Private ruling: GST and supplies of accommodation
Date of advice: 25 July 2019
Published: October 2019
Ruling period: 25 July 2015 - 24 July 2023
Date scheme commenced: 1 July 2000

Ruling: Q1: Are you making a taxable supply pursuant to section 9-5 of the GST Act when you provide accommodation to guests, through an entity acting as your agent under the Agency model (described below)? | A1: Yes

Relevant facts and circumstances: ABC Pty Ltd as trustee for XYZ Trust (You) registered for GST effective from 1 July 2000. Individual A was the sole director of ABC Pty Ltd from xx/xx/xxxx till today. Individual A will remain the sole director of ABC Pty Ltd until xx/xx/xxxx. On xx/xx/xxxx you acquired a block of land situated at a specified location. Commencing in the 1999 financial year and concluding in the 2000 financial year, construction was undertaken of xx holiday apartments (the Property). The Property is a multi-level apartment complex that includes xx fully furnished self-contained strata titled apartments. The Property includes a pool, car park, conference/meeting room, reception and office area and a manager's residence. The pool and car park areas are part of the common property owned by the Owners' Corporation. The Owners' Corporation maintains the common areas. Your initial intention was to sell all apartments while simultaneously having purchasers enter into a 10 year lease agreement. Despite your initial intentions, a poor property market led to only a portion of the apartments being sold. You have retained ownership of the remaining unsold apartments. Since initial construction of the apartments the ownership of certain apartments has changed hands. You have sold and reacquired some apartments over the period. You have maintained ownership of between 50% - 70% of the apartments for the majority of time since construction was completed. You have at all times maintained ownership of the strata titled lots containing the conference/meeting room, reception and office area and the manager's residence. You made supplies under two different models over time. You initially made supplies under the leasing model. This was then replaced by supplies made under the agency model. Agency model Around xxxx, upon the expiration of all of the lease agreements, all apartment owners, including you, entered into a Management Rights (Owner's Appointment) Agreement (MRA) with DEF Pty Ltd as trustee for DEF Trust (DEFT). DEFT also entered into a Caretaking and Letting Agreement with the Owners' Corporation. DEFT is an on-site management team responsible for taking bookings, organising the cleaning of rooms, providing a basic breakfast package and providing keys to guests. The directors of DEF Pty Ltd were Individual 1 and Individual 2. They were directors during the period xx/xx/xxxx to xx/xx/xxxx. Mr Individual 2 ceased being a director on xx/xx/xxxx. Individual 1 was the sole director of DEF Pty Ltd from xx/xx/xxxx. Individual 1 will remain the sole director of DEF Pty Ltd until 30 June 202X. You have provided a copy of a pro-forma MRA and the Caretaking and Letting Agreement . DEFT have use of the manager's apartment, conference room and the reception and office areas. DEFT lets the conference room upon request in their capacity as your agent. The following services and facilities are provided/available: · complimentary Wi-Fi · complimentary latest release movies · a complimentary off-street car park per apartment · complimentary BBQ facility on site · wheel chair accessible couple or family apartment with roll in shower, grab rail in bathroom & designated car space The reception area is open daily: · Monday to Fridays from x.xxam until x.xxpm · Friday and Saturdays from x.xxam until x.xxpm (times may vary) · Sundays and Public Holidays from x.xxam until x.xxpm (times may vary) · Key Safe is available for all after hours arrivals · Night Manager on-site for emergency assistance after hours. All apartments are fully self-contained with one, two and three bedroom options. All apartments include a full kitchen and laundry facilities, large living and dining areas. Most apartments offer a private balcony or patio. All apartments feature new modern lounge suites. A number of apartments have smart TV's with a wide selection of free movies on demand. Guests are provided with a start-up kit (welcome package) including tea, coffee, sugar, cookies, UHT milk, laundry and bathroom amenities. Conference and meeting room facilities are also available. Catering is available on request and is provided by a third party contractor. The Conference Room seats up to xx delegates with audio visual technology available. A breakout area is available which may be used for workshops, private discussion or breaks. The Conference and meeting room facilities include: · Reverse cycle air conditioning · Private bathroom · Fully equipped kitchen · BBQ area · Projector and drop down screen · Electronic whiteboard · Internet Access · Flip chart The following business services are also available: · On-site catering · Photocopying service · Facsimile service · Charge back at local restaurants for off-site meals · Co-ordination with other venues for large groups

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 9-5 | Section 9-40 | Paragraph 40-35(1)(a) | Subsection 40-35(2) | Section 195-1

Reasons for decision: Summary: Note: In this reasoning, unless otherwise stated, · all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) · reference material(s) referred to are available on the Australian Taxation Office (ATO) website ato.gov.au 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: (a) you make the supply for consideration; and (b) the supply is made in the course or furtherance of an enterprise that you carry on; and (c) the supply is connected with the indirect tax zone; and (d) 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 supply of accommodation to guests is for consideration. The supply is made in the course or furtherance of a leasing enterprise that you carry on. The supply is connected with the indirect tax zone (i.e. Australia). You are registered for GST. The issues in this case are whether your supplies are input taxed. Paragraph 40-35(1)(a) 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 the entity that owns or controls the commercial residential premises) is input taxed. Under subsection 40-35(2), the supply is input taxed only to the extent the premises are to be used predominately for residential accommodation (regardless of the term of occupation). | Detailed Reasoning - 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 to be occupied, and is capable of being occupied as a residence or for residential accommodation (regardless of the term of occupation or intended occupation). Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) outlines the characteristics of residential premises. Paragraph 9 of GSTR 2012/5 explains that the requirement in section 40-35 that premises be 'residential premises to be used predominately for residential accommodation' 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. Further, paragraph 15 of GSTR 2012/5 states that to satisfy the definition of residential premises, premises must provide shelter and basic living facilities. The premises in question, being your apartments supplied to guests through your agent, will satisfy the definition of 'residential premises'. This is because all apartments are fully self-contained with one, two or three bedrooms and include a full kitchen and laundry facilities, large living and dining areas. As such, the next issue to consider is whether your supplies fall within either of the exclusions in paragraph 40-35(1)(a). The exclusions being: · a supply of 'commercial residential premises' (first limb); or · a supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises (second limb). | Detailed Reasoning - Commercial residential premises: The term 'commercial residential premises' is defined in section 195-1 to include, amongst other things: (a) a hotel, motel, inn, hostel or boarding house; or (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. Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises sets out the ATO view on how GST applies to supplies of commercial residential premises and supplies of accommodation in 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. a dwelling, usually a private house, in which board and lodging are provided for payment 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. Paragraph 11 of GSTR2012/6 provides that in determining whether premises are a hotel, motel, inn, hostel or boarding house or similar is a question of fact involving matters of impression and degree. 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. In this case you exhibit all of the characteristics listed above to some extent. Given the facts provided we consider the Property bears the closest resemblance to a 'hotel' or 'motel'. Paragraphs 13 to 40 of GSTR 2012/6 discuss further features typically exhibited in hotels, motels, inns, hostels and boarding houses. However ultimately, in determining whether premises are commercial residential premises is a matter of overall impression involving the weighing up of all relevant factors (paragraph 41 of GSTR 2012/6). Paragraph 13 notes that a 'motel' is a particular type of hotel that primarily caters to the needs of motorists seeking roadside accommodation. Subject to this qualification, the features of a hotel as listed are equally relevant to motels. In considering those features the following is noted in respect to the Property: · A complimentary off-street car park space is available for each apartment. · Hotels provide accommodation for a commercial purpose with capacity to supply accommodation for multiple occupancies. Such is the situation in your case. · Hotels usually offer meals to guests and they usually have a kitchen where meals are prepared for guests. The premises usually include a restaurant or dining room for guests. In this case the apartments within the Property are all fully self-contained with full kitchen facilities and dining areas for guests to prepare and consume meals. · The guest rooms in a hotel are invariably furnished, and always include a bed, and some living area, and usually an adjoining bathroom. Such is the case in this instance. · A hotel usually supplies linen and towels. In this case linen and towels are provided to guests. · Rooms/apartments in hotels are usually cleaned and serviced by staff on a daily basis, with the costs of these services being included in the tariff. In this case towels are replaced on a daily basis and in the case of bookings over five days, a full linen change is carried out. · Predominantly, the guests of hotels are travellers who ordinarily have their principal place of residence elsewhere, and who need or desire accommodation while away for business or pleasure. Again, such is the case in regard to the occupants of the Property. · Guests of hotels do not usually enjoy an exclusive right to occupy any particular part of the premises in the same way as a tenant to whom a house or apartment is let. Nor does a guest of a hotel usually let a room for a term. The guest is usually charged at a daily rate multiplied by the number of days of occupancy. In this case, guests book accommodation based on a daily rate and do not typically let a unit/apartment for a term. · Hotels usually have a reception desk to handle the requirements of both management and guests, particularly when guests check in or check out of the establishment. In this case the Property contains a reception area which is open daily with limited hours on Sundays and public holidays. In addition, the Property contains conference and meeting room facilities. · Hotels do not normally provide shared accommodation to guests in the sense of having a number of unrelated guests sharing a kitchen and living facilities. In this case all units are fully self-contained. Guests are not required to share kitchen and living facilities with other unrelated guests. · A hotel is centrally managed by the operator, typically having at least one person present, or offsite but readily accessible, to manage the accommodation and arrange or provide services. As discussed above, the Property reception is open 7 days a week. Furthermore, a night manager is available on-site for emergency assistance after hours. Paragraph 95 of GSTR 2012/6 discusses (in the context of separately strata titled apartments) that in addition to living accommodation areas, premises that are commercial residential premises include commercial infrastructure to support the commercial operation of the premises. This infrastructure may include (but is not limited to) reception areas, dining and bar areas, meeting/function areas, kitchens, laundry facilities, storage areas and car parks. As discussed above, a motel is defined as 'a roadside hotel which provides accommodation for travellers in self-contained, serviced units, with parking for their vehicles'. We consider this would be an appropriate description of the Property. Furthermore, in weighing up all the relevant factors as discussed above, we consider that the Property exhibits sufficient characteristics typically inherent to a hotel or motel to be classified as 'commercial residential premises' as defined in section 195-1. | Detailed Reasoning - First limb exclusion in paragraph 40-35(1)(a): You are not supplying by way of lease, hire or licence the entire property. You are only supplying by way of lease, hire or licence accommodation in commercial residential premises (the Property). Therefore, you do not meet the first limb exclusion in paragraph 40-35(1)(a). | Detailed Reasoning - Second limb exclusion in paragraph 40-35(1)(a): We need to consider whether you satisfy the second limb exclusion in paragraph 40-35(1)(a). The issue is whether you, in supplying accommodation in commercial residential premises (the Property), own or control the commercial residential premises. As discussed above, you are supplying accommodation in your capacity as principal through an agent (DEFT). Also as discussed above, for GST purposes, we consider the Property to be 'commercial residential premises'. Thus, you are supplying accommodation in commercial residential premises. The final issue is whether you own or control the commercial residential premises. You own or have owned typically between xx% - xx% of the apartments, for the majority of the time, since construction of the Property was completed. Furthermore, you own the strata titled lots containing the conference/meeting room, reception and office area and the manager's residence. Your ownership of the residential apartments together with your ownership of the strata lots containing the relevant infrastructure (manager's apartment, reception area and conference room) contribute towards your control of the commercial residential premises. In addition, the Operator (DEFT) has entered into the Caretaking and Letting Agreement with the Owners' Corporation. The Caretaking and Letting Agreement permits DEFT to carry on a business of letting and/or selling units in the Property including all associated services commonly rendered in connection with letting units in similar establishments. DEFT, in providing such services must be on the Property for such times as are found to be necessary to perform the proposed letting service and supervise the standard of tenants of all such lettings. DEFT is also responsible to ensure, so far as practicable, that no nuisance is created on the Property and that the Management Rights Scheme and Units are not brought into disrepute. DEFT has the discretion, in so far as it is lawful, to erect signs reasonably necessary in or about the Property for the purpose of promoting and fostering the letting business. The duties of DEFT also include policing the rules of the Owners' Corporation and is authorised to evict or deal with any person creating a nuisance or annoyance on the Common Property or committing any breach of the rules of the Owners' Corporation. Therefore, we also consider that the Caretaking and Letting Agreement contributes towards your control over the operation and day-to-day running of the Property. Whether you are controlling commercial residential premises is a question of fact and degree. Our overall impression after weighing up all the relevant factors is that you have control of the Property. You have control directly or indirectly through the appointment of DEFT. The MRA and Caretaking and Letting Agreement position you to operate in a way that is similar to a hotel or motel. Accordingly, we consider that you have sufficient control of the Property required to satisfy the second limb exclusion in paragraph 40-35(1)(a). | Detailed Reasoning - Conclusion: In summary, you are providing accommodation in commercial residential premises that you control. Therefore, your supply is not an input taxed supply. Your supply is a taxable supply because the requirements of section 9-5 are satisfied.