Private ruling: GST treatment of supplies relating to Residential Colleges
Published: November 2012

Ruling: Q1: Is the supply by you of accommodation in the individual student residences within the Residential Colleges (colleges) GST-free under section 38-250 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes, where the supply of accommodation is made for less than 75% of the GST inclusive market value. | Q2: To the extent that your supply of accommodation is GST-free, is your acquisition of management services a creditable acquisition for the purposes of section 11-5 of the GST Act? | A2: Yes. However, to the extent that the management services relate to your input taxed supplies of accommodation this will not be a creditable acquisition. | Q3: If your supply of accommodation does not satisfy the provisions in section 38-250 of the GST Act (for example if the accommodation charges are above 75% of their market value) is the supply an input taxed supply of accommodation in the residential premises? | A3: Yes, when the accommodation is supplied to students. When accommodation is supplied to non-students it is accommodation in commercial residential premises and therefore not input taxed (unless Division 87 would apply to the supply but for a choice made by you under section 87-25). | Q4: Is the assignment of the net rental income stream, comprising a fixed annual payment amount, an input taxed financial supply? | A4: Yes. | Q5: Does Division 165 of the GST Act apply to these arrangements? | A5: No.

Relevant facts and circumstances: · You are an education institution for the purposes of section 195 of the GST Act. You are registered for goods and services tax (GST). · You are endorsed as a Deductible Gift Recipient under Division 30 of the Income Tax Assessment Act 1997. You are therefore a gift-deductible entity for the purposes of the GST Act. You are also a Charitable Institution endorsed to access GST concessions. · You own and operate residential colleges. These colleges are for the primary purpose of providing residential accommodation to your students at an affordable rate during their education. · All of the parties to the project arrangements will be registered for GST. You have also advised that they provide the goods or services exchanged for consideration in the course or furtherance of their enterprises, and that all the supplies made are connected with Australia. · The college properties provide accommodation in a range of buildings and different configurations, including halls of residence and some freestanding townhouses. The properties have a mix of individual rooms and common rooms. · The relevant premises all operate under a set of house or facility rules. There are people available onsite for residents who need assistance, and pastoral care is provided. · Rooms may sometimes be rented to persons who are not your students. Rooms may sometimes be rented to your staff or students of other tertiary institutions. · Rooms may also be rented to persons who are not your students for short periods of time, for example during semester break. Typical examples are a visiting sporting team attending a competition in the area or visiting conference attendees. On very limited occasions this may also occur where the college is not fully occupied by students during semester. · You ensure that the rent charged to students is at a level of providing affordable accommodation. You have advised that your supplies of accommodation to students are for less than 75% of the GST inclusive market value. Therefore you treat the supplies as GST-free under section 38-250. You have advised that you also refer to the ATO Residential College GST Tool in verifying this treatment. · You have issued a request for Expressions of Interest (EOI) for the refurbishment and outsourced operation of your colleges. · You sought proposals for possible ways in which the operation of the colleges could be outsourced for a long term period of around 40 years. Your EOI request indicated that you expected to receive a significant upfront payment. · Your EOI request also expressly required that the arrangement not involve a lease of the colleges. You did not wish to provide a long term lease of the colleges due to statutory restrictions on long term leases. · You received a response from an interested party. This set out the legal requirements and financial options available for the proposed refurbishment and operation of the colleges (the project). It also set out the party's operational approach, refurbishment plans and future development approach. · Following the party's proposal, you appointed them as the preferred entity with whom to continue discussions regarding the project and establish its feasibility. · The key elements of the arrangements will involve the following: o A 'special purpose vehicle' (SPV), which will be registered for GST, agrees to manage and operate the colleges for a specified term. o SPV will enter into an agreement with you to operate and manage the colleges for you. In return for the SPV's management services you will pay a management fee (which will be funded by a portion of the accommodation charges collected from residents). o The management fee (consideration) paid by you for the management services will be an arm's length charge reflective of market value. It will be determined on a commercial basis that allows SPV an opportunity to make a reasonable profit from the provision of the services (for example the cost of providing the services plus a commercial mark-up). o SPV will then subcontract the management to an affiliate of theirs, and the affiliate will be the operator of the colleges. o You will enter into residential accommodation agreements with students in respect of residential units within the colleges (via SPV as your agent). All agreements for the supply of rental accommodation are entered into by SPV as agent for you. o You will be entitled to retain a proportion of the gross rental stream received from the students. o The percentage of gross rental that you will retain is still under negotiation. o The net rental income stream is the balance of rental amounts collected from residents less: § GST (if any) on the accommodation supplies, § the management fees described above, and § your retained proportion of the gross rent received from students. o The balance of the net rental income stream is expected to vary over the term of the arrangement as accommodation fees and occupancy levels vary. o You will enter into a swap contract with SPV regarding the balance of the net rental income stream. This swap contract will cover the whole term of the arrangement. o You will pay the net rental stream to SPV, and in exchange SPV will pay you a fixed annual payment amount. o Upon execution of the swap contract, you will have swapped your entitlement to the variable net rental for an entitlement to be paid a fixed annual payment amount by SPV. o You will then assign that entitlement to receive the fixed annual payment to a trust (SPV Trust - part of the overall group but unrelated to SPV) for a single up-front payment made by that trust. This assignment will be made under an Assignment Deed. o The intention of this arrangement is to allow you to capitalise into a lump sum your right to receive net rental from the colleges. · The documents outlining this agreement are yet to be finalised. · You intend to ensure that the amounts charged to students remain below 75% of the GST inclusive market value of the accommodation supplies. You will have the right to restrict or reverse any pricing movement inconsistent with your objectives of providing affordable accommodation. The impact on the GST-free status may be one reason why you would issue a direction to SPV restricting or reversing any price increase. If you issue a direction you would be liable to compensate SPV. · SPV will calculate the up-front payment taking into account the value of the income stream being lower as a result of providing the affordable accommodation. · The rent charged is highly likely to continue to satisfy the GST-free requirements in section 38-250. However, in the event that you cannot continue to provide low cost accommodation you seek confirmation that the supply of accommodation to students would be input taxed if section 38-250 does not apply at some time in the future (see question 2).

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Division 9 | Division 11 | Section 38-250 | Division 87 | Division 165 | A New Tax System (Goods and Services Tax) Regulations 1999 | Regulation 40

Reasons for decision: Detailed Reasoning - Background reasoning: When an entity makes a supply (of goods or services) for consideration in the course or furtherance of its enterprise, the entity is registered and the supply is connected with Australia, then the supply will be a taxable supply to the extent that it is not GST-free or input taxed. You have advised as facts for your private ruling application that all of the parties to the project arrangements will be registered for GST, they provide the goods or services exchanged for consideration in the course or furtherance of their enterprises, and the supplies are connected with Australia. Based on these facts all of the supplies made under the project will therefore meet the requirements of section 9-5 of the GST Act. Therefore, the supplies made will be taxable supplies to the extent that they are not GST-free or input taxed. | Detailed Reasoning - You are the supplier of accommodation in the premises: In the circumstances described we consider that you are the supplier of accommodation. You do not lease the colleges to another entity for the purpose of providing accommodation to students. Rather, you continue to enter into residential accommodation agreements with students in relation to the colleges. SPV arranges these agreements as agent for you. Where your agreements (which are not yet finalised) show that SPV is acting as an agent for you in this way, SPV uses the authority given to them to act for you and any act done on your behalf is an act by you. Therefore, under this type of arrangement, you still provide the accommodation to the students with SPV acting as a facilitator and manager for the accommodation. We consider that they do not supply the accommodation in their own right. | Detailed Reasoning - The premises are commercial residential premises: Where you make a supply of premises that is by way of lease, hire or licence the supply is input taxed if the supply is of residential premises, but not if it is 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). ' Commercial residential premises ' has the meaning given by section 195-1 of the GST Act. It includes a hotel, motel, inn, hostel or boarding house. However, it specifically excludes premises to the extent that they are used to provide accommodation to students in connection with an education institution that is not a school. Therefore it is important to note that the nature of the premises supplied never changes (although who the premises are supplied to may alter the GST treatment of the particular accommodation supplies). The fact that there is a specific exclusion in the definition of commercial residential premises for supplies to non-school students tends to indicate that the types of premises used for these supplies would meet the definition of commercial residential premises but for this exclusion. However, there are a range of factors that must be considered to reach a conclusion on the nature of the premises. Draft Goods and Services Tax Ruling GSTR 2012/D1 Goods and services tax: residential premises and commercial residential premises considers residential premises and commercial residential premises in detail. However, this draft ruling is being reviewed as a result of the recent Federal Court decision in ECC Southbank Pty Ltd as trustee for Nest Southbank Unit Trust & Anor v Commissioner of Taxation [2012] FCA 795 ( Urbanest ). This case concerned whether premises designed and operated to provide student accommodation are commercial residential premises. An ATO Decision Impact Statement (DIS) has been released outlining the ATO's response to this decision. In Urbanest the relevant premises were able to be operated for student accommodation and/or services apartment purposes, and later as managed residential accommodation (under a subsequent sub-lease). The premises consisted of shared apartments, studio apartments and various common areas. Nicholas J considered that the premises supplied by way of the sub-lease was either a hostel, or very similar to a hostel. The premises were therefore commercial residential premises. Relevant factors in reaching this decision were that the accommodation available was intended to be comparatively low in cost, configured to the needs of students seeking low cost accommodation in mind. It had an element of supervision, and there were house rules. Also, it was considered that the fact that the accommodation may be the principal place of residence of the individual concerned does not mean that the supply is not taxable. We note that this view does not support the preliminary view expressed in GSTR 2012/D1 that it is necessary for occupants to have the status of a guest in order for the premises to satisfy paragraphs (a) or (f) the definition of commercial residential premises. The DIS states that the Commissioner will review the preliminary views set out in GSTR 2012/D1 to ensure that the views expressed are consistent with the Court's decision. This indicates that the review of GSTR 2012/D1 may be in relation to hostels and whether or not occupants need to have the status of guests. This is because the DIS notes that his Honour did consider the status of the occupant to be a relevant factor in considering whether the premises were similar to a hotel or motel. He also observed that an inn is an establishment at which board and lodging is provided to travellers. Therefore the views expressed in GSTR 2012/D1 in relation to hotels, motels and inns are broadly consistent with his Honour's decision. In this ruling we have therefore adopted an approach that the status of persons as a guest or otherwise is not a determinative factor in considering whether premises are a hostel or similar to a hostel, and we therefore rely on the other factors provided in GSTR 2012/D1. We consider that in your circumstances supplies to non-students are relatively rare, and are more likely to be on a short term basis anyway. We consider that the most relevant description in the definition of commercial residential premises in your circumstances is 'hostel'. The college properties provide accommodation in a range of buildings and different configurations, including halls of residence and some freestanding townhouses. The properties have a mix of individual rooms and common rooms. The relevant premises all operate under a set of house or facility rules. There are people available onsite for residents who need assistance, and pastoral care is provided. Therefore your premises are a supervised place of accommodation providing board or lodging, provided at a comparatively low cost for students etc which meets the relevant elements of the definition of hostel.( Macquarie Dictionary , as relied on in Nest Southbank decision) Following the reasoning in Urbanest, whether or not meals are provided does not alter whether the premises can be described as a hostel or similar to a hostel. Other common characteristics of hostels and similar are also provided in GSTR 2012/D1 (paragraph 50) such as: · Commercial intention (premises are operated on a commercial basis or in a business-like manner even if they are operated by a non-profit body) · Providing accommodation is the main purpose of the premises · Multiple occupancy (premises have the capacity to provide accommodation to multiple, unrelated persons at once in separate rooms or in a dormitory) · Holding out to the public (the premises offer accommodation to the public or segment of the public) · Central management (the premises have central management to accept reservations, allocate rooms, receive payments and perform or arrange services. This can be provided through facilities either on-site or off-site). · Provision of, or arrangement for, services (management provides some services and facilities, or arranges for third parties to provide them) · Management offers accommodation in its own right (the entity operating the premises supplies accommodation in its own right rather than as an agent). We consider that a range of the factors considered above are present in relation to your supply of accommodation. The large size and scale and business-like manner of your activities in relation to the properties indicate commercial intention. Accommodation is clearly the main purpose of the premises, and multiple occupancy is a clear feature. In relation to the supplies in question (to non-students) the colleges are held out to the public or a segment of the public. SPV also coordinates management services of the type considered above for non-students. A final common feature of commercial residential premises is that the entity operating the premises offers accommodation in its own right. That is, the entity operating the accommodation offers and supplies the accommodation as principal, rather than as an agent (Paragraph 217 GSTR 2012/D1). This relates to the exception in paragraph 40-35(1)(a), which applies to supplies of accommodation in commercial residential premises where the entity that owns or controls the commercial residential premises provides the accommodation to an individual. In these circumstances you own and control the residential colleges. As we have previously considered, you are making the supplies of accommodation to the individuals with SPV (or its subcontractor) merely acting as agent on your behalf. For all the reasons above we consider that your premises are a hostel, and are therefore commercial residential premises. As mentioned above, this characterisation of the premises as a whole as commercial residential premises underlies all your supplies and does not alter. Therefore your supplies of the premises are supplies of commercial residential premises unless a specific exclusion applies. Issue 1 | Summary: You have advised that your supplies of accommodation in the individual student residences within the colleges are GST-free under section 38-250 of the GST Act. In particular, you have advised that the supply is made for less than 75% of the GST inclusive market value. Where this is the case the supplies will be GST-free. | Detailed Reasoning - Detailed reasoning: As you are the supplier of accommodation (for the reasons described above in the 'Background reasoning' section of this ruling), and you are also a charitable institution, Subdivision 38-G of the GST Act (Activities of charitable institutions etc.) must be considered in relation to your supplies of accommodation. Relevantly, subsection 38-250(1)(b)(i) of the GST Act provides that a supply is GST-free if the supplier is a charitable institution and the supply is a supply of accommodation that is for less than 75% of the GST inclusive market value of the supply. You have advised that your supplies of accommodation in the individual student residences within the colleges are GST-free under section 38-250 of the GST Act. In particular, you have advised that the supply is made for less than 75% of the GST inclusive market value. You have not asked us to consider any details in support of this view, such as considering relevant market values of your supply or the total consideration that you receive. However, you have advised that you refer to the ATO Residential College GST Tool in verifying your treatment. We also note that relevant guidelines can also be found in the Charities Consultative Committee resolved issues document which is available on www.ato.gov.au and has the status of a public ruling for the purposes of the Taxation Administration Act 1953 . In particular, it considers market value guidelines, apportioning consideration if you make mixed supplies and so on. Where you have acted in accordance with these ATO guidelines in determining that your supply of accommodation is for consideration that is less than 75% of the GST inclusive market value of the supply, we accept that the supply is a supply for nominal consideration and is GST-free. Where you are entitled to treat the supplies as GST-free under section 38-250, this GST treatment overrides any other possible treatment (such as whether the underlying supplies may otherwise be an input taxed supply)(see subsection 9-30(3) of the GST Act). When a supply is GST-free no GST is payable on the supply, and an entitlement to an input tax credit for anything acquired to make the supply is not affected. | Summary: Your acquisition of management services from SPV is a creditable acquisition for the purposes of section 11-5 of the GST Act where the supply of the management services to you is a taxable supply and you have acquired it for a creditable purpose. Acquisitions in relation to GST-free or taxable supplies that you make are for a creditable purpose. However, your acquisitions (including management fees) that relate to making input taxed supplies are not for a creditable purpose (and are therefore not creditable acquisitions). | Detailed Reasoning - Detailed reasoning: As considered above, as the parties to the project will all be registered for GST and are providing goods or services for consideration in the course or furtherance of their enterprises and the supplies are connected with Australia, the supplies made will be taxable. In particular, a supply of services (in this case management services) is a supply. It is made to you for consideration (being your payment of the management fee). We consider that the information provided by you (and outlined in the 'facts' section of this ruling) indicate that SPV would be carrying on an enterprise in relation to its activities. In particular, its enterprise includes acting as your agent in relation to your supplies of accommodation to students. We consider that where this is done on a regular basis and in a business like manner, this would constitute an enterprise, even though they intend to subcontract some activities to an affiliate of theirs. Therefore, as they are entitled to register this enterprise, where they are registered their supplies will meet the requirements of section 9-5 of the GST Act. As the circumstances do not demonstrate that the supply of management services would be eligible to be treated as GST-free or input taxed under the GST Act, the supply of the management services to you will therefore be a taxable supply. As you are registered for GST and you provide consideration for these supplies, you make a creditable acquisition where you acquire something solely or partly for a creditable purpose and the supply of the thing to you is a taxable supply (section 11-5 GST Act). Section 11-15 of the GST Act explains the meaning of creditable purposes. Relevantly for you, an acquisition will be for a creditable purpose as long as the acquisition does not relate to making supplies that are input taxed. We consider that you acquire the management services in the course of carrying on your enterprise. In particular, the management services are acquired in relation to making your supplies of accommodation in the colleges. Where your supplies of accommodation are GST-free (under section 38-250) or taxable, you will therefore make a creditable acquisition of the management services and are entitled to claim input tax credits. However, where you make input taxed supplies of accommodation (which is considered at question 3), the management fees need to be apportioned (on a reasonable basis) across the types of supplies that you make. That is, the proportion of fees relating to input taxed supplies will not be for a creditable purpose and you will not make a creditable acquisition in respect of those supplies. Where you make acquisitions in relation to any other input taxed supplies that you make these are also not creditable acquisitions (for example if you make any acquisitions in relation to an input taxed financial supply). | Summary: Where your supply of accommodation does not satisfy the provisions in section 38-250 of the GST Act and is not GST-free (for example if the accommodation charges are above 75% of their market value) we consider that the supply of the premises is a supply of commercial residential premises, except to the extent that it is provided to students. | Detailed Reasoning - Detailed reasoning: As noted at question 1, where you are entitled to treat accommodation supplies as GST-free under section 38-250, this GST treatment overrides any other possible treatment (such as whether the underlying supply may be an input taxed supply). However, in circumstances where your supplies of accommodation are not GST-free under section 38-250 it is necessary to determine whether your accommodation supplies are input taxed to any extent. If they are not input taxed (or GST-free) they will be taxable supplies. | Detailed Reasoning - Supplies to non-students: You have advised that rooms may be rented to non-students for short periods of time, for example during semester break. This may also occur where the college is not fully occupied by students during semester, although you assume that nearly all accommodation will be rented by students during semester. Your accommodation supplies to non-students will be treated as supplies of short term (or long term) commercial residential accommodation if the underlying premises satisfies the definition of a hotel, motel, inn, hostel or boarding house (or anything similar to these premises)(see paragraph 157 GSTR 2001/1). We have concluded in the 'Background reasoning' section of our decision that the premises meet the definition of hostel and are therefore commercial residential premises. Your supplies of accommodation to non-students in the commercial residential premises are therefore not input taxed supplies under subsection 40-35(1)(a). Based on the information you have provided most non-students would only stay at the premises for a short period. However, Division 87 of the GST Act concerns long-term accommodation in commercial residential premises should also be noted in relation to any long stays by non-students. Long-term stays in commercial residential premises are given a lower value than would otherwise apply, reducing the amount of GST payable. Suppliers may choose whether or not to apply this Division (under section 87-25). Long term accommodation is provided to an individual if commercial accommodation is provided for a continuous period of 28 days or more in the same premises, and certain other requirements are met (see section 87-20 of the GST Act). Commercial accommodation means the right to occupy the whole or any part of commercial residential premises, including the supply of cleaning, maintenance, electricity, gas, air-conditioning, heating, telephone, television, radio or similar where it is provided as part of the right to occupy. We consider that you provide commercial accommodation to non-students. A supply is input taxed under subsection 40-35(1)(b) if the supply is of commercial accommodation and Division 87 of the GST Act would apply to the supply but for a choice made by the supplier under section 87-25. That is, if the supplier chooses not to apply Division 87, a supply of long-term accommodation will be input taxed under section 40-35. In that case GST will not be payable on the supply, and you will not be entitled to input tax credits for any acquisitions that relate to the supply. Short term supplies cannot be treated as input taxed and will be subject to GST. | Detailed Reasoning - Supplies to students: The definition of commercial residential premises 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 (Paragraphs 148, 149 of GSTR 2001/1 Goods and services tax: supplies that are GST-free for tertiary education courses ). In determining whether a supply is 'in connection with an education institution that is not a school' the following factors should be considered (from GSTR 2001/1 paragraph 150). · Whether the education institution has any input in the running of the accommodation facility including the setting of rental charges and determining the relationship between the supplier of the accommodation and the occupier. The input may be made through a third party. · Whether there is any specific or implied requirement that preference must be given to students of the education institution. · Whether the housing facility is constructed on land owned by the education institution. · Whether the land has been acquired or utilised by the education institution for the purpose of entering into agreements for the construction and running of the housing facility. · Whether the facility is in fact to be occupied by students of the education institution during the academic year or at other times. · Whether the education institution has any interest in the entity that is providing the accommodation. The interest may not always be directly reflected. · How the housing facility is marketed. · The identity of the operator and the nature of their business (is their business the supply of accommodation to students). · The intention of the education institution in entering into any arrangements and any relevant agreements relating to the housing facility. · Whether the provision of the facility reflects an education institution's charter or other governing instruments. Based on a consideration of all the factors above, we consider that the supplies of accommodation are in connection with an education institution that is not a school. In particular, you will have input into the setting of rental charges (particularly at an affordable rate below market value) and the lease arrangements that you enter into with occupants. The fact that you do this through your agent does not matter. There is preference given to your students for the accommodation, and you own the land on which the premises are constructed (either on or near your campuses). We consider that these and a number of other factors above are present in your circumstances, and therefore we consider that the supplies of accommodation to tertiary students are in connection with an education institution that is not a school. This includes accommodation that is supplied between semesters or academic years, provided the student is a continuing student (GSTR 2001/1 paragraph 154) Therefore, for those supplies the facilities will not meet the definition of commercial residential premises. 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 the supply is of residential premises (other than commercial residential premises) (section 40-35(1)(a) GST Act). As the supplies to students are not the supply of commercial residential premises, the accommodation provided to students is an input taxed supply in accordance with subsection 40-35(1) of the GST Act. GST will not be payable on the supply, and you will not be entitled to input tax credits for any acquisitions that relate to the supply. As concluded above, if accommodation that is usually provided to tertiary students is made available to a person who is not a student, the accommodation will not be treated as accommodation in connection with an education institution that is not a school. It will be commercial residential accommodation. | Summary: In the arrangements described you do not make a supply of the underlying property to the manager. You do not assign all of your relevant rights to the property that result in an income stream. You continue to make the underlying supply of the accommodation, and you retain a portion of this net income. The two-step process you undertake to receive the upfront payment (in return for outsourcing the operation of the colleges) involves the making of input taxed financial supplies. Both the entering into the swap contract and the assignment of the entitlement to the fixed annual payment are input taxed financial supplies (pursuant to Item 11 and Item 2 in the table in sub-regulation 40-5.09(3) of the A New Tax System (Goods and Services Tax) Regulations 1999 (Regulations)). | Detailed Reasoning - Detailed reasoning: In your circumstances it is necessary to distinguish the assignment of underlying property from the assignment of a payment stream arising from the property. As considered in our background reasoning, you do not lease the colleges to another entity for the purpose of providing accommodation to students. Rather, you continue to enter into residential accommodation agreements with students in relation to the colleges. SPV arranges these agreements as agent for you. We consider that in your circumstances you continue to have sufficient rights to the property and functions to perform such that you do not supply the underlying property. Under your arrangement you are, at first instance, entitled to receive the whole of the gross rental from the property. From this amount you are then required to pay a management fee to SPV, as well as any GST payable. Under the arrangement you will also keep a fixed percentage of the total gross rental (the actual percentage still under negotiation). The amount retained will effectively reflect the performance of the underlying properties and any possible decision to constrain prices to below market value. As the total gross rental will fluctuate as accommodation fees and occupancy levels vary, it follows that the actual amount you retain will also fluctuate. After the payment of the management fee and any GST, and also after the deduction of the percentage amount retained by you, the balance remaining from the rents will also vary. You will assign your right to this amount (the net rental income stream) to SPV. In exchange, SPV will pay you a fixed annual payment amount. This will be done pursuant to a swap contract that you will enter into with SPV at the commencement of the Project and covering the term of the project. You will then assign the entitlement to that fixed annual payment to the SPV Trust in exchange for a single up-front payment. As there is no supply of the underlying property to SPV or its related entities, but instead an arrangement involving firstly the swap contract to convert the variable net income stream to a fixed annual payment and then the assignment of this for a single upfront payment, there are three supplies relevant in applying the GST, all of which may have separate GST treatments: · The rental of the premises by its owner (you) · The swap contract to exchange the variable net rental income stream entitlement for a fixed payment, which will be a financial supply if the conditions of regulation 40-5.09 of the Regulations) are satisfied. · The assignment of the fixed annual payment which will be a financial supply if the conditions of regulation 40-5.09 are satisfied. We note that, as you do not assign the underlying property, it remains your obligation to remit GST where your supply of the underlying asset is taxable. That is, you are liable for GST (if any) on your supplies of accommodation to occupants (eg you may have a liability for GST for your non-student occupants). The responsibility for issuing tax invoices rests with you as the supplier. You will also retain the entitlement to any input tax credits in relation to the accommodation supplies (such as where you acquire something to make taxable or GST-free supplies of accommodation). | Detailed Reasoning - Swap contract arrangement results in a financial supply: Your real property leases to occupants of your colleges give rise to a presently existing right to receive rental payments for the term of the lease. This presently existing right to the payment stream under a current lease is property and an interest in debt for the purposes of regulation 40-5.02. A right to future property is also an interest for the purposes of regulation 40-5.02. You exchange this variable right for a fixed annual payment under a swap contact. A swap is an exchange of one entitlement or obligation for another. (Schedule 1 GSTR 2002/2 Goods and services tax: GST treatment of financial supplies and related supplies and acquisitions ) In your circumstances, it is the exchange of an entitlement to a variable amount for a fixed annual payment. In these circumstances it is a financial instrument whose value is tied to, or derived from, an underlying security, commodity, liability etc (being the relevant property). In these circumstances, the value of the swap is determined by (or derived from) the value of the net rental income stream. This in turn is determined by the value of supplies of the underlying property. Under the Dictionary for the Regulations 'derivative' means an agreement or instrument the value of which depends on, or is derived from, the value of assets or liabilities, an index or a rate. We consider that the swap contract is an agreement or instrument the value of which depends on the value of the underlying supplies of accommodation, and is therefore a type of derivative. This view is supported by GSTR 2002/2. An interest is anything that is recognised at law or in equity as property in any form (see regulation 40-5.02). Item 11 of the table in Regulation 40-5.09(3) of the GST Regulations lists a 'derivative' as a type of interest, the provision, acquisition or disposal of which will be an input taxed financial supply. We note that under the swap contract you have provided or disposed of a financial interest in return for another financial interest. You have therefore also acquired a different financial interest. Your provision of the interest under the swap contract will be a financial supply if the requirements of sub-regulation 40-5.09(1) are satisfied (paragraph 79). The requirements of sub-regulation 40-5.09(1) are met where the disposal is: · for consideration, in the course or furtherance of an enterprise and connected with Australia; and · the supplier is registered or required to be registered and a financial supply provider in relation to supply of the interest. We consider that the supply is in the course or furtherance of your enterprise and is connected with Australia. The supply is also for consideration. The consideration for your entering into the swap contract for your variable entitlement to the net rental income stream is the fixed annual payment that you receive in exchange. We note that only where the fixed annual payment received (as consideration) is directly connected to this supply will it be appropriately characterised as consideration for the financial supply. For example, the parties need to ensure that the fixed annual payment appropriately represents arm's length consideration for the entry into the swap contract, and only consideration for that supply. Where the payment also, or more directly, relates to any other supplies (for example a supply of additional rights or a supply in relation to any other things such as refurbishment or development works or services) it will not be consideration for the input taxed financial supply. Rather, it will be characterised as consideration for those other supplies, and the GST treatment of those supplies need to be considered separately. Considering the other requirements for financial supplies, you are also registered for GST. You are the financial supply provider of the interest where the interest is your property immediately before the supply or you create the interest in making the supply. We consider that these requirements are also met, and therefore the supply under the swap contract is a financial supply. It is an input taxed supply and no GST is payable by you. | Detailed Reasoning - Assignment of entitlement to fixed payment: Similarly, your assignment of the entitlement to the fixed annual payments, in exchange for a single upfront payment will also be an input taxed financial supply. As previously considered, you continue to provide the accommodation to the students (with SPV acting as a facilitator and manager for the accommodation) and are entitled to rental payments. You assign your entitlement to the net rental payments (once they have been exchanged for an entitlement to a fixed annual amount for the rental payments) to SPV in exchange for an up-front payment. However, the entitlement to the fixed annual payment still represents the entitlement to the rental income stream (a proprietary interest) and has not lost its character as such even though the amount has been effectively 'securitised' under the swap contract. The entitlement to the fixed annual payment amount also has the character of an interest received under a derivative. The fixed annual payment amount that will be assigned represents property and an interest for the purposes of the GST Regulations and you acquired this amount in your exchange of financial interests under the swap contract. Therefore when you assign this interest this is again the provision or disposal of an interest. The provision or disposal of the interest is a financial supply if the requirements of regulation 40-5.09 are met. The interest in question is an interest mentioned in sub-regulation 40-5.09(3). We have previously considered that you meet the other requirements of regulation 40-5.09, namely that the provision/disposal is in the course or furtherance of your enterprise, connected with Australia, you are registered and you are the financial supply provider in relation to the supply of the interest. In these circumstances the provision or disposal is also for consideration. The consideration for your supply is met by the single upfront payment to be made by SPV Trust. Therefore the supply of the interest is a financial supply and is an input taxed supply for GST purposes, and no GST is payable on the supply. We note again that only to the extent that the single upfront payment received (as consideration) is directly connected to this supply will it be appropriately characterised as consideration for the financial supply. For example, the parties need to ensure that the amount appropriately represents arm's length consideration for the entry into the swap contract, and only consideration for that supply. Where the payment also, or more directly, relates to any other supplies (for example a supply of additional rights or a supply in relation to any other things such as refurbishment or development works or services) it will not be consideration for the input taxed financial supply. Rather, it will be characterised as consideration for those other supplies, and the GST treatment of those supplies need to be considered separately. | Detailed Reasoning - Access to input tax credits (or reduced input tax credits) for financial supplies: Normally where you make an input taxed supply you do not make creditable acquisitions to the extent that they relate to making the input taxed supplies. However, there are some exceptions to this general rule. In particular, an acquisition is not treated as relating to supplies that would be input taxed if the only reason it would be treated as input taxed is because it relates to making financial supplies and you do not exceed the financial acquisitions threshold (section 11-15(4) of the GST Act. See also paragraph 11 GSTR 2002/2 (GSTR 2002/2 Goods and services tax: GST treatment of financial supplies and related supplies and acquisitions ) That is, if you do not exceed the financial acquisitions threshold, you may be entitled to input tax credits under Division 11. You exceed the financial acquisitions threshold if you make (or are likely to make) financial acquisitions where the input tax credits related to making those acquisitions would exceed the lesser of: · $50,000 or such other amount specified in the regulations; or · 10% of the total amount of input tax credits to which you would be entitled. Where you exceed either of these levels, you exceed the financial acquisitions threshold. If you exceed the financial acquisitions threshold, only reduced input tax credits are available for specific acquisitions (reduced credit acquisitions) and only to the extent that the acquisition is for a creditable purpose. Similar to the discussion above, it is very important that any amounts considered to relate to your input taxed financial supplies are properly characterised as relating to those supplies, rather than to any other supplies. | Summary: We consider that, based on the information provided, Division 165 of the GST Act does not apply to these arrangements. However, we highlight some areas for particular attention in finalising your arrangements. We also advise that should your arrangements alter from those described in any material way this advice cannot be relied on. | Detailed Reasoning - Detailed reasoning: The object of Division 165 is to deter schemes that give an entity a GST benefit. If the dominant purpose or principal effect of a scheme is to give an entity such a benefit, the Commissioner may negate the benefit an entity gets from the scheme by declaring how much GST or refund would have been payable, and when it would have been payable, apart from the scheme. Section 165-5 outlines when the Division operates. It states: | Detailed Reasoning - 165-5 When does this Division operate?: General rule (1) This Division operates if: (a) an entity (the avoider ) gets or got a *GST benefit from a *scheme; and (b) the GST benefit is not attributable to the making, by any entity, of a choice, election, application or agreement that is expressly provided for by the *GST law, the *wine tax law or the *luxury car tax law; and (c) taking account of the matters described in section 165-15, it is reasonable to conclude that either: (i) an entity that (whether alone or with others) entered into or carried out the scheme, or part of the scheme, did so with the sole or dominant purpose of that entity or another entity getting a *GST benefit from the scheme; or (ii) the principal effect of the scheme, or of part of the scheme, is that the avoider gets the GST benefit from the scheme directly or indirectly; and (d) the scheme: (i) is a scheme that has been or is entered into on or after 2 December 1998; or (ii) is a scheme that has been or is carried out or commenced on or after that day (other than a scheme that was entered into before that day). Territorial application (2) It does not matter whether the *scheme, or any part of the scheme, was entered into or carried out inside or outside Australia. Accordingly, for Division 165 to apply to the facts and circumstances you provided in your ruling application, three elements would need to be satisfied: · there is a "scheme"; · a "GST benefit" is obtained from the scheme; and · the dominant purpose or principal effect of the scheme is to obtain the GST benefit identified. | Detailed Reasoning - Scheme: Subsection 165-10(2) exhaustively defines a "scheme" as: (a) any arrangement, agreement, understanding, promise or undertaking: (i) whether it is express or implied; and (ii) whether or not it is, or is intended to be, enforceable by legal proceedings; or (b) any scheme plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise' . The arrangement that you have described in your private ruling application would constitute a scheme for the purposes of Division 165. The scheme would, in general terms, consist of the following steps: ·You entering into residential accommodation agreements with students in respect of residential units within the Residential Colleges (via an unrelated agent); ·The agent (SPV) will enter into an agreement with you to operate and manage the residential colleges for you. The consideration to be provided by you for the management services will be reflective of their market value; ·Pursuant to the management agreement SPV will supply management services to you, in consideration for which it will receive a management services fee (arms length charge); and ·You will assign the net rental income stream to SPV in consideration for an upfront fee and likely a series of deferred payments relating to the performance of the underlying assets. Since the original private ruling application you have changed the arrangement and decided that you will be entitled to retain a proportion of the gross rental income stream. Further: · It is proposed that you and SPV will enter into a swap contract at the outset of the project and covering the whole term; and · Under the swap contract it will be agreed that you will pay the net income rental stream to SPV (being the amount of the rent collected from the supply of accommodation in the residential colleges less your retained share of the gross and the management fee) and in exchange, SPV will pay you a fixed annual payment amount. | Detailed Reasoning - GST Benefit: Under paragraph 165-10(1)(d), a GST benefit includes a benefit where: 'all or part of an amount that is payable to the entity under this [GST] act apart from this Division is, or could reasonably be expected to be, payable earlier than it would have been apart from the scheme or part of the scheme'. In the ruling request lodged, you indicate that a GST benefit could be seen to arise for you on the basis that its GST credit entitlement could reasonably be expected to be greater than it would be if the supplies did not comply with the requirements of section 38-250. | Detailed Reasoning - Dominant Purpose / Principal Effect: Division 165 must be considered on a case by case basis to determine whether it would be concluded that the dominant purpose or principal effect of the scheme would be to get a GST benefit. This requires an objective assessment of the scheme against the twelve matters set out in subsection 165-15(1). The ruling request indicates that you are a not-for-profit government funded education provider. Ensuring that such student accommodation remains affordable is essential to achieving your vision. Further, with the assignment of the net rental there is no GST so there is no change in the GST treatment of that rental stream as a result of that assignment being treated as an input taxed financial supply. Therefore the Commissioner considers that in the factual circumstances outlined in the original ruling request and the amendment to the arrangement, the dominant purpose of the scheme could not be said to be the obtaining of a GST benefit. In summary, based on the information contained in the ruling request and further information provided to the Commissioner, it is considered that the scheme/arrangement described with its particular facts and circumstances, in particular relating to: · the form and substance of the scheme; · the manner in which the scheme was/will be carried out; · the timing of the scheme; · the period in which the scheme was/will be carried out; · the overall change in the applicants financial position and · the circumstances surrounding the scheme will not be entered into or carried out with the dominant purpose or principal effect of securing a GST benefit and therefore Division 165 will not apply. Disclaimer You cannot rely on the rulings in the Register of private binding rulings in your tax affairs. You can only rely on a private ruling that we have given to you or to someone acting on your behalf. The Register of private binding rulings is a public record of private rulings issued by the ATO. The register is an historical record of rulings, and we do not update it to reflect changes in the law or our policies. The rulings in the register have been edited and may not contain all the factual details relevant to each decision. Do not use the register to predict ATO policy or decisions.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.