Private ruling: The supply of long term accommodation in commercial residential premises
Date of advice: 19 April 2018
Published: July 2018

Ruling: Q1: Will your supplies of accommodation to guests of the premises 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 supply of commercial accommodation by you to guests, including the supply of cleaning, maintenance, utilities and similar things provided in the Property meet the requirements in Division 87 of the GST Act to be a supply of accommodation provided in commercial residential premises that is predominantly for long term accommodation? | A2: Yes

Relevant facts and circumstances: You, A Unit Trust (A) are registered for GST. You are the owner of the Property, which is located in Australia. Demolition work has begun on the Property. Following demolition, construction will commence. The proposed development on the Property will consist of a multi storey accommodation complex, with X rooms designed to provide accommodation mainly to students with some limited supply of accommodation to non-students. Individual rooms in the Property will have a bathroom and will be fully furnished with a bed, table and chair. The building will also consist of common areas, communal kitchens on each floor and storage facilities on each floor. The Property will have two communal laundries. You will enter into individual agreements with guests for the supply of accommodation in the rooms. The minimum period in each of those agreements will be three months. Guests will not have exclusive possession and you will retain right of entry into the rooms. All lodgers will occupy the rooms for more than 28 days continuously. You have engaged an unrelated third party, D Corporation Pty Ltd (“D”) to manage the Property on your behalf. As outlined in the management agreement with D: ● D will manage the Property from the date of completion on your behalf on commercial terms; ● D staff will be situated at the Property 5 half days a week; ● D will organise any necessary repairs and inspections. ● D will undertake inspections of rooms when guests check in and check out and organise any deposit refund due to the tenant. ● D will provide you with feedback on the condition of the rooms when guests check out; ● D will organise cleaning of the common areas. The tariff for each room is approximately $ per week or $ per week per person if rooms are shared. Rooms are to be supplied fully furnished and guests will not have to pay for electricity, water, gas, cleaning or other outgoings. You will supply accommodation in your own right and not as an agent of any third party. D will supply the accommodation to guests as your agent. You, through D, will operate a management office onsite, where guests are able to raise queries and concerns about the management of the Property. The office will be staffed for 5 half days in any given week by people engaged by D. Guests will be required to pay a bond and there will be a condition report completed at the beginning of each agreement period. Guests will have quiet enjoyment of their rooms and associated living areas. However, guests will not have exclusive possession and D staff will still be able to enter the rooms to maintain and/or clean the rooms. Guests will not be able to have pets nor will they be able to alter the premises (such as hanging devices on the wall or painting walls). Guests will also have access to the Property manager during reception operating hours issues such as loss of keys and theft. The manager will operate out of the management office located at the Property. Utilities and a cleaning fee will be included in the price of the accommodation by you, and will not be charged separately. You (via D) will be in charge of minor maintenance to the rooms, such as changing light bulbs. Guests will be charged a tariff and the right to occupy the rooms will not be in exchange for the occupant loaning an amount to you. Services to be provided by you (via D) to guests in addition to the supply of accommodation in the rooms are as follows: ● Telephone services – only local calls. STD calls are available for an additional fee. ● Broadband internet. ● Cleaning services – cleaning services are included in the tariff; Cleaning includes changing dirty linen and the dressing of beds. ● Fully furnished rooms – this includes cooking facilities, cutlery, hair dryer, iron and ironing board. ● Car parking. ● Maintenance, management and supervision – any maintenance work which is required within room (such as plumbing, repairs or replacement of furnishings) the sole responsibility of A and not that of the guests. You will advertise the accommodation in the rooms through the internet, television, flyers and through direct marketing to businesses. You will acquire utilities (such as electricity, water and gas) in your own right. The use of these utilities for guests is included in the tariff. There is no additional charge for the use of any utilities. You will maintain full comprehensive insurance over the Property. The local council, the City of S, have endorsed plans for the Property. No educational institution will have any input into the running of the accommodation facility at the Property. There will not be any preferential treatment provided to any students of any educational institution. Entry into the accommodation is on a first-come first-served basis. You do not provide accommodation to students in connection with an education institution that is not a school. It is not a requirement for the occupant of the facility to be a student of an educational institution. The accommodation will be marketed at several educational institutions. The main nature of your business will be to supply accommodation to students. However, there is no intention to enter into any relevant agreements with educational institutions. There will be some limited supply of accommodation to non-students. The provision of the accommodation in the Property does not intentionally reflect the charter or other governing instrument of any educational institution. Where the supply of accommodation in the Property qualifies as being a supply of accommodation in commercial residential premises that is predominantly for long term accommodation, you will not exercise the choice available under section 87-25 to not apply Division 87.

Relevant legislative provisions: New Tax System (Goods and Services Tax) Act 1999 , subsection 40-35(1) | A New Tax System (Goods and Services Tax) Act 1999, sub section 87-5(1) | A New Tax System (Goods and Services Tax) Act 1999, section 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: Section 9-40 provides that you are liable for GST on any taxable supplies that you make. Section 9-5 provides 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 (Australia), 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. Your supplies meet the requirements of section 9-5 and are not GST free. Therefore, the primary issue in this case is whether your supplies of accommodation will be input taxed supplies. 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 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. The supply will only be input taxed to the extent the premises are to be used predominately for residential accommodation (regardless of the term of occupation). 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). Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises provides the ATO view of the characteristics of residential premises. Paragraph 9 of GSTR 2012/5 explains that the requirement that the residential premises are to be used predominately for residential accommodation in section 40-35 is to be interpreted as a single test that looks to the physical characteristics of the property to determine the premises’ suitability and capability for residential accommodation. Paragraph 15 of GSTR 2012/5 continues by stating that to satisfy the definition of residential premises, premises must provide shelter and basic living facilities. You have advised that each of the X rooms in the Property: ● “will have a bathroom and will be fully furnished with a bed, table and chair.”; and ● The building will also consist of common areas, communal kitchens on each floor and storage facilities on each floor. The Property will have two communal laundries.” On the information you have provided, we consider the Property, when fully constructed, will meet the definition of ‘residential premises’ as the premises will provide shelter and basic living facilities. We now need to consider whether your supply of accommodation in the residential premises is excepted from being input taxed pursuant to the exemption in 40-35 where supplies of premises that are by way of lease hire or license are not input taxed because they are a supply of accommodation in commercial residential premises by an entity that owns or controls the premises. | Detailed Reasoning - Commercial Residential Premises: Section 40-35(1) provides: | Detailed Reasoning - 40-35 Residential rent: (1) A supply of premises that is by way of lease, hire or licence (including a renewal or extension of a lease, hire or licence) is input taxed if: (a) the supply is of *residential premises(other than the supply of *commercial residential premises or a supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises); or (b) the supply is of *commercial accommodation and Division 87 (which is about long-term accommodation in commercial premises) would apply to the supply but for a choice made by the supplier under section 87-25. It has been established above that your Property, when constructed, will satisfy the definition of residential premises. We therefore need to consider whether the Property also falls within the definition of commercial residential premises. Section 195 defines commercial residential premises as follows: Commercial residential premises means: (a) a hotel, motel, inn, hostel or boarding house; or (b) premises used to provide accommodation in connection with a school; or (c) a ship that is mainly let out on hire in the ordinary course of a business of letting ships out on hire; or (d) a ship that is mainly used for entertainment or transport in the ordinary course of a business of providing ships for entertainment or transport; or (da) a marina at which one or more of the berths are occupied, or are to be occupied by ships used as residences; or (e) a caravan park or camping ground; or (f) anything similar to residential premises described in paragraphs (a) to (e). However it does not include premises to the extent that they are used to provide accommodation to students in connection with an education institution that is not a school. The 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. Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises provides the ATO view of the characteristics of commercial residential premises. The terms hotel, motel, inn, hostel and boarding house are not defined in the GST Act and take their ordinary meaning. The Macquarie Dictionary 5 th Edition provides the following definitions: Hotel a building in which accommodation and food, and alcoholic drinks are available Motel a roadside hotel which provides accommodation for travellers in self-contained, serviced units, with parking for their vehicles. Inn a small hotel that provides lodging, food etc., for travellers and others Hostel a supervised place of accommodation, usually supplying board and lodging provided at a comparatively low cost, as one for students, nurses, etc. Boarding house a dwelling in which lodging is provided to paying residents who share common facilities such as a kitchen, laundry, living room, etc. In their ordinary meanings, these terms share the common attribute of providing accommodation to guests. Paragraph (f) of the definition of commercial residential premises extends the scope of the definition to premises that are ‘similar’ to the class of establishments described in paragraphs (a) to (e). Premises that are ‘similar’ to establishments that are commercial residential premises must have sufficient characteristics in common with the class of premises described. In addition to the physical characteristics of the premises, paragraph 12 of GSTR 2012/6 lists the following eight characteristics that are considered to be common to operating hotels, motels, inns, hostels and boarding houses: ● commercial intention ● multiple occupancy ● holding out to the public ● accommodation is the main purpose ● central management ● management offers accommodation in its own right ● provision of, or arrangement for, services, and ● occupants have the status of guests. We consider that Property and the commercial operations you intend to conduct from it will fulfil the following indicia of ‘commercial residential’ set out in paragraph 12 of GSTR 2012/6: 1 Commercial intention – the premises will be operated on a commercial basis or in a business-like manner. 2 Multiple occupancy – the premises will have the capacity to provide accommodation to multiple, unrelated guests or residents at once in separate rooms, or in a dormitory. 3 Holding out to the public – the premises offer accommodation to the public or a segment of the public. 4 Accommodation is the main purpose – Providing accommodation is the main purpose is the main purpose of the premises. 5 Central management – The premises have central management to accept reservations, allocate rooms, receive payments, receive payments and perform or arrange services. This can be provided through facilities on-site or off-site. In your case, these services are performed by D. 6 Management offers accommodation in its own right – The entity operating the premises supplies accommodation in its own right rather than as an agent. 7 Provision of, or arrangement for, services – Management provides guests and residents with some services and facilities, or arranges for third parties to provide them. 8 Occupants have status as guests – Predominantly, the occupants are travellers who have their principal place of residence elsewhere. The occupants do not enjoy an exclusive right to occupy any particular part of the premises in the same way as a tenant. Paragraph 25 of GSTR 2012/6 provides that when determining whether premises are, or are similar to, a hotel, motel or inn, it is necessary to consider the premises in its entirety. Paragraph 41 of GSTR 2012/6 states in part that ultimately, whether premises are commercial residential premises is a matter of overall impression involving the weighing up of all relevant factors. The tests to be applied are whether the premises are a hotel, motel, inn, hostel or boarding house, or whether the premises are similar to these types of premises, in the sense that they have a sufficient likeness or resemblance to any of these types of establishments. These tests necessarily raise questions of fact involving matters of impression and degree. The Property, when fully constructed, will have many characteristics in common with a boarding house, including but not limited to: ● central reception; ● on-site management; ● communal kitchens; ● prepared meals; ● communal laundries; ● common areas; ● cleaning services; ● maintenance services; and ● telephone and internet services. We consider the Property, when fully constructed, will be most similar to a hostel or boarding house. It will have physical characteristics (including bedrooms, bathrooms and kitchens) and the commercial features of such establishments, therefore satisfying paragraph (f) in the definition of commercial residential premises at section 195-1. In addition we note that the exemption set out in the definition of commercial residential premises for premises that are used to provide accommodation to students in connection with an educational institution that is not a school does not apply in your situation. Question 2 Will the supply of commercial accommodation by you to guests, including the supply of cleaning, maintenance, utilities and similar things provided in the Property meet the requirements in Division 87 of the GST Act to be a supply of accommodation provided in commercial residential premises that is predominantly for long term accommodation? Section 87-15 defines commercial accommodation as follows: Commercial accommodation means the right to occupy the whole or any part of *commercial residences, 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. On the information you have provided, the supplies of accommodation in the premises when fully constructed, will meet the above criteria because the following will be supplied to lodgers: ● cleaning and maintenance; ● electricity, gas, air-conditioning; and ● telephone, television, internet. Section 87-20 provides the definition of ‘long-term accommodation’ and outlines when commercial residential premises are predominantly for long-term accommodation, as follows: (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) For the purpose of working out the number of days in the period for which an individual is provided with commercial accommodation. (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. All lodgers will be required to sign accommodation agreements for a minimum of three months and there will be no short-term lodgers. As 100% of the lodgers will now be staying for more than 28 days, and your supplies meet the definition of commercial accommodation in Division 87 the supplies of accommodation by you at the Property will meet the requirements in Division 87 of the GST Act to be a supply of long term accommodation provided in commercial residential premises that are predominantly for commercial accommodation.