Private ruling: Goods and services tax - Residential premises
Published: April 2015
Date scheme commenced: 1 July 2014.

Ruling: Q1: Is the supply of the premises by you to the Trust a taxable supply of 'commercial residential premises' under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: No. | Q2: Are you entitled to input tax credits (GST credits) on the costs incurred for the construction of the premises? | A2: No. | Q3: Is the Trust liable for GST in respect of the supply of the accommodation to occupants? | A3: No. | Q4: Is the Trust liable for GST on the supply of electricity and telecommunications to occupants? | A4: No.

Relevant facts and circumstances: You are an individual registered for GST. You acquired a block of land in Australia. You commenced construction of accommodation comprising independent units over 3 living levels. The property is being built on land which has been zoned Residential R3, which is low to medium density. Low medium density living environments comprise houses, among multi &dash;unit and single unit development at a house &dash; compatible scale, predominantly of no more than two storeys. Higher densities and 3 storey buildings occur near Multi &dash;Purpose Centres, near public transport and along arterial roads As part of the development application to Council, you signed a statutory declaration to the effect that the accommodation will only be used for student accommodation. You advise that while the premises are designed to provide low cost accommodation to students they will not be provided in connection with an educational institution. The premises have a common laundry in the basement, common recreational areas on each of the living levels and have a recreational area on the rooftop. There will also be communal car parking spaces. All levels have a communal kitchen with fridge, cooktop and barbeque facilities and living area. Each suite has a kitchenette, bar fridge and ensuite. You will lease the premises to a related entity (the Trust). The Trust will conduct an enterprise from these premises and will not act as an agent. The Trust will supply accommodation to occupants on 6 month or 12 month leases. Electricity and telecommunications including wifi are included in the rent for each suite. The Trust has engaged a property manager to manage the accommodation. If the occupants have any queries in relation to their occupancy, these can be raised with the property manager. In consideration for your supply of the premises to the Trust under the lease, you will invoice the Trust a rental fee. Each suite will be initially provided with bedding, sheets, towels, mattresses, crockery, desk and locker. No other services will be provided to the occupants. Occupants will be required to self-clean the suites and common areas. Rents will be charged on a weekly basis per suite on a 6 month or 12 month lease. The Trust has supplied a copy of a lease for one of the occupants. The lease stipulates that the tenancy is for exclusive use of one bedroom in one of the apartments in the property. The lease also describes the premises as student accommodation. Under the lease • pets are only allowed if the agreement states that pets are approved. • an entry and exit condition report must be completed • the tenant may only make certain alterations to the room if permitted by the lessor. The property will have no on-site management and the units will not be strata titled. The Trust is also registered for GST.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 7-1 | A New Tax System (Goods and Services Tax) Act 1999 section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 section 9-70 | A New Tax System (Goods and Services Tax) Act 1999 section 11-5 | A New Tax System (Goods and Services Tax) Act 1999 section 11-15 | A New Tax System (Goods and Services Tax) Act 1999 section 40-35 | A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Reasons for decision: Detailed Reasoning - Commercial residential premises: Section 7-1 of the A New Tax System (Goods and Services Tax) Act 1999 ( GST Act) provides that: • GST is payable on taxable supplies, and • Entitlements to input tax credits arise on creditable acquisitions. Section 9-5 of the GST Act provides that you make a taxable supply if: (a) you make the supply for consideration (b) the supply is made in the course or furtherance of an enterprise that you carry on (c) the supply is connected with Australia, and (d) you are registered, or required to be registered. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. In the circumstances you have described, there is no provision within the GST legislation under which the lease of your property would be GST-free. Therefore, it remains for us to consider whether you are making an input taxed supply. Input taxed means that there is no GST payable on the supply and there is no entitlement to an input tax credit for anything that is acquired to make the supply. Under paragraph 40-35(1)(a) of the GST Act, a supply of premises by way of lease, hire or licence (including a renewal or extension of a lease, hire or licence) is input taxed if: (b) 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 term 'residential premises' is defined in section 195-1 of the GST Act include land or a building that is occupied or intended to be occupied as a residence. The premises in question exhibit all of the necessary physical characteristics to be regarded as residential premises as they have bedrooms for sleeping accommodation and kitchens, bathrooms, etc to enable the tasks of day to day living to be carried out. The term 'commercial residential premises' is defined in section 195-1 of the GST Act to include a hotel, motel, inn, hostel or boarding house, or anything similar to these establishments. Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises (GSTR 2012/6) provides guidance on the characteristics of hotels, motels, inns, hostels and boarding houses or similar premises. Relevantly, paragraph 141 of GSTR 2012/6 provides a number of meanings as 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) in respect of hostels and boarding houses: 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 addition, paragraphs 246 and 247 of GSTR 2012/6 discuss rooming houses Rooming houses 246. Legislation in a number of States and Territories deals with a class of premises often referred to as rooming houses or rooming accommodation. These premises mainly provide low-cost housing. Rooming houses usually provide single room, or small suite, accommodation with some shared facilities (such as a bathroom, laundry and kitchen). State and Territory legislation may confer, or allow for the individual to be granted, the right to restrict the management from entering individual rooms within the premises. Subject to some restrictions, the occupant may also have responsibility for and control over these rooms. 247. It is necessary to weigh up the features of a hostel as discussed in paragraphs 26 to 35 and 169 to 180 of this Ruling to determine whether the rooming house has sufficient features to be, or be similar to, a hostel. However, the presence of features set out at paragraphs 41 and 187 of this Ruling may indicate that the premises are not commercial residential premises. | Detailed Reasoning - Hostel: Paragraphs 26 to 35 of GSTR 2012/6 list a number of characteristics or features the ATO considers common to a hostel. These characteristics include the Macquarie definition above, being 'a supervised place of accommodation usually supplying board and lodging provided at a comparatively low cost'. The provision of meals is not an essential feature of a hostel (based on paragraph 35 of GSTR 2012/6). The premises are not supervised and the operator will not provide on-site management and services. We consider that the premises do not satisfy the physical characteristics of a hostel or boarding house or something similar to a hostel or boarding house. In addition, we considered the Trust's usage of the premises with regard to the factors cited in paragraph 41 of GSTR 2012/6: | Detailed Reasoning - Features that indicate premises that are not a hotel, motel, inn, hostel, boarding house or similar premises: 41. Ultimately, whether premises are commercial residential premises is a matter of overall impression involving the weighing up of all relevant factors. While not an exhaustive list, factors that may indicate that premises are not a hotel, motel, inn, hostel, boarding house or similar premises include: (a) the operator and occupant agree for accommodation to be supplied for a periodic term (which may be for a period of months or years at a time), such as in a residential lease; (b) the operator and occupant document the condition of the premises under a written contract before the accommodation is initially supplied and when the occupant ceases to occupy premises; (c) the operator has the right to impose a cleaning fee on the occupant when the occupant ceases to occupy the premises; (d) the occupant is permitted, subject to the terms of the lease or licence, to alter the part of the premises occupied by the occupant, such as by attaching hanging devices on a wall; (e) the occupant is permitted, subject to the terms of the lease or licence, to keep pets in the premises; (f) the occupant must separately arrange and pay for the connection of a telephone, electricity, or gas service; (g) the occupant is responsible for the cleaning and minor maintenance of the premises, such as changing light bulbs in their room; (h) the premises are unfurnished; and….. Under the terms of the lease to occupants, the factors in paragraphs (a), (b), (c), (d) and (g) are satisfied. On balance, these factors support the view that the supply of these premises to occupants is not a hotel, motel, inn, hostel or boarding house or similar to these premises. Further, paragraph 10 of GSTR 2012/6 explains that government zoning and planning permissions may be considered if the physical characteristics and the usage of the premises do not provide a clear characterisation.The government zoning for the property is low to medium residential housing. Under the council permissions, the property can be used for a range of residential uses. We have given consideration to the physical character, how the premises are to be used and the government zoning for the premises and consider that the premises do not satisfy the definition of 'commercial residential premises' in section 195-1 of the GST Act. Accordingly, the supply of the premises by you is an input taxed supply of residential premises. | Detailed Reasoning - Input tax credits for construction and other costs: Under section 11-20 of the GST Act an entity is entitled to an input tax credit for any creditable acquisition that it makes. Section 11-5 of the GST Act provides that an entity makes a creditable acquisition if: • the entity acquires anything solely or partly for a creditable purpose; • the supply of the thing to the entity is a taxable supply; • the entity provides, or is liable to provide consideration for the supply; and • the entity is registered or required to be registered for GST. Subsection 11-15(1) of the GST Act provides that an entity acquires a thing for a creditable purpose to the extent that the entity makes the acquisition in carrying on its enterprise. However, under subsection 11-15(2) a thing is not acquired for a creditable purpose to the extent that it is of a private or domestic nature or relates to making input taxed supplies. As the supply of the residential premises is input taxed under subsection 40-35(1) of the GST Act, no input tax credits are available to you in relation to acquisitions for the construction or operation of the premises. | Detailed Reasoning - GST on supply of accommodation to occupants: We have found that the premises in question are residential premises and not commercial residential premises. Therefore, the Trust's supply of accommodation in those residential premises to an individual occupant is an input taxed supply in accordance with subsection 40-35(1)(a) of the GST Act. Consequently, in accordance with section 7-1 of the GST Act, no GST is payable on that supply. | Detailed Reasoning - GST on the supply of electricity and telecommunications: In exchange for a rental amount, the Trust will supply to occupants the right to occupy the residential premises. As we have found, this supply is an input taxed supply. The supply of accommodation with items such as electricity and telecommunications may be a mixed supply or a composite supply. The principles for determining a mixed or composite supply are explained in Goods and Services Tax Ruling GSTR 2001/8: Goods and services tax: apportioning the consideration for a supply that includes taxable and non-taxable parts (GSTR 2001/8). Paragraph 43 explains the difference between a mixed supply and a composite supply 43. A mixed supply contains separately identifiable parts where one or more of the parts is taxable and one or more of the parts is non-taxable. None of these parts is integral, ancillary or incidental in relation to the whole supply. On the other hand, a composite supply is a supply of one dominant part that has other parts that are not treated as having a separate identity as they are integral, ancillary or incidental to the dominant part of the supply. We consider that the input taxed supply of the accommodation is the dominant supply by the Trust to occupants, with electricity and telecommunications being ancillary to the supply of the accommodation. Therefore the whole supply is a composite supply of residential premises. This means that GST will not be payable by the Trust in relation to the composite, input taxed supply of electricity, telecommunications and accommodation to the occupants.