Private ruling: Good and services tax (GST) and commercial residential premises
Date of advice: 25 January 2018
Published: June 2018

Ruling: Q1: Is your supply of accommodation in the apartment building located in Australia a taxable supply of accommodation in commercial residential premises for the purposes of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes

Relevant facts and circumstances: Entity ● You are currently registered for GST. ● You carry on a leasing enterprise of supplying residential accommodation across a number of buildings. ● This ruling deals with accommodation you supply out of a building located in Australia. Building /apartments ● The building is a multi-level building, consisting of X apartments along with a lobby/reception area, elevator, carpark, storerooms, laundry chute, toilets and two other areas including a café. ● The x apartments comprise: ● x one bedroom apartments, ● x two bedroom apartments and ● x two bedroom, two bathroom apartments. ● There are also secure car parking spaces ● Each apartment has bedroom(s), kitchen and bathroom facilities and its own washer and dryer. ● There is a laundry chute on site for use by housekeeping staff only. Laundry is sent to your laundry contractor. There is no central laundry facility on site. ● Reception desk: ● You have a reception desk which is visited by main office staff in the morning to check-in and out guests after checking the key safe to ensure guests have retrieved their keys on arrival the previous day/night, or deposited them on departure. The staff member then programs and loads new keys into the key safe for guests arriving that afternoon/evening, and returns to the main office. ● During special event periods, where arriving guest numbers exceed the capacity of the key safe, a staff member will attend the reception area to hand keys to guests arriving between 2-5pm. Guests arriving after this time retrieve their keys from the key safe. ● The building has a roof top open area which has ablutions but no kitchen or bar facilities. The building owner intends to lease this area for private functions. Guests can access the vacant roof top area via the building lift to admire the view, but we do not provide any facilities for their use. ● You have placed a sign with your trading name on the exterior of the building. Your accommodation business is operated out of a number of apartment buildings in the Relevant location. ● The building CCTV is externally managed by your IT contractor. You are able to remotely monitor the CCTV from your office by linking to the secure server. You may place a monitor at reception in the future, should the need for night time security arise. ● There are two areas on the ground floor for a café and another which are leased by the owner to other unrelated parties. Lease ● You purchased the management rights for the complex and leased the apartments in the building and specified common areas. The lease agreement is for X years and X year options. As set out above this lease does not include the café and the other commercial space but does include the balance of the building including the X car bays, X apartments, reception areas etc. ● You pay management rights and the rental premium to the building owner. You also pay all the gas, electrify, telephone, insurance, water usage and strata fees for non-capital works, as well as any other charges connected with your operations. ● The owner pays water rates, council rates, land tax, body corporate fees (relating to capital works unless they are as a result of negligent acts), and any other charges that you are not required to pay. ● You have agreed to maintain the premises, garden area, air-conditioning but the owner is responsible for capital item repairs or replacement. ● You have the right to assign the lease with the owner’s consent. ● The owner acknowledges that you intend to conduct a serviced apartment or similar business from the premises. ● The lessor will reimburse you for the cost of furnishings and equipment installed by you into the apartments in the premises during the first year of your lease for the sum of $X plus GST. You will be purchasing other furniture, electrical goods, kitchenware, bedding, etc. to fit out apartments. Business operations ● You operate your business from leased premises, where you have staff to take calls and enquiries from prospective clients and provide keys to apartments. ● You manage the building from your business operations site. ● All bookings are taken online, or by phone at the business operations site. Rates are calculated at a nightly rate but are discounted for longer stays. ● In regards to the building, keys will be programmed and pre-loaded into the key-safe outside the front door for guests arriving to collect keys during and after normal daytime office hours. ● You also have staff on site at certain times to assist guests ● Payment for accommodation is expected in full prior to arrival. No guests are admitted to premises unless full payment has been received. ● Pets are not permitted Services ● Pay TV and internet are provided in all apartments. ● A weekly linen change and housekeeping service is provided. ● Basic limited 1-day only amenities such as tea, coffee, milk and washing sachets are provided in each apartment for one time use, they are not replenished during the guest occupancy. ● The car parking spaces are by reservation only and will be supplied on a first come, first served basis. ● You are partnered with catering company, to provide guests with an in-house menu for dining in. ● Discounted tours can be booked with a partnered tour company, through your website. ● You have partnered with a bicycle hire company to offer a public collection point at you apartments, and your office location. There are additional bicycles reserved exclusively for guests of your apartments. ● The key safe is mounted in the window next to the entrance door for in-coming guests to retrieve their access cards for the building and their apartments ● You have set up a tourist brochure rack in the reception area. ● You have a reception desk on site in which staff, when there, can check-in and out guests after checking the key safe to ensure guests have retrieved their keys on arrival the previous day/night, or deposited them on departure. ● Seating area in foyer for guests waiting for transportation etc. ● A sign is placed on the reception desk advising guests that the reception is not regularly staffed, and for 24hr emergency assistance please call X.

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 Subsection 11-15(2) | A New Tax System (Goods and Services Tax) Act 1999 Section 11-20 | 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(2) | A New Tax System (Goods and Services Tax) Act 1999 Paragraph 40-35(1)(a) | A New Tax System (Goods and Services Tax) Act 1999 Section 195-1

Reasons for decision: Summary: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. 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 ● all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on ato.gov.au Section 9-40 provides that you must pay GST on any taxable supply that you make. Under section 9-5, 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 the indirect tax zone (Australia); and (d) you are registered, or required to be registered However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. You meet the requirements 9-5 (a) to (d) and your supplies are not GST-free, therefore your supplies of accommodation will be taxable supplies unless they are input taxed. | Detailed Reasoning - Input taxed: Under subsection 40-35(1), 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. It is common ground that the apartments from which the accommodation is supplied, satisfy the definition of residential premises under section 195-1 and that you are supplying accommodation in those residential premises. The question to be determined is whether the residential premises are commercial residential premises. If the premises are commercial residential premises, the supplies of accommodation are taxable supplies. ‘Commercial residential premises’ is defined in section 195-1 to include (amongst other things): (1) a hotel, motel, inn, hostel or boarding house; or … (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 (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. 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. Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises (GSTR 2012/6) provides the ATO view of 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 include the overall physical character of the premises and how the premises are operated. It is not solely the physical characteristics that determine whether premises are commercial residential premises. 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. 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, and ● occupants have the status of guests. Paragraphs 13 to 24 of GSTR 2012/06 list the following features which are typical of hotels, 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. 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. After consideration of all of the physical characteristics and operating characteristics of the premises, it is considered that all the premises are commercial residential premises and you are providing accommodation in commercial residential premises. Overall, the premises share sufficient similarities with hotels and motels to meet paragraph (f) of the definition of commercial residential premises. You operate on a commercial basis and provide multiple occupancy within the complex. You do not act as an agent for a third party; you lease the apartments within the building and provide accommodation in your own right. You also have, through leases of the units, control of the common spaces and a management rights agreement sufficient right to use or effective control over the common areas to carry out your business operations. The management of the premises is also centrally managed by you and while the utilisation of the reception areas is not full time you have a reception desk or area on site, to handle the requirements of both management and guests, including check in and check out. You hold accommodation out to the public to provide serviced apartment accommodation to guests. This accommodation is provided to the general public including business travellers, corporate clients, and holiday goers. The nature of these clients would indicate they are in a class who ordinarily have their principal place of residence elsewhere and who need or desire accommodation while away for business or pleasure. The booking process calculates the price of the accommodation in accordance with a daily rate multiplied by the number of days of occupancy it is discounted for stays of more than 3 nights or 7 nights. The configuration of apartments is similar to that contained in a typical hotel or motel, with the apartments being fully furnished for the guests’ immediate use. Tea and coffee making items and toiletries are provided for guests use. The guests are supplied with linen and towels, and the tariff charged includes cleaning (usually weekly), utilities such as electricity, gas and water, and services such as internet access. Laundry facilities are also available either within apartments or within the premises. Additional services such as food and parking are available. While the absence or limited nature of these services may result in the premises not being considered the same as a traditional hotel or motel, the absence (or limited nature) does not result in the conclusion that the premises cannot be sufficiently similar to hotels and motels. Nicholas J addressed the issue of services in the ECC Southbank decision and stated at [70]: [70]… It is true that in comparison with some other types of establishment referred to in the relevant definition, the level of services provided in addition to accommodation may seem slight. But the services provided by staff to residents through the reception desk are by no means insignificant and, should be considered together with all other relevant matters. The level of additional services needs to be considered with all relevant matters. Further, paragraph 41 of GSTR 2012/6 provides a list of 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. While the absence of one or more of the above features does not mean that the premises are similar to a hotel, motel, inn, hostel, or boarding house, the fact that the premises do not exhibit any of the above features provides further support to the view that the premises have the characteristics of a hotel, motel or inn. In determining whether the premises are similar to a hotel, motel or inn, we have considered the premises in their entirety, which is the operation of the serviced apartments and the physical character of the premises. On balance while the premises do not have all the commercial infrastructure of a more traditional hotel, motel or inn, we consider that the premises have sufficient common physical and operating characteristics with such establishments to conclude that the premises are similar to a hotel, motel or inn. As such, for GST purposes, the premises are regarded as commercial residential premises. Therefore, the supplies of accommodation are taxable supplies as the requirements of section 9-5 are satisfied.

Reasons for decision: These reasons for decision accompany the Notice of private ruling for XX.