Private ruling: GST and commercial residential premises
Published: April 2013

Ruling: Q1: Is your supply of accommodation a taxable supply? | A1: No

Relevant facts and circumstances: You are registered for GST. You lease premises situated at a specified location. The lease agreement provides that you pay a fixed rate per week for a specified period. You use the premises to supply accommodation to students attending local universities. To date you have been treating the supply of the accommodation as an input taxed supply of residential premises for GST purposes. The accommodation is provided on a room by room basis. The premises were not operated as student accommodation by the owners prior to you leasing the premises. The premises were originally designed as an X bedroom house. Minimal renovations were carried out by the owners of the property prior to the premises being able to be used for the student accommodation (mainly partitioning). The renovation added Y additional rooms with Y doors. The premises now have Z bedrooms, bathrooms, kitchen and living room. Students share living and kitchen facilities. Council approval and registration has been obtained by the owner of the property to operate the premises as a rooming house. Occupants enter into a rooming agreement (Residential Tenancy Agreement) specifying they are being provided with accommodation for a specific period. The typical length of stay is between 6 - 12 months. A property condition document is agreed to by you and an occupant prior to moving in to the premises. You provide the following services: · Cleaning (common areas only); · Telephone; · Internet; · Electricity and gas. Management does not have a 24 hour on-site presence. You do not provide food or meals. The occupants are responsible for their own cooking in the shared kitchen facilities. You do not provide linen and towels. The occupants pay a bond prior to commencing their stay. You consider the accommodation to be low cost and competitive compared to other accommodation. Your primary purpose is not to provide accommodation for students from rural or remote locations within Australia. The students are not undertaking a 'primary course', 'secondary course' or 'special education course'. The students are undertaking a 'tertiary course' as defined under the GST legislation. You are not the supplier of the course. The universities do not have any input in the running of the accommodation including the setting of rental charges and determining the relationship between the supplier of the accommodation and the occupier. Consequently, there is no specific or implied requirement that preference must be given to students of the education institution. The premises are not constructed on land owned by the universities. The accommodation is marketed through the university's websites. The provision of the accommodation does not reflect the university's charters or other governing instruments. The accommodation is made available to non-students. However, the occupants are primarily students.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 9-5 | Section 9-40 | Division 38 | Section 38-105 | Division 40 | Subsection 40-35(1) | Subdivision 40-B | Subdivision 40-C | Section 195-1

Reasons for decision: Summary: Section 9-40 of the GST Act provides that you must pay the GST payable on any taxable supply that you make. Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides 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 you carry on, (c) the supply is connected with Australia, and (d) you are registered or required to be registered for GST. However, a supply is not a taxable supply to the extent that it is GST-free or input taxed. In this case, you lease the premises for consideration in carrying on your leasing enterprise. As the property is located in Australia, your supply is connected to Australia and you are registered for GST. As such, you satisfy the positive limbs of section 9-5 of the GST Act. The issue is whether your supplies of accommodation are GST-free or input taxed. | Detailed Reasoning - GST-free supplies: Division 38 of the GST Act contains details of supplies that are GST-free. Section 38-105 of the GST Act provides that a supply is GST-free if it is a supply of student accommodation to students undertaking a primary course, secondary course or a special education course and either: · the supplier of the accommodation also supplies the course; or · the accommodation is provided in a hostel whose primary purpose is to provide accommodation for students from rural or remote locations who are undertaking such courses. The terms 'primary course', 'secondary course' and 'special education course' are defined in section 195-1 of the GST Act. In this case you advised that the students are undertaking a tertiary course and not a primary course, secondary course or special education course. Additionally, you are not supplying the tertiary course, nor is your primary purpose to provide accommodation for students from rural or remote locations within Australia. As such, section 38-105 of the GST-Act will not apply to your supply of accommodation. | Detailed Reasoning - Input taxed supplies: Division 40 of the GST Act contains details of supplies that are input taxed. Subsection 40-35(1) of the GST Act provides: 1) A supply of premises that is by way of lease, hire or licence (including a renewal or extension of a lease, hire or licence) is input taxed if: (a) the supply is 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 or controls the commercial residential premises); or (b) the supply is of *commercial accommodation and Division 87 (which is about long-term accommodation in commercial premises) would apply to the supply but for a choice made by the supplier under section 87-25. The term 'residential premises' is defined in section 195-1 to mean land or a building that: (c) is occupied as a residence or for residential accommodation; or (d) 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) and includes a *floating home.' Note: Asterisked terms are defined in section 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). The definition states that the premises must be capable of occupation as a residence. The physical characteristics common to 'residential premises' is that they provide the occupants with sleeping accommodation and at least some of the basic facilities for day to day living. These characteristics will be inherent in the design and fabrication of the premises, which typically include areas for sleeping, eating and bathing. However, these things do not need to be arranged in a manner that is similar to a conventional house or apartment. In this case the premises contain Z bedrooms, bathrooms, kitchen and living room and are residential premises. The next issue to consider is whether the premises fall within the definition of 'commercial residential premises'. 'Commercial residential premises' is defined in section 195-1 of the GST Act to include (amongst other things): (a) a hotel, motel, inn, hostel or boarding house; or … (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. The term 'school' is also defined in section 195-1 of the GST Act as an institution that supplies pre-school, primary, secondary or special education courses but not any other education course. In this case, the universities supply tertiary courses and thus are not a school. The issue of whether a supply of accommodation to students is 'in connection with an education institution that is not a school' is discussed in Goods and Services Tax Ruling GSTR 2001/1 Goods and services tax: supplies that are GST-free for tertiary education courses (GSTR 2001/1). Paragraph 150 of GSTR 2001/1 contains a number of factors to be considered in determining whether a supply is in connection with an education institution that is not a school. Based on the facts provided, the supply of accommodation does not have the necessary connection with the universities to fall within the exclusion of the definition of 'commercial residential premises'. The terms hotel, motel, inn, hostel and boarding house are not defined in the GST Act and take their ordinary meaning. The Macquarie Dictionary (Macquarie) 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. In their ordinary meanings, these terms share the common attribute of providing accommodation to guests. Paragraph (f) of the definition of commercial residential premises extends the scope of the definition to premises that are 'similar' to the class of establishments described in paragraphs (a) to (e). Premises that are 'similar' to establishments that are commercial residential premises must have sufficient characteristics in common with the class of premises described. Goods and Services Tax Ruling 2012/6 ' Goods and services tax: commercial residential premises ' provides the Commissioner's considered view about how Subdivision 40-B, 40-C and section 9-5 apply to supplies of commercial residential premises and accommodation in commercial residential premises. The principles outlined in GSTR 2012/6 have been applied in addressing the issues raised. Paragraph 12 of GSTR 2012/6 lists the following eight 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. Paragraph 41 of GSTR 2012/6 states that ultimately, determining whether premises are commercial residential premises is a matter of overall impression, involving the weighing up of all relevant factors. Paragraph 10 of GSTR 2012/6 explains that this includes an examination of the physical character of the premises and how the premises are being operated having regard to the characteristics listed above. Where such an examination does not provide a clear characterisation other factors may be considered including: · contractual documentation evidencing current or future use, and · government zoning and planning approvals and permissions. In this case, the premises was constructed as a Y bedroom house and not constructed to be a hotel, motel, inn, hostel or boarding house. Therefore the premises do not fall squarely within the scope of paragraph (a) of the definition of commercial residential premises. However, since the original construction of the premises, renovations have been carried out on the property, partitioning the existing Y bedrooms resulting in the creation of an additional Y bedrooms (total Z bedrooms) together with constructing separate entrances for each additional bedroom. We therefore need to consider whether the current physical character of the premises, together with the operation, bring the premises within the scope of paragraph (f) of the definition of commercial residential premises to be 'similar' to a hotel, motel, inn, hostel or boarding house. Paragraph 145 of GSTR 2012/6 explains that premises that fall within paragraph (f) may be described as something other than those premises listed in (a) to (e), for example, a 'resort' or 'serviced apartments'. These premises are commercial residential premises if they are used in a particular way. The issue of whether premises were 'commercial residential premises' was examined in ECC Southbank Pty Ltd as trustee for Nest Southbank Unit Trust & Anor v Commissioner of Taxation [2012] FCA 795 (ECC Southbank). Nicholas J stated in ECC Southbank at [50] : [50] The test to be applied for the purpose of determining whether the Urbanest premises are commercial residential premises involves asking whether the Urbanest premises is a hotel, motel, inn, hostel or boarding house or whether it is similar to - in the sense that it has a likeness or resemblance to - any of those types of establishment. The application of this test necessarily raises questions of fact involving matters of impression and degree. | Detailed Reasoning - Hotels, motels and inns: Paragraphs 13 to 25 of GSTR 2012/6 provide the following features which are typical of hotels, motels and inns. A motel is a particular type of hotel that primarily caters to the needs of motorists seeking roadside accommodation. An inn is a small hotel at which board (meals) and lodging are provided to travellers. Subject to those qualifications, the following features of hotels are equally relevant to motels and inns: · Hotels provide accommodation for a commercial purpose. · Hotels have the capacity to provide for multiple occupancy. · Hotels usually offer meals to guests and usually have a kitchen where meals are prepared for guests. The premises usually include a restaurant or dining room for guests. A motel need 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 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. Hotels may offer concierge services at either the reception desk or at a separate desk. · A hotel is centrally managed by the operator, having at least one person present, or offsite but readily accessible to manage the accommodation and arrange for and provide services. · Accommodation in a hotel is supplied by the operator of the hotel in its own right and not in the capacity of an agent for a third party. In considering the similarities and differences between the characteristics of hotels, motels, inns, and those features provided by you, the following observations are provided: · You do not have the commercial infrastructure in place that is typically found in these types of establishments in order to provide services to the occupants. Such commercial infrastructure includes reception areas, dining and bar areas, meeting/function areas, kitchens, laundry facilities, storage areas and car parks. · You do not have an on-site presence. · You do not offer meals. · You do not provide linen or towels. · You enter into residential tenancy agreements with the occupants/students. · A property condition document is agreed to by you and an occupant prior to moving in to the premises. · The typical length of stay is between 6 - 12 months. · The lease agreement provides for the payment of a bond. · You provide the following services: cleaning (common areas only), telephone, internet, electricity and gas. Given the above we do not consider your premises to be similar in nature to a hotel, motel or inn. | Detailed Reasoning - Hostels and boarding houses: A hostel is described as a supervised place of accommodation, usually supplying board and lodging provided at a comparatively low cost. In this case, you do not have an on-site presence and therefore the premises are not considered to be supervised. As such, the premises would not fall within the classification of being similar to a hostel. Paragraph 181 of GSTR 2012/6explains that a boarding house is a dwelling at which board (meals) and lodging are provided to guests or residents. A primary characteristic of a boarding house is the provision of meals. As previously discussed you do not provide meals and as such the premises are not considered to similar to a boarding house. | Detailed Reasoning - Conclusion: Your supply of accommodation is an input taxed supply of residential premises. The premises are not considered to be commercial residential premises. As an input taxed supply, your supply of accommodation is not a taxable supply pursuant to section 9-5 of the GST Act.