Private ruling: GST and Property
Date of advice: 18 January 2019
Published: May 2019
Ruling period: 1 March 2018 – 28 February 2022
Date scheme commenced: 1 March 2018

Ruling: Q1: Will the supplies of accommodation at the P roperty by Entity A, be taxable supplies of accommodation in commercial residential premises pursuant to section 9-5 of the A New Tax System (Goods and Services tax) Act 1999 (GST Act)? | A1: Yes | Q2: Will the value of Entity A’s taxable supplies of accommodation, that are provided to individuals for a continuous period of 28 days or more, be 50% of the price of the supply under section 87-5 of the GST Act? | A2: Yes | Q3: For the purposes of section 87-20(3), can Entity A rely on the agreement with occupants to occupy the premises for a continuous term of 28 days or more? | A3: Yes

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. Entity A is developing a Property. The Property will be a new, purpose built student accommodation (PBSA) development. The property will not have any connection with a specific institution. The Property will comprise a variety of student rooms, complemented by retail space on the ground floor. There will be a total of XX student rooms in total. The first floor and second floors will contain communal facilities. Each floor has common areas to be shared by the students. The type of communal areas and configurations vary from floor to floor. However, generally, there is a communal kitchen and living / dining area on each floor to be shared by students. There are also communal bathrooms that are shared between a number of rooms. Generally, a cluster of X bedrooms will share facilities such as bathrooms and other communal areas. The property is designed to reflect low cost accommodation. There are various configurations of accommodation and amenity options. Proposed Arrangements with the Manager The following additional information in relation to the Property Manager has been provided. There is no current management plan in place as no Manager has been formally appointed. However, it is intended that it will be similar to other properties operated by Entity B. The Manager will enter into the contracts with guests as agent for Entity A. The contract between Entity A (as principle) and the guests will be for the licence to occupy a part of the Property. Most of the accommodation will be supplied to students studying at tertiary level. The premises will not be available exclusively for students but this is the expected market and the property has been designed for this market. Entity A will pay a management fee to the Manager for its services. The management services will include the following: ● The Manager will maintain a reception in the office accommodation of the Property, providing reception and residential advice services between the hours of 9am and 5pm, Monday to Friday. ● The Manager will organise social events and activities for the guests. ● The Manager will subcontract other personnel to provide cleaning, maintenance and security services for the Property. ● The Manager will organise an onsite residential manager so that guests can always contact someone on the Property (e.g. if a guest’s swipe card does not work late at night). ● The Manager will not provide food to guests. Entity A expects that 100% of the individuals that will be provided with commercial accommodation at the Property will be provided with long-term accommodation. Entity A will continuously monitor how many individuals are provided with accommodation in applying the provisions of Division 87. For the purposes of section 87-20(3), Entity A will rely on the agreement with occupants to occupy the premises for a continuous term of 28 days or more. Further information The following additional information was provided: 1. Development Approval for the property was submitted at the end of XXYYYY and is currently being processed. A Notice of Decision has not been received yet. 2. The Manager will enter into agreements with guests as agent for Entity A. 3. Entity A (as principal) will provide a licence to occupy part of the property to the guest; 4. Entity A will be providing a licence to occupants for periods longer than 28 days. 5. There is no current management plan in place for the property the subject of this ruling request as a Manager has not been appointed formally. However, it is intended that it will be similar to other properties operated by Entity B. Although specifics will be different, these are the items that Entity A will focus on: Residents in house rules Noise management Retail tenancies management Staffing Operating Hours Emergency contacts and procedures Waste management Cleaning Management Pest Management Landscape management Security Supporting documentation You have provided a copy of the following sample documentation: 1. Operations Management Plan 2. Resident Handbook 2018 3. Operating and Maintenance Agreement including sample agreement with occupants 4. Architectural Diagrams You have advised that the proposed student accommodation to be constructed will incorporate similar documentation in its operation. Consequently, the reasons for decision outlined below will be based on the information provided. However, should the operation of the Property differ materially from the information provided and identified above, you may wish to consider applying for a new ruling.

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 Section 40-35 | A New Tax System (Goods and Services Tax) Act 1999 Section 87-5 | A New Tax System (Goods and Services Tax) Act 1999 Division 87-15 | A New Tax System (Goods and Services Tax) Act 1999 Section 87-20 | A New Tax System (Goods and Services Tax) Act 1999 Section 195-1

Reasons for decision: Summary: Will the supplies of accommodation at the Property by Entity A, be taxable supplies of accommodation in commercial residential premises pursuant to section 9-5? Section 9-40 provides that you are liable for GST on any taxable supplies that you make. Section 9-5 provides that you make a taxable supply if: ● you make the supply for consideration ● the supply is made in the course or furtherance of an enterprise that you carry on ● the supply is connected with the indirect tax zone, and ● you are registered, or required to be registered for GST. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. You are registered for GST and will be making supplies of accommodation in Australia for consideration in the course or furtherance of your enterprise. Further, the supply of the premises will not be GST-free. Therefore, the supply of accommodation will be a taxable supply unless it is input taxed. Input taxed means that GST is not payable on the supply and there is no entitlement to an input tax credit for anything acquired to make the supply. Under section 40-35, a supply of premises that is by way of lease, hire or licence is input taxed if 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). The definition of residential premises in section 195-1 refers to land or a building that is occupied as a residence, or for residential accommodation, or is intended and capable of being occupied as a residence or for residential accommodation (regardless of the term of occupation). The apartments in the complex you intend to build meet the definition of residential premises and therefore the supply of accommodation from the premises will be input taxed unless it is a supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises. | Detailed Reasoning - Commercial residential premises: ‘Commercial residential premises' are defined in section 195-1, in part, to mean: (a) a hotel, motel, inn, hostel or boarding house (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. The definition of ‘commercial residential premises’ encompasses similar establishments or establishments that exhibit characteristics that place them on a similar footing to hotels, motels, inns, hostels and boarding houses. The ATO view on how GST applies to supplies of commercial residential premises and supplies of accommodation in commercial residential premises is set out in Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: 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 following meanings sourced from the Macquarie Dictionary 5th Edition (Macquarie), the Oxford English Dictionary 2nd and 3rd editions (OED) and the Shorter Oxford English Dictionary 5th Edition (SOED) are relevant in interpreting paragraph (a) of the definition: Hotel – a building in which accommodation and food, and alcoholic drinks are available. (Macquarie) – building or establishment where travellers or tourists are provided with overnight accommodation, meals and other services. (OED) – an establishment, esp. of a comfortable or luxurious kind, where paying visitors are provided with accommodation, meals and other services. (SOED) Motel – a roadside hotel which provides accommodation for travellers in self-contained, serviced units, with parking for their vehicles. (Macquarie) – a hotel catering primarily for motorists; spec . on comprising self-contained accommodation with adjacent parking space. (OED) Inn – a small hotel that provides lodging, food, etc., for travellers and others. (Macquarie) – a public house providing accommodation, refreshments, etc., for payment, esp. for travellers. Now also, a public house serving alcoholic liquor for consumption on the premises, whether providing accommodation or not. (SOED) Hostel – a supervised place of accommodation, usually supplying board and lodging, provided at a comparatively low cost, as one for students, nurses, etc. (Macquarie) – a public house of lodging and entertainment for strangers and travellers; an inn, a hotel. (OED) – a house of residence for students at a university or on a course, esp. at a non-residential college, or for some other special class of people. (SOED) Boarding House – a dwelling in which lodging is provided to paying residents who share common facilities such as a kitchen, laundry, living room, etc. (Macquarie) – a dwelling, usually a private house, in which board and lodging are provided for payment. (Macquarie) – a house offering board and lodging for paying guests. (SOED) 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. We consider that the Premises will not be a hotel, motel, inn or boarding house or something similar to that class of establishment. We will consider whether the Premises fall within the meaning of hostel or something similar to a hostel. Paragraphs 10 and 11 of GSTR 2012 provide that the tests to be applied in determining whether premises fall within either paragraph (a) or (f) of the definition include the overall physical character of the premises and how the premises are operated. Where these objective factors do not give a clear characterisation, the following may also be considered: ● contractual documentation that provides evidence of current or future use, and ● government zoning and planning permissions. Premises that are ‘similar’ to establishments that are commercial residential premises must have sufficient characteristics in common with the class of premises described. Paragraph 12 of GSTR 2012/6 lists the characteristics that are considered common to operating hotels, motels, inns, hostels and boarding houses: ● Commercial intention – Entity A (and Entity C or an alternative Manager) will operate the property in a business-like manner with the objective of earning a profit from the supply of student accommodation. ● Multiple Occupancy – The property will have approximately XX rooms and will provide occupancy to a large number of unrelated people in separate rooms. ● Holding Out to the public – the Property will be marketed to a significant segment of the public, namely tertiary students through various websites, social media campaigns and Education referral agents. ● Accommodation is the main purpose – The main purpose of the Property is to provide student accommodation. ● Central management – Entity C (or an alternative Manager), on behalf of Entity A, is likely to act as the Central Manager for the Property. For example, Entity C (or an alternative manager) will operate a reception, will organise maintenance, cleaning and security of the Property and will organise for an onsite manager for after-hours requests. ● Management offers accommodation in its own right – Entity A will offer the accommodation to students in their own right. Entity C (or an alternative Manager) will enter into any contracts with students/guests as agent for Entity A. ● Provision of, or arrangement for, services – Entity C (or an alternative Manager), on behalf of Entity A), will arrange services for the guest such as cleaning, maintenance, replacing lost keys etc. Entity C (or an alternative Manager) will also organise activities and events to enhance the sense of student community. ● Occupants have the status of guests – Pursuant to the sample contractual documentation provided, all residents of the student accommodation facility must be enrolled in or studying at a university, TAFE, college or school. As such, it is accepted that the accommodation is supplied to students only during this period and that they will have their principle place of residence elsewhere. Paragraph 41 of GSTR 2012/6 states that ultimately, in determining whether premises are commercial residential premises is a matter of overall impression involving weighing up of all relevant factors. Feature of hostels are described in paragraphs 26 to 35 of GSTR 2012/6. In considering these features the following is noted about the proposed operations: ● The term 'hostel' also includes a supervised place of accommodation usually supplying board and lodging provided at a comparatively low cost. In your case you have advised that you will be supplying lodging at a comparatively low cost. ● The physical characteristics of a hostel, or premises similar to a hostel, reflect that the premises are designed to supply accommodation at a comparatively low cost to the occupants. Physical characteristics may include a commercial kitchen where meals are prepared, a communal area suitable for a dining area for occupants, and a communal laundry. In your case,the premises have been specifically designed to provide low cost accommodation to students (occupants) and comprise a variety of student rooms of varying configurations. There will be a reception area and various communal areas including a gym, an outdoor gym, theatrette, dance studio, music room, multi-purpose room, meeting rooms and various study areas. The second floor comprises of a breakout area, games area, open plan lounge area, communal dining and kitchen areas. Each floor has common areas to be shared amongst the students. The type of communal areas and configurations vary from floor to floor. However, generally there is a communal kitchen and living/dining area on each floor to be shared by students. There are also communal bathrooms that are shared between a number of rooms. Generally, a cluster of X bedrooms will share facilities such as bathrooms and other communal areas. Architectural drawings support the nature of the accommodation to be provided to students. ● Hostels are typically centrally managed by an on-site manager who manages the accommodation and arranges or provides services. The feature that a hostel, or premises similar to a hostel, be a supervised place of accommodation can be evident where occupants can raise queries and concerns pertaining to the management of the premises with an on-site manager. The proposed operational arrangement includes a degree of supervision and it is considered you meet this criteria ● Hostels provide accommodation for a commercial purpose. Non-profit entities can also operate commercial residential premises. For example, various non-profit organisations operate hostels in a business-like manner. The property will be operated by Entity A (and Entity C or another designated Operator) in a business-like manner and with the intention of earning a profit from providing student accommodation. ● Hostels have the capacity to supply accommodation for multiple occupancies. The property will have approximately XX rooms and will therefore provide accommodation to a large number of unrelated people in separate rooms. ● Accommodation in hostels may be provided either in a dormitory environment or in separate bedrooms. Accommodation will be supplied in a variety of bedroom configurations ● Accommodation may be supplied within a hostel to occupants as the occupant's principal place of residence. It is not necessary for accommodation in the premises to be limited to guests who need or desire accommodation while away for business or pleasure. Some of the guests will treat the premises as their principle place of residence for the period they occupy the premises ● The operator of the hostel supplies the accommodation 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. Entity A will supply accommodation in it’s own right and the Operator (Entity C or another designated Operator) will act as your agent. ● Occupants of a hostel may be provided meals by the operator of the premises. However, the provision of meals is not an essential feature of a hostel. Occupants will prepare their own meals. Examples 6 and 7 in GSTR 2012/6 provide guidance when considering premises to be used for student accommodation and have some relevance to your situation. Example 6 - supply of whole premises to be used for student accommodation 58. King Accommodation constructs premises that have been designed to provide low cost accommodation to students (occupants ). The premises predominantly consist of shared accommodation rooms configured so that occupants share kitchenettes and living facilities. The premises also include studio apartments which include self-contained kitchenettes and living facilities. The premises have a reception desk. The premises contain facilities for a coin operated laundry, and recreational areas. The premises do not contain a kitchen, restaurant or dining room for the preparation or service of meals to occupants. The premises have been built on land that is zoned for student accommodation by the local planning authority . 59. King Accommodation leases the premises to King Operator. Under the terms of the lease, King Operator will operate the premises by supplying accommodation to students. In supplying accommodation to students, King Operator will have on-site management to centrally manage the premises through which occupants can raise queries and concerns pertaining to the management of the premises . 60. In characterising the supply made by way of lease of the premises made by King Accommodation to King Operator, it is relevant to consider the physical characteristics of the premises. These demonstrate that the premises were designed to provide low cost accommodation to students. Further, the contractual documentation and the local planning authority permissions objectively show that King Operator will operate the premises to supply low-cost accommodation to students . 61. The physical characteristics together with the contractual documentation and planning permissions show that the premises are, or are at least sufficiently similar to, a hostel. King Accommodation therefore makes a taxable supply of commercial residential premises to King Operator . Example 7 - student accommodation 62. Following on from Example 6, King Operator uses the premises to carry on an enterprise of supplying relatively low cost accommodation to students. The premises will not be used to provide accommodation to students in connection with an education institution that is not a school for the purposes of the definition of commercial residential premises . [4] 63. King Operator, through the on-site management staff, provides various services to occupants. Supervised accommodation is provided to occupants in the sense that occupants are able to raise complaints and concerns about the management and operation of the premises with the reception staff . 64. King Operator and the occupants enter into agreements, which set out the following conditions : the occupant pays a bond, and the occupants have quiet enjoyment of their rooms and associated living areas . 65. The operation of the premises and the premises' physical characteristics show that the premises are, or are sufficiently similar to, a hostel. While the occupants obtain certain rights under the agreements entered into with King Operator, including the right to have quiet enjoyment of their rooms and associated living areas, these rights are not inconsistent with the premises being characterised as, or similar to, a hostel . 66. The supply of accommodation by King Operator to an occupant is a supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises. The supply of accommodation to the occupant is therefore not an input taxed supply for the purposes of paragraph 40-35(1 )( a) and is a taxable supply . [5] | Detailed Reasoning - Conclusion: The physical characteristics of the Property (as outlined in your submission), together with the sample contractual documentation and the proposed operations of the premises, provide support for the view that the premises are, or are at least sufficiently similar to, a hostel and that Entity A will be making supplies of accommodation in it’s own right. Consequently, the property satisfies the requirements of commercial residential premises and you will make taxable supplies of accommodation in commercial residential premises pursuant to section 9-5. Section 195-1 states that the definition of commercial residential does not include premises to the extent that they are used to provide accommodation to students in connection with an education institution that is not a school. This exception does not apply to your circumstances. | Detailed Reasoning - Question 2: Will the value of Entity A’s taxable supplies of accommodation provided to individuals for a continuous period of 28 days or more be 50% of the price of the supply under section 87-5? The value of a taxable supply of commercial accommodation that is provided to an individual as long-term accommodation is modified by either section 87-5 or section 87-10 depending upon whether or not the accommodation is provided in commercial residential premises that are predominantly for long term accommodation. Entity A expects that 100% of the guests will be staying in the premises for longer than 28 days. Section 87-5 states: (1) The value of a *taxable supply of *commercial accommodation that: (a) Is provided in *commercial residential premises that are *predominantly for long-term accommodation; and (b) Is provided to an individual as*long-term accommodation; is 50%, or such other percentage as is specified in the regulations, of what would be the *price of the supply if his Division did not apply. (2) This section has effect despite section 9-75 (which is about the value of taxable supplies). | Detailed Reasoning - Commercial accommodation: Section 87-15 states that: Commercial accommodation means the right to occupy the whole or any part of commercial residential premises, including, if it is provided as part of the right so to occupy, the supply of: (a) Cleaning and maintenance; or (b) Electricity, gas, air-conditioning or heating; or (c) Telephone, television, radio or any other similar thing Paragraph 33 of GSTR 2012/7 explains further: …Living accommodation does not require any degree of permanence of occupation. It includes lodging, sleeping or overnight accommodation. Therefore, for an entity to provide commercial accommodation to an individual, the individual must be provided with a right to occupy the whole or any part of the commercial residential premises for living accommodation (that is, in the sense of a right to stay). As discussed in Question 1, we consider that the premises are commercial residential premises Entity A will be supplying accommodation to students who will be given the right to occupy their room and make use of the common areas pursuant to an Occupancy Agreement. All residents will be charged a utilities and service fee per week to cover electricity, water usage and other fixed overhead expenses. As such, Entity A will be supplying commercial accommodation to students. | Detailed Reasoning - Commercial residential premises: As set out in the answer to Question 1 we consider that the premises meets the definition of commercial residential premises | Detailed Reasoning - Long term accommodation: Section 87-20 provides the meaning of long-term accommodation etc and states: (1) 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; (a) to that individual alone; or (b) to that individual, together with one or more other individuals who: (i) are also provided with that commercial accommodation; and (ii) are not provided with it at their own expense (whether incurred directly or indirectly) (2) … (3) * Commercial residential premises are predominantly for long-term accommodation if at least 70% of the individuals who are provided with *commercial accommodation in the premises are provided with commercial accommodation as *long-term accommodation. Entity A expects that 100% of the individuals that will be provided with commercial accommodation at the Property will be provided with accommodation for continuous periods of 28 days or more. Entity A will continuously monitor how many individuals are provided with commercial accommodation. | Detailed Reasoning - Application to your circumstances: Consequently, where the requirements of section 87-5 are met, the value of the taxable supplies of commercial accommodation by Entity A will be 50% of what would be the price of the supply if Division 87 did not apply. | Detailed Reasoning - Question 3: For the purposes of section 87-20(3), can Entity A rely on the agreement with occupants to occupy the premises for a continuous term of 28 days or more? As discussed above, subsection 87-20(3) provides that commercial residential premises are predominantly for long –term accommodation if at least 70% of the individuals who are provided with commercial accommodation in the premises are provided with long-term accommodation. Paragraphs 54 to 56 of GSTR 2012/7 provide guidance: 54. Any fair and reasonable method may be used to determine whether the 70% requirement is satisfied. The Commissioner accepts that one of the following methods or a combination of both can be used: (a) The actual occupancy of the premises for the twelve months preceding the month for which the booking is made; or (b) The projected occupancy for the twelve months following the month in which the booking is made. 55. If it is inappropriate to use either of these methods, a reasonable alternative may be adopted. 56. When looking at actual or projected occupancy, the number of supplies of accommodation, or the number of bookings that are for 28 days or more, rather than the number of people in each room, should be calculated. Bookings made by corporate entities for individuals can be included provided each booking is for a period of 28 or more days. You have asked the Commissioner to confirm that the percentage requirement will be satisfied by monitoring the percentage of recipients that agree to a continuous term of occupation of occupation of 28 days or more and that there is no requirement to monitor the actual days of occupation. As discussed at paragraph 56 of GSTR 2012/7, the number of supplies of accommodation or the number of bookings that are for 28 days or more, rather than the number of people in each room should be used for your calculation. Where recipients are supplied with accommodation and agree to a continuous term of occupation of 28 days or more, under a binding Occupancy Agreement, there may not be a requirement to monitor the actual days of occupation. However, if the Occupancy Agreement is open ended or if there is no Occupancy Agreement in place, Entity A will need to monitor the accommodation supplied to ensure that that the percentage requirement is met.

In this reasoning, please note: | ● all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) | ● all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act | ● reference material(s) referred to are available on the Australian Taxation Office (ATO) website ato.gov.au | ● this ruling does not apply to the retail portion of the complex