Private ruling: Goods and services tax and property
Date of advice: 28 January 2016
Published: April 2016

Ruling: Q1: Is specified person's supply of premises, pursuant to option A, by way of lease, hire or licence an input taxed supply under section 40-35 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes, specified person's supply of premises, pursuant to option A, by way of lease, hire or licence is an input taxed supply under section 40-35 of the GST Act. | Q2: Is specified person's supply of premises, pursuant to option B, by way of lease, hire or licence an input taxed supply under section 40-35 of the GST Act? | A2: Yes, specified person's supply of premises, pursuant to option B, by way of lease, hire or licence is an input taxed supply under section 40-35 of the GST Act. | Q3: Is specified entity's supply of premises, pursuant to option C, by way of lease, hire or licence an input taxed supply under section 40-35 of the GST Act? | A3: Yes, specified entity's supply of premises, pursuant to option C, by way of lease, hire or licence is an input taxed supply under section 40-35 of the GST Act.

Relevant facts and circumstances: There are two parties to this ruling being specified person, who owns an apartment in a multi-apartment building, and specified entity, the second party to the ruling. Specified person is a shareholder and director of specified entity. Specified entity provides accommodation services to a number of owners of apartments in different buildings pursuant to options A or B described below. These accommodation services include checking in the occupants, organising cleaning and guest communication services. Specified entity charges a fee on the owners for these services. The owners, serviced by specified entity, may include specified person. The buildings remain unbranded, unlike hotels or motels, where occupants can clearly distinguish the building as commercial residential premises. The buildings retain their original name. The physical facilities in each building differ, with only one offering a concierge service, and another offering a meeting room provided by the building's body corporate. There is otherwise no infrastructure in these apartment buildings similar to a reception area, dining and bar area, kitchen, laundry facilities and storage areas. Specified entity manage or lease varying numbers of the apartments within each building rather than all the apartments in the buildings. Specified entity does not foresee leasing or managing more than 5-10% of the apartments in each building. Specified entity's management of the apartments falls under one of three options: Option A Specified entity takes bookings from people who want to stay in the apartment. Specified entity acts on behalf of the owner (eg specified person) of the relevant apartment. Specified entity will take a percentage of the gross rental income as their service fee and remit the balance to specified person. For example, if the gross rental income is $100 per night from the guest, then specified entity retains 15% of that (ie $15) as their service fee. Specified entity remits the remaining $85 (ie $100 - $15) to specified person. Specified entity supplies accommodation services to specified person. It follows that, under this option specified person is supplying premises to the occupant by way of lease, hire or licence for $100. Option B Under this option the owner (eg specified person) and specified entity agree on a nightly rate that will be charged if the premises are occupied. The agreed rate to be paid to specified person only applies if the premises are occupied and only to the extent the premises are occupied. For example, if the agreed rate between specified person and specified entity is $90 per night and the premises are leased for only one night in a year then specified person will get $90 for the relevant year. If specified entity manages to supply the premises by way of licence for $150 per night then specified entity will keep $60 (ie $150 - $90). The $60 is the fee for specified entity's provision of accommodation services to specified person. It follows that, under this option specified person is supplying premises to the occupant by way of lease, hire or licence for $150. Option C Under this option specified entity is not providing an accommodation service. Specified entity is leasing the apartment from the owner. Specified entity pays an agreed leasing fee to the owner of the apartment regardless of whether specified entity is successful in finding a tenant. The difference between option C and option B is that under option C the payment to the owner is fixed (e.g. $2,500 per month) regardless of whether the apartment is occupied. Specified entity carries the financial risk of the apartment not being occupied. Under this option, specified entity is supplying premises to the occupant by way of lease, hire or licence. The supply by specified entity is for the amount paid by the occupant.

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

Reasons for decision: Detailed Reasoning - Option A, B and C: Subsection 40-35 of the GST Act provides that a supply of premises by way of lease, hire or licence 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). However, the supply is not input taxed if the premises are commercial residential premises. We note for your information that 'commercial residential premises' is defined in the GST Act to mean: " (a) a hotel, motel, inn, hostel or boarding house; or (b) premises used to provide accommodation in connection with a school; or (c) a ship that is mainly let out on hire in the ordinary course of a business of letting ships out on hire; or (d) a ship that is mainly used for entertainment or transport in the ordinary course of a business of providing ships for entertainment or transport; or (da) a marina at which one or more of the berths are occupied, or are to be occupied, by ships used as residences; or (e) a caravan park or a camping ground; 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 issue is whether the premises in question are commercial residential premises. This is the case regardless of whether the supply is by specified person (under option A and B) or by specified entity (under option C). Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises (GSTR 2012/6), provides guidance on what is considered to be commercial residential premises. GSTR 2012/6 at paragraphs 82 - 85 states: Example 12 - individual holiday apartments 82. Gus owns an apartment in a block of strata titled holiday apartments. Gus's apartment is let out for short term stays during the year through an on-site manager (who acts as Gus's agent). The on-site manager, who acts as agent in respect to several apartments, provides keys to guests, and cleans the rooms between stays, refreshing items such as linen, towels and the tea and coffee making facilities. The body corporate maintains common areas but does not otherwise involve itself with occupants. 83. The premises are being operated so as to provide accommodation on a commercial basis to travellers (guests) who are temporarily away from their usual homes. The premises are managed by the on-site manager who also provides some services to guests. The manager does not supply the accommodation in their own right, but as agent for Gus. 84. While the accommodation provided through Gus's apartment does display some characteristics of commercial residential premises, the supply of the accommodation through the single apartment is not sufficiently similar to a hotel, motel, inn, hostel or boarding house to be characterised as accommodation provided in commercial residential premises. The fact that the manager acts as agent in respect to several apartments in the block and offers accommodation in that capacity to several parties at once is not sufficient to characterise the supply Gus makes to the guests through the manager as accommodation provided in commercial residential premises. 85. Gus's supply of his apartment by lease, hire or licence is an input taxed supply of residential premises to be used predominantly for residential accommodation under paragraph 40 35(1)(a). An apartment on its own does not constitute commercial residential premises. Furthermore, the buildings housing the apartments do not have the necessary infrastructure to qualify as commercial residential premises. The supply of premises by way of lease, hire or licence, under option A, B or C, is input taxed pursuant to section 40-35 of the GST Act. No GST is payable in respect to such input taxed supplies.