Private ruling: GST and property
Date of advice: 10 July 2017
Published: November 2017

Ruling: A1: No

Relevant facts and circumstances: You are registered for GST. You purchased property situated at a specified location (the Property). You engaged a related entity to construct X new residential apartments. Your original intention was to sell the apartments however your intention to sell the apartments was abandoned and you decided that on completion of the construction you would use the Property to conduct a business of providing short term accommodation to the public. You entered into a lease agreement, leasing the Property (being the X separately strata titled apartments) to a related entity. The lease term is for a period of five years including an option for a further five year period. Subsequently you sold one of the apartments treating the sale as a taxable supply of new residential premises. The apartments are furnished and contain one or two bedrooms, kitchen, bathroom and living facilities. The apartment block also contains on-site car parking facilities for each apartment. The Property does not contain any other commercial infrastructure such as a bar, restaurant or pool.

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 9-40 | A New Tax System (Goods and Services Tax Act) 1999 Section 40-35 | A New Tax System (Goods and Services Tax Act) 1999 Paragraph 40-35(1)(a) | A New Tax System (Goods and Services Tax Act) 1999 Section 195-1

Reasons for decision: Summary: Note: In this reasoning, unless otherwise stated, ● all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) ● reference material(s) referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au Section 9-40 provides that you are liable for GST on any taxable supplies that you make. Section 9-5 provides you make a taxable supply if: ● you make the supply for consideration ● the supply is made in the course or furtherance of an enterprise that you carry on ● the supply is connected with the indirect tax zone, and ● 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. Section 40-35 provides that a supply of residential premises by way of lease, hire or licence (other than a supply of commercial residential premises or a supply of accommodation in commercial residential premises provided to an individual by an entity that owns or controls the commercial residential premises) is input taxed. The supply will only be input taxed to the extent the premises are to be used predominately for residential accommodation (regardless of the term of occupation). The definition of residential premises in section 195-1 refers to land or a building that is occupied as a residence, or for residential accommodation, or is intended and capable of being occupied as a residence or for residential accommodation (regardless of the term of occupation). In this case you are making a supply of premises being a building consisting of a number of self-contained apartments containing bedroom, bathroom, kitchen and living facilities. Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) outlines the characteristics of residential premises. Paragraph 9 of GSTR 2012/5 explains that the requirement that the residential premises are to be used predominately for residential accommodation in section 40-35 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 15 of GSTR 2012/5 continues by stating that to satisfy the definition of residential premises, premises must provide shelter and basic living facilities. In this case the Property will satisfy the definition of 'residential premises’ as the premises provide shelter and basic living facilities. The primary issue in this case is whether your supplies fall within the exclusions in paragraph 40-35(1)(a) being a supply of commercial residential premises or a supply to an individual of accommodation in commercial residential premises that you own or control. Commercial residential premises are defined in section 195-1 to include, amongst other things: (a) a hotel, motel, inn, hostel or boarding house, or (b) … (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 definition of 'commercial residential premises’ encompasses similar establishments or establishments that exhibit characteristics that place them on a similar footing to hotels, motels, inns, hostels and boarding houses. Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises (GSTR 2012/6) provides the ATO view of the definition of commercial residential premises. The terms hotel, motel, inn, hostel and boarding house are not defined in the GST Act and take their ordinary meaning. The Macquarie Dictionary 5 th Edition 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 any of the class of establishments described in paragraphs (a) to (e). Premises that are 'similar’ to establishments that are commercial residential premises must have sufficient characteristics in common with one of the class of premises described. In addition to the physical characteristics of the premises, paragraph 12 of GSTR 2012/6 lists the following eight characteristics that are considered to be common to operating hotels, motels, inns, hostels and boarding houses: ● commercial intention ● multiple occupancy ● holding out to the public ● accommodation is the main purpose ● central management ● management offers accommodation in its own right ● provision of, or arrangement for, services, and ● occupants have the status of guests. Paragraph 41 of GSTR 2012/6 states that ultimately, determining whether premises are commercial residential premises is a matter of overall impression involving the weighing up of all relevant factors. In this case you entered into a lease agreement with a related entity for a period of five years with a further five year option. The lease was originally in regard to all X apartments on the Property however you have recently sold one of the apartments, with the related entity leasing the apartment from the new owner. Given the above, we consider that your supply of the premises would not exhibit the following features of commercial residential premises as listed above. | Detailed Reasoning - Physical Characteristic: The overall physical characteristic of the premises is that of Y residential apartments with parking and no commercial infrastructure. | Detailed Reasoning - Multiple occupancy: You have entered into an agreement to lease the entire Property to a single entity for a period of 5 years. As such, your enterprise does not involve operating the premises on a multiple occupancy basis. | Detailed Reasoning - Holding out to the public: You do not offer accommodation to the public at large. | Detailed Reasoning - Accommodation is the main purpose: The main purpose of the premises in your hands is to provide Y residential apartments to a related entity for them to operate a business of serviced apartments. The main purpose of your operation (the leasing of the Y residential apartments) is not to offer accommodation to the public at large. | Detailed Reasoning - Provision of, or arrangement for, services: You do not provide, or make arrangements for, services to the lessee (the related entity). | Detailed Reasoning - Occupants have the status of guests: Occupants of commercial residential premises are predominately travellers who have their principal place of residence elsewhere. In this case the related entity/lessee is using the premises to conduct an enterprise of providing short-term accommodation. You do lease the premises in your own right and it is likely that you do so with a commercial intention and you centrally manage your enterprise. However we do not consider the premises exhibit sufficient characteristics (physical and operating) typically inherent to the types of establishments defined as commercial residential premises in section 195-1 to be classified as one of those establishments or being similar enough to any one of those types of establishments. As such, your supply of the premises will be an input taxed supply of residential premises pursuant to section 40-35.

Subject: GST and property: Are you making a taxable supply when you supply premises situated at a specified location?