Private ruling: Supply of other services in connection with supply or residential rent
Published: June 2012

Ruling: Q1: Is Entity A's supply of furniture a taxable supply? | A1: Yes | Q2: Is Entity A's supply of management services a taxable supply? | A2: No. it is an input taxed supply.

Relevant facts and circumstances: Entity A is registered for GST. One of Entity A's core operations is to provide government employees in regional areas with quality homes. It does this through a business unit in its department (Entity D). Entity D enters into agreements with various government agencies to supply the agencies with residences for their employees who live in various parts of the state. Leases between Entity D and the client agency have the following characteristics: · Entity D receives a request for housing from the client agency. · Entity D sources the premises firstly from those that it owns, or, if no suitable Entity D properties are available, from the private market. · Entity D will only lease privately owned premises after receiving a commitment form from the client agency, whereby the agency commits to the rental amount, the rental periods and a funding guarantee. · A commitment form is also obtained for new premises constructed or purchased by Entity D, but not for existing Entity D owned properties. · Entity D and the client agency then enter into a Head Lease Agreement. Leases from client agencies to end-tenants have the following characteristics: · Entity D acts as agent for the client agency: · Entity D ensures that all requirements have been completed and finalised in preparation for the end-tenant's occupation of the premises. · Entity D ensures that the Tenancy Agreement is executed and the home prepared. · Entity D provides furniture to the client agency to the extent requested by the end tenant. · End-tenants contact Entity D (as agent for the client agency) directly in respect of certain aspects of the accommodation, such as alterations, problems with furnishings or floor/window treatments, garden re-establishment, maintenance services, white ants or similar issues. · End-tenants contact the client agency for other matters such as accommodation allocation, subsidy issues, furniture requirements and rent queries. · Rental amounts charged to client agencies for private market non-Entity D owned premises are exactly equal to the lease costs paid by Entity D to the private owner. · Entity D owned properties are rented at a market value rate or full cost recovery rent as determined by Entity D's Cost Recovery Rent Policy. · Entity D issues monthly tax invoices to client agencies for rental amount and fees (payable in advance). In addition to the Accommodation Rental Charge, Entity D also charges: Service fees treated as input taxed Administration fees treated as input taxed Management fees treated as a taxable supply Furniture fees treated as a taxable supply Service fee: Applies to premises owned by Entity D that share common grounds or amenities with other premises such as a driveway or carport. Levied as a service charge for maintenance of the common areas of the property and provision of some or all utilities dependent on location. Currently treated by Entity D as an input taxed supply. Administration fee (Entity D owned properties) - currently $X per week: Applies to Entity D owned properties only. Levied for tenancy management, property maintenance and administrative services such as signing of tenancy agreements and property condition reports. Entity D is appointed agent for client agencies in relation to the management of the property and sub-lease with the end-tenant. The fee is charged regardless of whether or not there is an end-tenant occupying the premises. Currently treated by Entity D as an input taxed supply Management fee (Private Market Non-Entity D owned properties) - currently $X per week including GST. Applies to premises sourced from the private market only. Levied on tenancy management, property maintenance and administrative services akin to the Administration Fee. You provided the following comparison of the Administration Fee and the Management Fee: Item Description of Service Administration Fee is charged for the following services ('Entity D owned property) Management Fee is charged for the following services (Leased Private Market) 1. Sourcing of the premises Entity D will source properties from their current property portfolio for and on behalf of client agencies. Entity D will source properties from private market for and on behalf of client agencies. 2. Commitment to Rental Charges Commitment form is signed by client agency for a period of 10 years on new premises constructed by Entity D. Commitment form is signed by client agency to GROS based on the lease amount, rental periods as negotiated with private owner. 3. Allocation of Property Entity D allocates property to client agency from Entity D owned property portfolio. Entity D allocates property to client agency after lease is signed with private owner and commitment form signed by client agency. 4. Preparation of home for tenant occupancy Entity D inspects home and ensures it is ready for occupancy. Entity D inspects home and ensures it is ready for occupancy. 5. Preparation/signing/completion of check list! Tenancy Agreement Entity D undertakes the preparation and signing of Tenancy Agreement. Entity D completes and provides property condition report to end tenant and ensures tenant is provided with education material and tenants handbook. Entity D undertakes the preparation and signing of Tenancy Agreement. Entity D completes and provides property condition report to end tenant and ensures tenant is provided with education material and tenants handbook. 6. Provision of Property Services Facilitation of repairs, any alterations requirements on home, problems with furnishings, floor or window treatments, garden reestablishment, maintenance services and white ant or similar issues. Entity D completes work on its own properties based on budget and management approval. Facilitation of repairs , any alterations requirements on home, problems with furnishings, floor or window treatments, garden reestablishment, maintenance services and white ant or similar issues. Entity D will contact private owner either to approve or arrange for work to be completed. 7. Major Property Improvements Undertakes any upgrades and property improvements based on budget management approval, Negotiates with private owner to arrange upgrades and property improvements to bring property up to Entity D's property standards. 8. Property Inspections Annual inspections and at time of tenancy changes. Quarterly or as determined in lease agreement and at time of tenancy changes. 9. Collection of Rents Charged out to client agency as part of monthly Tax Invoice. Charged out to Client agency as part of monthly Tax Invoice. Charged by private owner directly to Entity D. Entity D as lessee is responsible for remitting payment to private owner. 10. Occupancy of property Fee is levied on property irrespective of occupancy for the duration of lease period, Fee is levied on property irrespective of occupancy for the duration of lease period. Furniture fee currently $xx per week including GST: Applies to premises provided with Entity D furniture. The Entity D Furniture Policy stipulates that furniture will be supplied upon request by the client agency to various locations and in various circumstances. The furniture is only provided by Entity D at the request of the client agency. The fee is charged for the actual hire of a package of furniture items and not on an individual furniture item basis. The full furniture fee is charged regardless of the number or nature of furnishings chosen. The client agency has the right to return the furniture at any time during the tenancy. If the client agency does not cancel the furniture request when the tenant vacates, the furniture fee continues to be charged to the client agency regardless of tenant occupancy of the premises. The provision of the furniture to the client agency typically occurs once, shortly after the house is allocated to the client agency. Most end-tenants in eligible areas request that furniture be provided. Your contentions You provided the following advice/contentions. Furniture You stated that Entity D regards its rental of premises that includes furniture requested by the client agency as separate supplies of the rental premises and the furnished items. However, you advised that there is also an alternate view that the supply of rental premises, inclusive of furniture, is a supply of things required in the making of an input taxed supply. It is considered that the furniture supplies are integral, ancillary and incidental to the dominant supply of the rental premises. It is argued that the Furniture Fee is consideration for composite supplies and is integral, ancillary and incidental to the dominant supply of residential premises. The distinction between separately identifiable supplies and those that are integral, ancillary or incidental is a question of fact and degree. You stated that both views are reliant on GSTA TPP 012 and GSTR 2001/8. Management fee Entity D currently treats the Management Fee as a taxable supply. Entity D is of the view that the Management Fee is a charge for the supply of services separate and distinct from the supply of the rental premises.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 section 40-35

Reasons for decision: Summary: Entity D makes supplies of residential premises by way of lease to other WA Government departments (client agencies). Entity D correctly treats these supplies as input taxed supplies in accordance with section 40-35 of A New Tax System (Goods and Services Tax) Act 1999 (the GST Act). When requested by the client agency, Entity D also provides furniture. The client agency then on-leases the property to its employee (end-tenant). The client agency on-leases the property either furnished or unfurnished (depending on the wishes of the end-tenant). When Entity D also provides furniture to a client agency, it charges a furniture fee. The fee is currently $xx per week (including GST) and is treated by Entity D as a taxable supply: In addition, Entity D is appointed agent for the client agency in relation to the client agency's management of the property and sub-lease with the end-tenant. Entity D charges a fee for these management services:- Where Entity D owns the property, the property management fee is referred to as an administration fee (currently $yy per week), which Entity D currently treats as input taxed supplies. Where the property is a Private Market Non-Entity D owned property, it is referred to as a management fee (currently $zz per week including GST), which Entity D treats as a taxable supply. | Detailed Reasoning - Furniture.: Entity D's supplies of furniture satisfy the requirements of section 9-5 of the GST Act. In Entity D's factual situation, the supplies are not GST-free under any provisions of the GST Act. Therefore, the supplies will be either input taxed or taxable supplies. The issue to be resolved is whether Entity D's supplies of furniture are integral, ancillary or incidental to its input taxed supplies of residential premises (in which case they will be input taxed supplies), or are supplies separate from the supply of the rental premises (in which case they will be taxable supplies). As noted in paragraph 20 of Goods and Services Tax Ruling 2001/8: apportioning the consideration for a supply that includes taxable and non-taxable parts (GSTR 2001/8), the distinction between parts that are separately identifiable and things that are integral, ancillary or incidental, is a question of fact and degree. Paragraph 21 of GSTR 2001/8 allows you to treat a supply as a composite supply, although it might otherwise be considered as a mixed supply in certain circumstances. However, given theat the fees,exceed the level set in paragraph 21, this option is not available to you. Therefore, it is necessary to make an objective assessment about whether your supplies of management services and furniture are integral, ancillary or incidental. You have offered a view that the furniture supplies are integral, ancillary and incidental to the dominant supply of the rental premises and that the supply of rental premises, inclusive of furniture, is a supply of things required in the making of an input taxed supply. Although most end-tenants request the supply of furniture, not all of them do. The furniture is only supplied when it is requested by the client agency (based on the wishes of the end-tenant). Further, the client agency has the right to return the furniture at any time during the tenancy; in which case the client agency would not be charged for the supply of furniture. This indicates that the supply of the rental premises and the furniture are separate supplies and are identifiable as such. Consistent with the above, Entity D has treated its supplies of residential premises and furniture as separate supplies. The supplies are not marketed as all-inclusive packages. The final price to the client agency depends on the supply or non-supply of furniture by Entity D. Accordingly, Entity D's supplies of furniture are taxable supplies. | Detailed Reasoning - Administration and Management Fees: In contrast to its supply of furniture, which is dependent on the requirements of the end-tenant, Entity D charges either an Administration Fee or a Management Fee with every supply of residential property. Whilst items 5 and 8 of the "services" supplied under the Administration and Management services relate to activities that Entity D undertakes as agent for the client agency (taxable), the other activities are required to be undertaken in order for Entity D to supply the property to the client agency (input taxed); ie the majority of the individual services in Entity D's Administration/Management services packages are integral to its (input taxed) supply of residential property. Entity D has not chosen to treat items 5 and 8 as separate supplies. The final price to the client agency is not dependent on the frequency with which the individual services (1-10) are supplied by Entity D. The supplies are bundled as part of an all-inclusive package and Items 5 and 8 are part of what would otherwise be an input taxed supply of services. Given that the GST-exclusive value of the total package is $yy, the average price of each item within the package is within the amounts stated in paragraph 21 of GSTR 2001/8. In the circumstances, it is appropriate to treat items 5 and 8 as integral, ancillary or incidental to Entity D's total supply of Administration or Management services, which are in turn integral to Entity D's (input taxed) supply of residential property. Accordingly, Entity D's supplies of Administration and Management services are input taxed supplies. | Detailed Reasoning - Further issues for you to consider: Where the client agency charges the end tenant separately for the premises and the furniture, the supply of furniture will be a taxable supply. If the client agency amalgamates the supply of premises and the supply of furniture into a single supply of furnished residential premises, ATO guidance in relation to this issue is contained in Goods and Services Tax Advice TPP 012 (GSTA TPP 012) which considers whether a landlord who is renting furnished premises to tenants is required to apportion the rent between the occupancy of the real property and the right to use the furnished items. In particular, GSTA TPP 012 explains that: Unless the supply of the premises can be separately identified from the supply of the furnished items, the rental of furnished residential premises is a single supply. It is then a question of whether it is a mixed supply or a composite supply according to the guidelines set out in GSTR 2001/8.

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