195-1 of the GST Act, provides that: 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. Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises (GSTR 2012/6) considers how section 9-5, Subdivision 40-B, and Subdivision 40-C of the GST Act apply to supplies of commercial residential premises and supplies of accommodation in commercial residential premises. It details at paragraphs 15 to 24 the characteristics of a hotel. 15. Hotels have the capacity to supply accommodation for multiple occupancies. 16. 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. 17. The guest rooms in a hotel are invariably furnished, and always include a bed, and some living area, and usually an adjoining bathroom. In some cases, hotel rooms may also have a kitchenette for self-catering. 18. 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. 19. Predominantly, the 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. However, this feature may not be evident in hotels, sometimes referred to as residential or private hotels, that provide accommodation to long-term residents for whom the premises are a permanent place of residence. 20. 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. However, it is not essential that all guests in a hotel stay for a short period. This feature may not be evident in hotels that provide accommodation to long-term residents. 21. 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. 22. Hotels do not normally provide shared accommodation to guests in the sense of having a number of unrelated guests sharing a kitchen and living facilities. 23. 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. 24. 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. The arrangement between the parties will reveal whether there is an agent-principal relationship. As set out in the facts, the provision of accommodation in the Hotel includes the right or licence to occupy a room in the hotel, and in addition, the supply of other services such as cleaning and linen services, access to common areas and facilities such as pools, restaurants and various services including concierge services. Based on the facts that you have provided, we consider that the Hotel is a hotel pursuant to section 195-1. Accordingly, it is commercial residential premises. Are you, making a taxable supply of accommodation in commercial residential premises to guests of the Hotel? Entity A has contended that it is not in control of the premises and is merely an agent for the owner of the Hotel. Goods and Services Tax Ruling GSTR 2000/37: Goods and services tax: agency relationships and the application of the law describes what is meant by principal/agent relationships ('agency relationships'). It states at paragraph 28: 28. In most cases, any relevant documentation about the business relationship, the description used by the parties and the conduct of the parties establish the existence of an agency relationship. Therefore, the following factors may show that you are an agent under an agency relationship, although no single factor (by itself) is determinative: § any description of you as an agent, having authority to act for another party, in an agreement (expressed or implied) between you and the other party; § any exercise of the authority that you are given to enter into legal relations with a third party; § whether you bear any significant commercial risk; § whether you act in your own name; § whether you are remunerated for your services by way of commissions and whether you are entitled to keep any part of your remuneration secret from another party; and § whether you decide the price of things that you might sell to third parties. Entity A entered into a number of agreements with the Owner of the Hotel and other parties as set out in the facts. We refer in particular to the following clauses from the Management Agreement, which governs the relation ship between entity B and the Owner of the Hotel: § Entity A is to act solely as agent of the Owner § When Entity A performs its duties and incurs expenses, it acts solely on the account of the Owner § Entity A will maintain the books on behalf of the Owner. § The Owner will pay Entity A a management fee calculated as a % of Gross profit. These articles establish that: § There is intended to be an agency relationship between you and the Owner § You are paid a commission for your services § You are acting in the name of the owner of the Hotel § The Owner bears the commercial risk § Entity A can only set prices and negotiate contracts, leases, etc, in consultation with the Owner. Therefore, Entity A is not the entity that owns or controls the premises. Entity A is an agent of the Owner. As a consequence, Entity A does not make the supplies of accommodation. Therefore, Entity A is not making any supplies of accommodation, taxable or otherwise, to guests of the Hotel. Is entity A, making a taxable supply of accommodation in commercial residential premises to guests of the participating villas? Entity A has contended that it is acting as an agent in its dealings with guests of the villas where the owners have entered into the Agent agreement with Entity B. These owners will be known as the Participating Villa owners. Entity A has no arrangements with the non Participating Villa owners. As set out above, for Entity A to make supplies of accommodation to guests of the Participating villas, it must have control of the Participating villas and associated infrastructure. The arrangements for the supply of the accommodation in the Participating Villas are set out in the Agent agreement. There are a number of references to entity A in this agreement. In particular: Entity B or Entity A shall have the right, at its sole expense to place and maintain in the lot: · `Marketing or promotional material relating to products or services of the hotel. · Mini bar item, pay per view TV systems or other in-room sales or service products. Entity B is not a party to the Agent agreement in any manner and does not have any contractual relationship with or obligations to the Participating Villa owners. There is no guarantee to the Participating Villa owners that: § Entity A or its affiliates will provide management services to the Participating Villa owners or § The Hotel Brand will be associated with the supply of accommodation in the Participating Villas Entity B may be assisted by Entity A in the performance of entity B's obligations…. The Participating Villa owner acknowledges that Entity A has entered into an agreement with the Entity B and its affiliate being the owners of the Hotel which allows such owners use of the associated trade names. These clauses indicate that Entity A has no contractual arrangement with the Participating Villa owners Entity A under the Agent agreement is limited to providing assistance to Entity B, in its business of letting and property management of the Participating Villas. Therefore, Entity A is not making any supplies of accommodation, taxable or otherwise, to guests of the Participating Villas.