Private ruling: GST and the construction of a boarding house
Date of advice: 24 January 2017
Published: July 2017

Ruling: Q1: Are you entitled to input tax credits (GST credits) under section 11-20 of the A New Tax System (Goods and Services Tax) 1999 (GST Act) for acquisitions made in relation to constructing a boarding house at a specified location? | A1: Yes.

Relevant facts and circumstances: ● You are registered for GST. ● You are presently building a boarding house comprising of a number of single bedroom studio apartments on a residential site situated at the location. ● In the course of constructing the boarding house, you pay suppliers for goods/services that are subject to GST. ● Each studio is to be provided with a kitchenette and there will also be two communal areas with kitchenettes. ● You have submitted a copy of a document dated … from the Council which confirms that the Council has approved the construction of the boarding house. ● The document provides, among other things, that the development is to be undertaken in accordance with a plan of management. ● You have submitted a copy of the plan of management and it states the following, among other things, under a specific heading: … The rules are as follows: ● All residents must comply with any notice or warning issued verbally or posted in any area of the building. Failure to comply may result in eviction. ● Accommodation is granted subject to and upon acceptance of all terms and conditions and house rules. ● These terms are to be used in conjunction with and not in place of any relevant laws. ● Management has full discretion to decide who to accommodate. ● Management reserves full discretion to veto any decision of any staff member and rescind an offer for accommodation upon any review of any aspect of a resident tenancy. ● Drugs - illegal drugs are banned. Possession or usage of drugs will lead to eviction and police reporting and possible prosecution. ● Alcohol - Residents must act in a responsible and considerate manner at all times. Drunken behaviour may result in eviction. ● Parties - No parties are permitted on the premises. ● Management has the right to cease any gathering in the common rooms or outdoor communal areas at any time where it deems that the group is of a size that could cause a possible nuisance. ● Residents are not to congregate in the car park area or on the street. ● All activities within the building including music are to be confined so it does not exceed a specified number of decibels above the background level between specified hours. ● Burning of candles/incense is not permitted. Cooking is not permitted in any area other than the kitchen areas. ● Anti-social behaviour is unacceptable. This includes threatening or demeaning any person within the building. Damage to any property, graffiti, theft of any property, physical or sexual harassment, or loud and rowdy noise can result in eviction and police intervention. ● No animals or pets are allowed anywhere within the premises. ● There is to be no more than a specified number of residents residing within the premises at any one time, including the on-site Manager. ● Dress code -Residents are not permitted to walk around the premises in any state of undress. Residents are to be mindful of other cultures. ● Damage - in the event any invitee or licensee on the premises, any guest or their visitor(s) cause damage to any area, fixture, fitting or furniture in the building, the cost of repair or replacement will be met by that person, including any damage created in the public domain. ● Loss - management takes no responsibility whatsoever for any loss suffered by any resident/visitor/invitee/licensee. Management will not be responsible for any theft from any rooms. Keep money and other valuables on your person at all times. ● Heating &cooling - electric bar heaters, radiators and fan heaters are not permitted. ● The document also states, among other things, that: ● off street parking is provided for residents and visitors, and these spaces are to be marked accordingly; ● an on-site Building Manager will be responsible for the Boarding House. ● Should you wish to sell the Property in the future, you will not be able to sell the studio apartments individually, but rather, you will have to sell the entire property as a boarding house. ● You intend to use the apartments to provide long-term accommodation, that is, for periods of more than 28 days - the minimum rental period will be a specified number of months. You also intend to charge GST Act on the rental fees in accordance with section 87-5 of the GST.

Relevant legislative provisions: 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 11-20 and | A New Tax System (Goods and Services Tax) Act 1999 Division 87.

Reasons for decision: Summary: In these reasons for decision; ● unless otherwise stated, 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 On the facts submitted to us, the acquisitions in question satisfy all the requirements of section 11-5 in that: (a) the things you acquire are solely for a creditable purpose; and (b) the suppliers of these things make taxable supplies to you; and (c) you provide consideration for these things; and (d) you are registered for GST. Accordingly, you are entitled to GST credits for these acquisitions. | Detailed Reasoning - Detailed reasoning: Under section 11-20, you are entitled to the GST credit for any creditable acquisition that you make. For an acquisition to be a creditable acquisition certain conditions must be satisfied as provided at section 11-5. In your case, we acknowledge that in terms of meeting the requirements of section 11-5, the only issue that needs further consideration is whether you acquire the relevant goods/services for a creditable purpose. Section 11-15 defines the term 'creditable purpose' to mean acquisitions made in carrying on your enterprise, but excludes at subsection 11-15(2) acquisitions that relate to making supplies that would be input taxed or acquisitions that are of a private or domestic nature. In your circumstances, the acquisitions are not a private or domestic nature. Our analysis of the facts submitted to us reveals that, in carrying on the 'boarding house' enterprise, you will be making supplies of accommodation in commercial residential premises. This contention is based on the characteristics of the premises, including how the establishment will be operated, as explained in Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises . We note that Council has approved the construction of the premises as a boarding house although you will not be providing food at the premises. As explained at paragraph 184 of GSTR 2012/6, a place where the occupants are provided with lodging only (and not food) is not considered to be a boarding house for the purposes of the GST definition of 'commercial residential premises'. However, in your situation, whilst labelled a boarding house, the premises have all the features of a hostel as explained at paragraphs 26 to 35 and 169 to 180 of GSTR 2012/6. Accordingly, the premises satisfy the GST definition of 'commercial residential premises' as a hostel or something similar to a hostel. Division 87 provides for a reduced amount of GST payable on supplies of long-term accommodation, unless you choose not to apply this Division, in which case, your supplies of long-term accommodation are input taxed. You have advised that you wish to claim GST on construction costs and will remit GST on your supplies of long-term accommodation. In fact this means that you have chosen to apply Division 87 and you do not intend to use the premises to make input taxed supplies. As your acquisitions do not relate to making supplies that would be input taxed supplies and, as mentioned above, are not of a private or domestic nature, it follows that the exclusions in subsection 11-15(2) does not apply and therefore you are making these acquisitions for a creditable purpose. Accordingly, your acquisitions satisfy all the requirements of creditable acquisitions under section 11-5 and you are entitled to GST credits for these acquisitions. | Detailed Reasoning - Further Information: Please note that, because you will only be providing long-term accommodation at the boarding house, if you had chosen not to apply Division 87, your supplies would be input taxed. As such, as discussed above, your acquisitions would not pass the creditable purpose test and therefore you would not be entitled to GST credits for these acquisitions. If in the future you decide to sell the premises, you will be making a taxable supply of commercial residential premises (unless you are supplying your whole 'boarding house' business, including the premises, as a GST-free supply of a going concern under section 38-325). This is notwithstanding your choice to apply, or not to apply, Division 87.