Private ruling: Goods and services tax (GST ) and employee accommodation
Published: November 2012

Ruling: Q1: Is the supply of employee accommodation to staff at the premises an input taxed supply of residential premises under section 40-35 of the A New Tax system (Goods and Services Tax) Act 1999 ? | A1: No

Relevant facts and circumstances: You are registered for GST. You constructed premises. You also constructed onsite employee accommodation buildings. Onsite employee accommodation is necessary due to the remoteness of the premises location. You offer employees accommodation. Only employees are entitled to occupy the units and they cannot make the rooms available to anyone else including their spouses, partners or children. Each employee has their own bedroom; however they are expected to share the building accommodation with others, as directed. You retain the right to move on an employee from one bedroom or suite to another in the case of a business need. You can undertake room inspections without notice and reserve the right to withdraw the offer of on-site accommodation at any time, either to all employees or to a specific employee. Employees are free to reside elsewhere during their employment but are required to vacate the on-site accommodation (if they choose to use it) upon cessation of employment. The bedrooms are fully furnished and employees are entitled to bring some limited personal accessories, such as paintings and photos. Employees are not entitled to bring their own furniture, such as beds and tables. Employees are required to clean their own rooms as there are no in-room cleaning services provided. Each accommodation building contains a communal lounge room and dining area containing television, DVD player, wireless internet and small kitchenette with basic facilities such as a toaster, microwave, kettle, sink and fridge. Employees staying on-site are entitled to, or are provided with: · Three meals each day at the communal employee canteen. · Utilities such as electricity and water at no additional cost. · Free laundry services (for all employees that are required to wear a work uniform) or access to a coin operated launderette. · Bed linen and towels on a 'dirty' for clean' basis. · Recreational facilities such as a basketball court, gym, tennis court and swimming pool (free of charge) which are separate from the main premises facilities. The accommodation is provided to employees as part of their total remuneration package. You deduct amounts from the pre-tax income of the employee under an effective salary sacrifice arrangement. You subsidise the rent in order to attract and retain employees to work at the remote premises. There is no tenancy or license agreement in place. The accommodation is provided under a Collective Agreement with employees. If the employee decides not to occupy the employee accommodation on the conditions noted they are required to make their own arrangements and are not entitled to any allowances or reimbursements in lieu. The provision of employee accommodation qualifies as an exempt 'remote area housing benefit' under subsection 58ZC(2) of the Fringe Benefits Tax Assessment Act 1986.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Division 7, | A New Tax System (Goods and Services Tax) Act 1999 Section 9-5, | A New Tax System (Goods and Services Tax) Act 1999 Section 9-75, | 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, | Fringe Benefits Tax Assessment Act 1986 Subsection 58ZC(2) and | Fringe Benefits Tax Assessment Act 1986 Subsection 136(1).

Reasons for decision: Summary: Division 7 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that GST is payable on taxable supplies. Under section 9-5 of the GST Act 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 for GST. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. In your case, you are registered for GST and make a supply of accommodation to your employees in the course of your enterprise and the supply is connected with Australia as the accommodation is located in Australia, satisfying the requirements of subsections 9-5(b), 9-5(c) and 9-5(d) of the GST Act. However, we must determine if you make the supply of accommodation for consideration and satisfy subsection 9-5(a) of the GST Act. | Detailed Reasoning - Consideration for a fringe benefit: You have advised that the provision of accommodation to your employees qualifies as an exempt 'remote area housing benefit' under subsection 58ZC(2) of the Fringe Benefits Tax Assessment Act 1986. Furthermore, you deduct amounts for the accommodation from the pre-tax income of the employee under an effective salary sacrifice arrangement. Goods and Services Tax Ruling GSTR 2001/3 Goods and Services Tax: GST and how it applies to supplies of fringe benefits (GSTR2001/3), explains the circumstances under which supplies of fringe benefits are subject to GST. Paragraph 17 of GSTR 2001/3 provides that the provision of a fringe benefit can be a supply. You contend that your employees are not providing any consideration for the supply of the accommodation and thus the provision of the accommodation is a supply which is outside the scope of GST. The requirement for a taxable supply to be made for consideration under section 9-5 of the GST Act is considered in paragraphs 18 - 20 of GSTR 2001/3. Paragraph 19 of GSTR 2001/3 provides that the services of an employee can be consideration for the supply of a fringe benefit to the employee. Paragraph 20 of GSTR 2001/3 provides the consideration may also take the form of the payment or contribution made by the recipient of the benefit. It is only this consideration that is taken into account in working out the amount of GST on the supply of a fringe benefit under subsection 9-75(3) of the GST Act which outlines how much GST is payable on taxable supplies. In your case, you provide accommodation to your employees as part of their total salary package with an amount being deducted from their salary under a salary sacrifice arrangement. Paragraph 28 of GSTR 2001/3 provides that the entry into a salary sacrifice agreement is not consideration for the supply of a benefit. Thus, we can only consider the services of your employees in determining whether the supply is made for consideration. Example 2 at paragraphs 29 and 30 of GSTR 2001/3 demonstrates an arrangement which is similar to your situation. | Detailed Reasoning - Example 2: 29. Kylie's employer has a policy in place which permits employees to enter into a salary sacrifice agreement in relation to the provision of a car to employees for wholly private use. The particular agreement between Kylie and her employer involves a reduction of her current gross salary by $15,000. Kylie makes no payments to her employer. 30. The $15,000 that has been 'sacrificed' is not consideration for the supply of the vehicle. Kylie has provided her services as consideration for the supply of the car. Although her employer has made a taxable supply of the car to Kylie, there has been no amount of recipients payment made to the employer. Her employer is not liable to pay any GST on the supply of the car. In your case, similar to the example, the salary sacrificed is not consideration for the supply of the accommodation. However, the employees have provided their services as consideration for the supply of the accommodation. Therefore, consideration is made and you satisfy subsection 9-5(a) of the GST Act. | Detailed Reasoning - Calculating the value of a fringe benefit: GST is payable on the value of taxable supplies. However, special rules apply under subsection 9-75(3) of the GST Act apply to work out the value of a 'fringe benefit'. Paragraph 21 of GSTR 2001/3 explains that under subsection 9-75(3) of the GST Act the price of a supply of a fringe benefit is the amount of consideration in the form of the 'recipients payment' or the 'recipients contribution'. Both 'recipients payment' and 'recipients contribution' are defined in section 195-1 of the GST Act. 'Recipients payment' deals with car fringe benefits and is not relevant in this situation. 'Recipients contribution' is defined in section 195-1 of the GST Act as: recipients contribution has the meaning given by subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 but includes any consideration paid in respect of the provision of a benefit that is an exempt benefit for the purposes of that Act. As per paragraph 28 of GSTR 2001/3 it is considered that the entry into a salary sacrifice agreement is not consideration for the supply of a fringe benefit. In addition as per example 2, the fact that the employee has provided services to the employer is not treated as payment or a contribution towards the supply being made. In your case when working out the value of the employee accommodation, the same principals apply in that the amount 'sacrificed' is not considered to be a payment or contribution made for the supply of the accommodation. As such, while you meet the requirements of section 9-5(a) to (d) of the GST Act there will be no GST liability on the supply of the accommodation as the employee has not made a contribution or payment towards the benefit, as per subsection 9-75(3) of the GST Act. There are no provisions in the GST Act under which the supply would be GST-free. However, we still need to consider if the supply is input taxed. Draft Goods and Services Tax Ruling (GSTR 2012/D1) Goods and services tax: residential premises and commercial residential premises provides guidance on the distinction between supplies of residential premises that are input taxed and supplies of accommodation in commercial residential premises that are subject to GST. | Detailed Reasoning - Residential premises: Section 40-35(1) of the GST Act provides that a supply of premises that is by way of lease, hire or licence is input taxed if: (a) 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), or (b) the supply is of commercial accommodation and Division 87 (which is about long-term accommodation in commercial premises) would apply to the supply but for a choice made by the supplier under section 87-25. 'Residential premises' is defined in section 195-1 of the GST Act to mean 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 the occupation or intended occupation) and includes a floating home. Paragraph 9 and 10 of GSTR 2012/D1 explains that for premises to be 'residential premises to be used predominantly for residential accommodation' the physical characteristics of the property will determine the premises suitability and capability for residential accommodation. Premises that display physical characteristics evidencing their suitability and capability to provide residential accommodation are residential premises. Paragraphs 15 and 16 of GSTR 2012/D1 further explain that residential premises are not limited to extended or permanent occupation but provided 'living accommodation' which does not require any degree of permanence. To be residential premises a place need only provide shelter and basic living facilities. In your case, the premises, as shown by their physical characteristics are designed and occupied for no other purpose but residential accommodation. The accommodation facilities are designed and fitted out to provide daily living accommodation to employees and they contain the basic facilities for daily living such as a bedroom, en-suite and kitchenette. Therefore, the premises will fall within the definition of 'residential premises'. However, subsection 40-35(2)(a) of the GST Act further provides that input taxing only applies to the extent that the premises are 'to be used predominantly for residential accommodation' indicating that residential premises are capable of use for purposes other than residential premises. It is their physical characteristics that mark them out as a residence and in turn, these characteristics determine when the use or the proposed use is for residential accommodation. As such, we need to consider whether the premises possess characteristics that align more with that of 'commercial residential premises'. | Detailed Reasoning - Commercial residential premises: 'Commercial residential premises' is defined in section 195-1 of the GST Act to include, amongst other things: (a) a hotel, motel, inn, hostel or boarding house, … (f) anything similar to residential premises described in paragraphs (a) to (e). [Paragraphs (b) to (e) are not relevant to your circumstances.] As the definition is exhaustive, the accommodation must be of the type specified in paragraph (a), or must be similar to such establishments to fall within the scope of paragraph (f). GSTR 2012/D1 sets out characteristics that can be used to identify residential premises that are similar to a hotel, motel, inn, hostel or boarding house and therefore commercial residential premises. If the premises do not exhibit the characteristics to a sufficient degree, they are not commercial residential premises under paragraph (a) of the definition above, nor are they included in paragraph (f) as the type of establishment that falls within scope of paragraph (a). Those characteristics are outlined in paragraph 50 of GSTR 2012/D1: (i) commercial intention (ii) accommodation is the main purpose (iii) multiple occupancy (iv) occupants have status as guests (v) holding out to the public (vi) central management (vii) provision of, or arrangement for, services (viii) management offers accommodation in its own right Further to these operating characteristics there are additional objective factors including the overall physical character of the premises. | Detailed Reasoning - Accommodation for employees: Accommodation for employees is discussed at Example 14 in paragraphs 65 to 72 of GSTR 2012/D1. In the example XYZ Mining establishes camp-style accommodation consisting of single person quarters at a mine site to accommodate employees. While this example is about camp-style accommodation for employees of a mine, the same principles can be applied to your situation in working out whether your supply is of a commercial residential nature. In the example, the accommodation provided by XYZ Mining is characterised by: · separately keyed rooms with bed, small wardrobe and separate bathroom · onsite central management of room allocation, maintenance and servicing · cleaners employed to service the rooms regularly including changing sheets and towels · meals provided in a communal canteen · communal laundry facilities · other services provided including televisions, and DVD, and bar facilities · no right of employees to restrict managements access to their rooms and authorised personnel are able to enter and inspect rooms without prior notice · employees must abide by 'camp rules' including restrictions on fixtures and fittings being added to the room and prohibited smoking and pets Paragraph 70 of in the example provides that in determining whether the accommodation is accommodation in commercial residential premises, it is necessary to weigh-up the extent to which it satisfies the characteristics of hotels, motels, inns, hostels and boarding houses. The characteristics of the premises in the example are: · accommodation on a commercial basis to guests temporarily away from their usual homes · operated on a multiple occupancy basis similar to a hotel, motel, inn, hostel or boarding house · employees do not obtain rights to restrict management's access to their rooms · services are typical of those often provided in some hotels, motels, inns, hostels and boarding houses · premises are centrally managed by XYZ Mining · XYZ Mining offers the accommodation in its own right · XYZ Mining does not hold out or advertise the single person quarters as being available to the public generally. It is only available to its employees. In the example, despite the fact that the accommodation is not held out to the public, in weighing up all the characteristics, the premises are considered to be operated on a basis similar to a hotel, motel, inn, hostel or boarding house and therefore fall within paragraph (f) of the definition of commercial residential premises. | Detailed Reasoning - Your circumstances: In your case, the characteristic of 'holding out to the public' is also not satisfied. An establishment holds itself out as premises offering accommodation for guests to the public or a segment of the public. Your accommodation is only available to employees. However, the remaining characteristics need to be considered and weighed up, with the example providing further guidance: | Detailed Reasoning - Commercial intention: Hotels, motels, inns, hostels and boarding houses are normally conducted in business like manner, for reward. In your case, there is commercial intent however you are not undertaking the activities with a view to making a profit from providing accommodation. Rather, it is to retain and house your employees working at your remotely located premises. | Detailed Reasoning - Accommodation is the main purpose: In your case, the premises are being operated in order to provide living accommodation for your employees in terms of their employment. | Detailed Reasoning - Multiple occupancy: In your case, you have capacity to provide accommodation to multiple employees at once in various accommodation buildings and in various suites. | Detailed Reasoning - Occupants have the status as guests: In your case, there is no tenancy agreement in place between you and the employee. Employees are not entitled to bring their own furniture or fittings, and are limited to personal accessories such as paintings and photos. Employees cannot make their room available to their spouse/partner or children. You reserve the right to move an employee to another room and can withdrawal the accommodation at any time. | Detailed Reasoning - Central management: You centrally run the accommodation on site. Provision of, or arrangement for, services In your case, employees staying on-site are entitled to, or are provided with: · meals provided at the communal employee canteen · free laundry services (for all employees that are required to wear a work uniform) or access to a coin operated launderette · bed linen and towels on a 'dirty' for clean' basis · recreational facilities · communal lounge and dining with television/DVD, wireless internet and kitchenette with toaster, microwave, kettle, sink and fridge However, employees are required to clean their own rooms. Management offers accommodation in its own right In your case, you own the premises and provide them in your own right. The main differences between the example and your situation are that employees are required to pay subsidised rent under an effective salary sacrifice arrangement for the accommodation and are responsible for cleaning their own rooms. | Detailed Reasoning - Our decision: After considering the above factors we consider that the facts of your situation are similar to example 14 in paragraphs 65 to 72 of GSTR 2012/D1. On examination of the facts and circumstances, we consider that your provision of accommodation to employees has many characteristics common to commercial residential premises. On balance, the accommodation has the physical characteristics and the mode of operation similar to that of a hotel, motel, inn, hostel or boarding house. As such, the supply of accommodation by you to your employees will be commercial residential premises and will not be input taxed under section 40-35(1) of the GST Act.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.