Private ruling: GST and commercial residential premises
Published: July 2012

Ruling: Q1: Are you making a taxable supply of commercial residential premises when you make a supply of accommodation to your employees? | A1: No, you are not making a taxable supply of commercial residential premises when you make a supply of accommodation to your employees. You are making an input taxed supply of residential premises. | Q2: Are you making a creditable acquisition when you acquire accommodation for use by your employees? | A2: No, you have not made a creditable acquisition when you acquire accommodation for use by your employees.

Relevant facts and circumstances: You are registered for GST. You entered into a tenancy agreement with a specified entity (Entity A). The Property subject of the Agreement is described as a specified number of rooms and common areas. You intended to supply the premises to your employees. Your employees occupied all of the bedrooms and a communal kitchen and lounge within the property. This area of the property was isolated from the remainder of the complex and was only accessible to you and your employees and was not accessible to other persons residing at the complex. Access to this area of the complex was via a separate code-operated entrance provided for your employees. You entered into an individual staff agreements (SA) with each of your employees detailing terms and conditions in regard to the accommodation. You determined the price of accommodation charged to your employees based on factors such as whether an employee's spouse/partner was sharing the accommodation, whether the accommodation had ensuite facilities or whether the accommodation was on a share basis. The price of the accommodation also depended on the time of year the employees occupied the premises. Under the terms of the SA, the tenant (employee): · authorises you to deduct the weekly accommodation charges from their wages; · shall not disclose the door code to any non-resident of the accommodation house; · shall not alter, modify or change rooms and any costs for returning the room to its original condition shall be paid for by the tenant.; · shall keep common areas in the accommodation premises clean and tidy and consider the needs of fellow residents; · shall not keep pets in the accommodation; · shall not keep or consume any illegal narcotics or unprescribed drugs on the premises; · shall not smoke inside staff accommodation; · shall not make or cause to be made any loud noise between a specified time; · shall not permit visitors to stay in the accommodation without your prior approval in which case a nightly fee per person will apply to authorised visitors. Your employees were only provided with access to the area specified under your agreement with Entity A and were not able to access other areas of the complex. The bedrooms were equipped with beds and bedding (including linen). You did not provide any cleaning services to either the bedrooms or the communal kitchen and lounge during the tenancy period. Your employees were responsible for cleaning their rooms and the common areas. You completed a final clean of the premises prior to handing back to Entity A at the end of the tenancy period. Cleaning supplies were initially purchased by your employees however part way through the tenancy period you supplied cleaning products to your employees; You allocated the rooms to your employees. Although not specifically referred to in the staff accommodation agreement, you would generally give notice to an employee if there was a need to access their room. Any issues with the accommodation (for example, leaking tap) raised by your employees were, in most cases, raised with you. You then advised Entity A of the issue. In some cases, your employee would raise the issue with Entity A directly. Entity A provided meals for a period at the beginning of the rental period as a result of the installation of the kitchen area not being completed in accordance with your agreement with Entity A. Once the kitchen was installed your employees were responsible for preparing their own meals.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 9-5 | Section 9-40 | Section 11-5 | Section 11-40 | Section 40-35 | Subsection 40-35(1) | Section 195-1

Reasons for decision: Detailed Reasoning - Question 1.: Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you are liable for GST on any taxable supply that you make. The term 'taxable supply' is defined in section 9-5 of the GST Act: You make a taxable supply if: · you make the supply for consideration; and · the supply is made in the course or furtherance of an enterprise that you carry on; and · the supply is connected with Australia; and · you are registered, or required to be registered. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. In your case, you are leasing the premises for consideration, the supply is made in the course of your enterprise, the premises are located in Australia and you are registered for GST. As such, you satisfy the positive limbs of section 9-5. There are no provisions in the GST Act under which the supply would be GST-free. Therefore, in this case, the issue to be determined is whether your supply of the premises is an input taxed supply. Subsection 40-35(1) of the GST Act provides that 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 term 'residential premises' is defined in section 195-1 to mean land or a building that: · is occupied as a residence or for residential accommodation; or · is intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation; (regardless of the term of the occupation or intended occupation) and includes a floating home.' The definition states that the premises must be capable of occupation as a residence. The physical characteristics common to 'residential premises' is that they provide the occupants with sleeping accommodation and at least some of the basic facilities for day to day living. These characteristics will be inherent in the design and fabrication of the premises, which typically include areas for sleeping, eating and bathing. However, these things do not need to be arranged in a manner that is similar to a conventional house or apartment. While the premises you are leasing are not arranged as a typical house or apartment we consider that the bedrooms with ensuite, together with the access to the communal kitchen and lounge area exhibit the characteristics of basic shelter and living facilities and satisfy the definition 'residential premises'. However the GST classification of the supply will still depend on whether the premises are 'commercial residential premises'. The definition of 'commercial residential premises' is also contained in section 195-1 of the GST Act and includes a hotel, motel, inn, hostel or boarding house, or anything similar. Goods and Services Tax Ruling GSTR 2012/D1 Goods and services tax: residential premises and commercial residential premises also provides guidance and assistance with this issue. Paragraph 50 of GSTR 2012/D1 contains a list of characteristics commonly found in the operation of hotels, motels, inns, hostels and boarding houses: · commercial intention; · main purpose is accommodation; · multiple occupancy; · occupants have the stats of guests; · holding out to the public; · central management; · provision of, or arrangement for, services; · management offers accommodation in its own right. Paragraph 53 of GSTR 2012/D1 states in part that for premises to be classified as a hotel, motel, inn, hostel or boarding house, or anything similar, it is necessary that the premises be principally used to provide accommodation to individuals who have the status of guests. Other than this characteristic, it is not a requirement for all of the remaining operating characteristics or additional objective factors to be present. It is necessary to weigh up each of the other characteristics and the additional objective factors to determine whether the overall character of the premises satisfies the classification of a hotel, motel, inn, hostel or boarding house, or anything similar. Employee accommodation is discussed at Example 14 in paragraphs 65 through 72 of GSTR 2012/D1. While the example is based on camp style accommodation for the employees of a mine, the same principals can be applied to your situation in working out whether your supply is of a commercial residential nature. In the example, the accommodation provided by XYZ consists of: · 130 separately keyed rooms with bed and bathroom; · central management office on site; · cleaners are employed to service rooms regularly, including laundering linen and towels; · meals are provided by the employer in a communal canteen; · service such as televisions/DVD's and bar faculties are available on site; · employees do not have the right to restrict management access to their rooms, and authorised company personnel do not need to give notice to enter an employees room; · employees must abide by camp rules. Paragraph 70 of the example discusses that to determine whether the accommodation is accommodation in commercial residential premises, it is necessary to weigh-up the extent to which it satisfies the characteristics of hotels, motels, inns, hostels and boarding houses. The premises in the example is being operated to provide accommodation to guests who are temporarily away from their usual homes. The premises are operated on a multiple occupancy basis similar to a hotel, motel, inn, hostel or boarding house. Employees and contractors do not obtain rights to restrict management's access to their rooms. The range of services offered is typical of the level of services often provided in some hotels, motels, inns, hostels or boarding houses. The premises are centrally managed. However XYZ does not hold out or advertise the quarters as being available to the public generally. It is only available to its employees and contractors. In the example while the accommodation is not held out to the public, on weighing up the eight characteristics and objective factors, it is considered that the premises is being operated in a way that is similar to a hotel, motel, inn, hostel or boarding house and the premises fall within paragraph (f) of the definition of commercial residential premises. In comparing your situation with the above example, you are; · providing accommodation in a premises that you have taken control of and are leasing in your own right; · you are offering affordable accommodation to your employees; · the premises are not held out to the public; · accommodation is the primary purpose of the premises; · the premises have the capacity to provide accommodation to multiple, unrelated guests at once in separate rooms, or in a dormitory; · you do not provide any cleaning services for your employees; · you provided meals for your employees while the kitchen was being installed, however once the kitchen was installed the employees were responsible for their own cooking; · the premises are centrally managed through your HR department; · such management, although not specifically stated, does not have access to an employee's room without providing prior notice to the employee; · the SA includes a number of restrictions placed on the employee (akin to the camp rules in the above example), however such restrictions are similar to those placed on residents of rooming houses designed for the comfort and wellbeing of all residents. Furthermore in this case the SA refers to the employees as 'the tenant' and provides details of a 'weekly rental' amount depending on whether the accommodation is a single, twin share or multi share room. The terms 'tenant' and 'rental' are usually associated with the leasing of non-commercial residential premises. You have also provided that an employee would be given notice if there was a need to access their room. The above indicates that the employee enjoyed a level of privacy which may be more than what is expected in commercial residential premises. Another point of difference is the level of services provided to your employees. In example 14 the employees are provided with, or have access to meals, cleaners and other facilities that provide a level of services typical of a hotel, motel, inn, hostel or boarding house. While in direct contrast your employees were responsible for their own cooking and cleaning, including the cleaning of the common areas. While the employees had access to a laundry, there were no facilities such as a reception area, bar or restaurant located within the property. Having examined the facts and circumstances, we consider that while the property exhibits some of the characteristics common to commercial residential premises we consider that on balance the property does not have the physical characteristics, or mode of operation similar to that of a hotel, motel, inn, hostel or boarding house. Therefore, we consider that the premises do not have the characteristics of commercial residential premises and do not fall within any of the classifications of 'commercial residential premises' contained in section 195-1 of the GST Act. Consequently, your supply (lease) of the premises to your employees will be an input taxed supply of residential premises. As input taxed supplies are specifically excluded from the definition of a taxable supply in section 9-5 of the GST Act, you will not be making a taxable supply when you supply the premises to your employees. | Detailed Reasoning - Question 2.: Section 11-20 of the GST Act states that you are entitled to the input tax credit (ITC) for any creditable acquisition that you make. Section 11-5 of the GST Act defines creditable acquisition: You make a creditable acquisition if: (a) you acquire anything solely or partly for a creditable purpose; and (b) the supply of the thing to you is a taxable supply; and (c) you provide, or are liable to provide, consideration for the supply; and (d) you are registered, or required to be registered. You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise except in the case the acquisition relates to making input taxed supplies or the acquisition is of a private or domestic nature. In this case, you have acquired, by way of lease, premises of Entity A in the course of carrying on your enterprise. However, as discussed above, you have acquired the premises for the purpose of making an input taxed supply of residential premises to your employees. As such, you have not made a creditable acquisition in accordance with section 11-5 of the GST Act and consequently, you are not entitled to an ITC as per section 11-20 of the GST Act.

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