Private ruling: GST and residential premises
Published: December 2013

Ruling: Q1: Does your acquisition of property fall within the definition of 'residential premises' for the purposes of section 40-65 of the A New Tax System (Goods and Services Tax) Act 1999 ? | A1: Yes, to the extent excluding the bar area and the male and female toilets. | Q2: To the extent the premises are found to be 'residential premises' are the premises 'commercial residential premises'? | A2: No

Relevant facts and circumstances: You are registered for GST. You purchased property located at a specified location (the Property). The Contract for the sale of land (Contract) states the supply is a taxable supply to an extent. The price of the property was a specified amount inclusive of GST. The Special Conditions to the Contract provides the following acknowledgment by the parties: · the value of the main property is $XXXXX; · the vendor is registered for GST; The Property was built around 1890 and was occupied as a residence until the mid 1900s. In the early 1900s substantial alterations were made which included adding a number of storey turrets. In the mid 1900s the Property was acquired by a Government Department who used the property to provide accommodation for boarders. Around this time further alterations to the building were carried out including the removal of walls and out buildings so as to convert the residence into a hostel. After approximately X years the Property was sold and purchased by another Government Department who used the property as a medical facility until the early 2000s. Some internal alterations and substantial outdoor additions were done to convert the hostel for use as a medical facility. In the early 2000s the vendor purchased the property from the Government Department and following renovations which effectively removed the alterations carried out for the use of the building as a hostel and medical facility, the premises were leased to another party and operated as a restaurant/function centre. The renovations included: · removal of a partition wall (which was part of either the earlier alterations) to facilitate use as a function room; · minor alterations of the servants wing to convert the area into sleep over units; · removal of an internal wall to facilitate use as a function room; · walls and part walls removed for the purpose of conversion to a bar area; · access ramp to the main door to be reconstructed and an improved design; · the existing roof sheeting, capping and gutters painted; · the existing garage/carport/shed structure demolished; · the driveway widened to provide parking for xx cars; · the reconstruction of some earlier walls that had previously been removed and the part removal of some original internal walls; · some internal walls and part walls removed in order to convert the area for use as a bar. You have provided a floor plan of the premises which identifies the main building containing kitchen, laundry and bathroom facilities and numerous other rooms suitable for use as bedrooms and living areas. Of the information provided, the floor plan and photos show an area with a substantial bar. Directly near this area are ladies and male toilets. Both male and female toilets contain numerous cubicles/stalls in both, urinal in the male toilets and a toilet to cater for persons with a disability. Prior to purchasing the property, the outgoing tenant who operated the restaurant/function centre removed the commercial appliances used to run the business (display fridges used in the bar area, stainless steel benches, bain marie, etc).

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 40-65 | A New Tax System (Goods and Services Tax) Act 1999 Section 40-75 | A New Tax System (Goods and Services Tax) Act 1999 Section 195-1

Reasons for decision: Summary: Section 40-65 of the GST Act the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides: (1) A sale of *real property is input taxed , but only to the extent that the property is *residential premises to be used predominantly for residential accommodation (regardless of the term of occupation). (2) However, the sale is not input taxed to the extent that the *residential premises are: (a) *commercial residential premises; or (b) *new residential premises other than those used for residential accommodation (regardless of the term of occupation) before 2 December 1998. (Note: asterisked terms are defined in section 195-1 of the GST Act). Based on the facts provided the premises are not considered to be new residential premises. The term 'real property' is defined in section 195-1 of the GST Act to include: (a) any interest in or right over land; or (b) a personal right to call for or be granted any interest in or right over land; or (c) a licence to occupy land or any other contractual right exercisable over or in relation to land. The term 'residential premises' is defined in section 195-1 of the GST Act as being land or a building that: (a) is occupied as a residence or for residential accommodation; or (b) 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. Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) provides the Tax Office view of the characteristics of residential premises. Paragraph 9 of GSTR 2012/5 provides in part that the requirement in section 40-35 that premises be 'residential premises to be used predominantly for residential accommodation (regardless of the term of occupation)' 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. Paragraph 10 of GSTR 2012/5 continues stating that the requirement for residential premises to be used predominantly for residential accommodation does not require an examination of the subjective intention of, or use by, any particular person. As such, we need to consider the property as it was at the time of sale. Your intended use of the property is not taken into account when determining whether the premises are considered residential premises. In order to satisfy the definition of residential premises, premises must provide shelter and basic living facilities (paragraph 15 of GSTR 2012/5). In this case the premise provides shelter and contains kitchen, laundry and bathroom facilities in addition to numerous other rooms suitable for use as bedrooms and living areas. However the use of the phrase 'only to the extent' in subsection 40-65(1) of the GST Act contemplates that in some cases there may be the need to apportion a part of some premises to the extent that those premises are not residential premises to be used predominately for residential accommodation. Paragraphs 68 of GSTR 2012/5 discuss comments of Edmonds and Gilmour JJ in Sunchen Pty Ltd v. Federal Commissioner of Taxation [2010] FCAFC 138 that the phrase 'to be used predominantly for residential accommodation' does not refer to use by any particular person, but to the attributes of the property to which its use is suited. In this case the floor plan and photographs indicate an unconventional layout in regard to multiple toilet facilities not usually exhibited in typical residential premises. The toilet areas contain a number of private cubicles/stalls with the male area also containing a urinal and a separate facility for use by persons with a disability. We consider that this area of the premises is more suited for use in a non-residential or commercial environment. This is evidenced by the use of the premises in a number of commercial operations since the mid 1900's in use as a hostel, medical facility and most recently a restaurant and function centre. In looking at the physical attributes of the property, consideration has been given to the size and scale of the 'bar' area and associated toilets. Based on the facts provided, the vendor removed some internal walls and part walls in order to convert the area for use as a bar for commercial use in the restaurant/function centre. On balance it is considered the physical characteristics are more of a commercial nature, and at the time of the sale this area would not have been suited or used as part of the residential premises. Paragraph 90 of GSTR 2012/5 provides that if there is a single supply of the premises but only part of premises is residential premises to be used predominantly for residential accommodation, the supply is input taxed to the extent of that part. For example, if residential premises are designed, built or modified so that part of the premises is a house and part is for commercial purposes, such as a shop (based on its physical characteristics), a supply of the premises is a taxable supply to the extent that it relates to the shop. Given the above we consider that the premises are residential premises to the extent that excludes the male and female toilet areas and the bar area. As such the supply of the premises will require apportioning for the purposes of GST between input taxed residential premises and the taxable commercial area. | Detailed Reasoning - Apportionment: Where a supply contains both taxable and non-taxable components, guidance on methods of apportionment in such cases is contained 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) including both direct and indirect methods of apportionment. Paragraph 26 of GSTR 2001/8 provides: 26. Apportionment must be undertaken as a matter of practical commonsense. You can use any reasonable basis to apportion the consideration. Depending on the facts and circumstances of the supply, a direct or indirect method may be an appropriate basis upon which to apportion the consideration and ascertain the value of the taxable part of the supply. The basis you choose must be supportable in the particular circumstances. | Detailed Reasoning - Commercial residential premises: The term 'commercial residential premises' is defined in section 195-1 of the GST Act as: (a) a hotel, motel, inn, hostel or boarding house; or (b) premises used to provide accommodation in connection with a *school; or … (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 (GSTR 2012/6) provides the Tax Office view of the characteristics of commercial residential premises. You advised that the premises were used by a Government Department as a 'hostel' providing accommodation with renovations to the property being carried out at the time to facilitate the use of the property as a hostel however such alterations were removed in the early 2000s and the property returned to substantially its original condition. Further to this paragraph 86 of GSTR provides guidance when characterising premises that are not operating at the time of supply. It advises that premises may be characterised as hotel, motel, inn, hostel or boarding house by considering their overall physical character, considered with other objective characteristics. In this case based on the facts provided, we consider at the time of the supply of the premises as a whole did not exhibit the physical characteristics to fall within the definition of commercial residential premises. | Summary: The premises are considered to be residential premises to the extent that excludes the male and female toilet areas and the bar area for the purpose of section 40-65 of the GST Act and is neither commercial residential premises nor new residential premises. | Detailed Reasoning - Further information: This advice has been based by considering the physical characteristics of the premises at the time of the sale, subsequent modifications you may undertake to convert the 'bar and toilet area' may result in the premises no longer exhibiting 'non residential' characteristics. In addition while we have provided this advice to you, it is ultimately the suppliers responsibility to determine whether the supply of the premises 'The Property' is input taxed or taxable, and to what extent.