Private ruling: GST and commercial residential premises
Published: April 2013

Ruling: Q1: Is the supply of your property an input taxed supply of residential premises? | A1: Yes, therefore, it will not be subject to GST.

Relevant facts and circumstances: You are not registered for GST You own the property situated at a specified address, jointly with another individual. The premises were originally designed as an X bedroom house. You conducted renovations to the house being the partitioning of the existing Y bedrooms resulting in the creation of additional Y bedrooms (total Z bedrooms) together with constructing separate entrances for each additional bedroom. The premises also have bathrooms, kitchen and living room. You obtained approval from the local shire Council to use the premises as a 'Rooming house' suitable for accommodating a maximum of B persons. You lease the premises to a Company. You entered into a residential tenancy agreement with the Company for a specified period exceeding 2 years leasing the premises for a specified amount per week. The lease agreement provides for the payment of a bond. The Company lease rooms to students attending the local universities. Meals will not be provided to the students. The occupants are responsible for their own cooking in the shared kitchen facilities. You do not have an on-site presence at the premises. You did not operate the premises as student accommodation prior to the Company leasing the premises.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 9-5 | Section 9-40 | Division 40 | Subdivision 40-B | Subdivision 40-C | Subsection 40-35(1) | Section 195-1

Reasons for decision: Summary: Division 40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) contains details of supplies that are input taxed. Subsection 40-35(1) of the GST Act provides: 1) A supply of premises that is by way of lease, hire or licence (including a renewal or extension of a 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. The term 'residential premises' is defined in section 195-1 to mean land or a building that: (c) is occupied as a residence or for residential accommodation; or (d) 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.' Note: Asterisked terms are defined in section 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). The definition states that the premises must be capable of occupation as a residence. The physical characteristics common to 'residential premises' is that they provide the occupants with sleeping accommodation and at least some of the basic facilities for day to day living. These characteristics will be inherent in the design and fabrication of the premises, which typically include areas for sleeping, eating and bathing. However, these things do not need to be arranged in a manner that is similar to a conventional house or apartment. In this case the premises contain Z bedrooms, bathrooms, kitchen and living room and are residential premises. The next issue to consider is whether the premises fall within the definition of '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; 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. The terms hotel, motel, inn, hostel and boarding house are not defined in the GST Act and take their ordinary meaning. The Macquarie Dictionary (Macquarie) 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. 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). Goods and Services Tax Ruling 2012/6 ' Goods and services tax: commercial residential premises ' (GSTR 2012/6) provides the Commissioner's considered view about how Subdivisions 40-B and 40-C and section 9-5 of the GST Act apply to supplies of commercial residential premises and accommodation in commercial residential premises. The principles outlined in GSTR 2012/6 have been applied in addressing the issues raised. The issue of whether premises were 'commercial residential premises' was also examined in ECC Southbank Pty Ltd as trustee for Nest Southbank Unit Trust & Anor v Commissioner of Taxation [2012] FCA 795 (ECC Southbank). Nicholas J stated in ECC Southbank at [50] : [50] The test to be applied for the purpose of determining whether the Urbanest premises are commercial residential premises involves asking whether the Urbanest premises is a hotel, motel, inn, hostel or boarding house or whether it is similar to - in the sense that it has a likeness or resemblance to - any of those types of establishment. The application of this test necessarily raises questions of fact involving matters of impression and degree. | Detailed Reasoning - Hotels, motels and inns: Paragraphs 13 to 25 of GSTR 2012/6 list the following features which are typical of hotels, motels and inns. A motel is a particular type of hotel that primarily caters to the needs of motorists seeking roadside accommodation. An inn is a small hotel at which board (meals) and lodging are provided to travellers. Subject to those qualifications, the following features of hotels are equally relevant to motels and inns: · Hotels provide accommodation for a commercial purpose. · Hotels have the capacity to provide for multiple occupancy. · Hotels usually offer meals to guests and usually have a kitchen where meals are prepared for guests. The premises usually include a restaurant or dining room for guests. A motel need not necessarily have a dining room, but guests of the motel may still be provided meals. · Rooms are invariably furnished. · Linen and towels are usually supplied. The rooms are usually cleaned and serviced by staff on a daily basis, with the costs of these services being included in the tariff. · Predominantly, 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. · Guests of hotels do not 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. · Hotels usually have a reception desk to handle the requirements of both management and guests. Hotels may offer concierge services at either the reception desk or at a separate desk. · A hotel is centrally managed by the operator, having at least one person present, or offsite but readily accessible to manage the accommodation and arrange for and provide services. · Accommodation in a hotel is supplied by the operator of the hotel in its own right and not in the capacity of an agent for a third party. In considering the similarities and differences between the characteristics of hotels, motels, inns, and those features provided by you, the following observations are provided: · You do not have the commercial infrastructure in place that is typically found in these types of establishments in order to provide services to the occupants. Such commercial infrastructure includes reception areas, dining and bar areas, meeting/function areas, kitchens, laundry facilities, storage areas and car parks. · You do not offer meals. · You entered into a residential tenancy agreement for a specified period for a specified amount per week. · The lease agreement provides for the payment of a bond. Given the above we do not consider your premises to be similar in nature to a hotel, motel or inn. | Detailed Reasoning - Hostels and boarding houses: A hostel is described as a supervised place of accommodation, usually supplying board and lodging provided at a comparatively low cost. In this case, you do not have an on-site presence and therefore the premises are not considered to be supervised. As such, the premises would not fall within the classification of being similar to a hostel. Paragraph 181 of GSTR 2012/6 explains that a boarding house is a dwelling at which board (meals) and lodging are provided to guests or residents. A primary characteristic of a boarding house is the provision of meals. As previously discussed you do not provide meals and as such the premises are not considered to similar to a boarding house. | Detailed Reasoning - Conclusion: Your supply of the premises is an input taxed supply of residential premises. The premises are not considered to be commercial residential premises. Therefore, GST is not payable on the supply.