Private ruling: GST and the supply of accommodation
Date of advice: 11 May 2016
Published: June 2016

Ruling: Q1: 1. Will the supplies by you, of accommodation from the specified apartments be input taxed supplies pursuant to section 40-35 of the GST Act? 2. Are additional charges, for additional bedding and seating, off site parking, additional cleaning services, telephone calls, breakfast supplies, additional internet access (over and above … mb), payments for taxable supplies pursuant to section 9-5 of the GST Act? | A1: 1. No, your supplies of accommodation are taxable supplies of commercial accommodation in commercial residential premises pursuant to section 9-5 of the GST Act. 2. Yes.

Relevant facts and circumstances: You, entity A are registered for GST. You operate a serviced apartment business (the Business) from X studio apartments in a building comprising Y apartments. The building is located In Australia. You advertise your accommodation through the internet, and various other means including television, flyers, direct marketing and internet sites. You supply accommodation to a mixture of guests including business travellers, holiday goers, families and corporates. Your accommodation has the following features (Information supplied from your correspondence, a website and a visit to the Premises): • Reception desk for guests to check in and check out • Reception operates from 9am to 6pm Sunday to Wednesday and 9am to 9pm Thursday to Saturday • A brochure rack setting out local tours and places of interest for guests (installed and maintained by another entity) is located next to the reception desk • No designated luggage storage facilities however limited storage of luggage is provided to guests on request if space is available in the Caretakers office or Reception area • A resident manager who has the responsibility for: • being the on-site contact • facilitator for the Owners' Corporation and • to ensure all repairs maintenance are completed • Security entry • A small foyer adjacent to the reception desk with two chairs and a table. This area also contains mailboxes (one for each unit in the building) • A communal area for guests and residents of the building containing desks, chairs and couches • Coin operated laundry • Bicycle storage • Complimentary Wi-Fi and a daily download limit of … mb • Staff available 24 hours a day for emergencies. Apartment features included in the tariff: • Double or single beds • Kitchen with crockery, cutlery, glassware, rice cooker and tea & coffee making facilities • Air-conditioning and the apartments have windows which open and most have a balcony or courtyard • Intercom • LCD TV • Ensuite bathroom with soft close toilet seats • Linen, Towels and branded toiletries • Hairdryer, Clock radio, Iron and ironing board and • Servicing/cleaning of rooms every seven days or after exit. Additional services or options available: • Breakfast: a continental pack can be purchased from the reception desk • Where additional days are required over a week a servicing fee of $… per apartment per day applies • Late checkout. To 12 noon $… • Early check-in. From 12 noon $… and • There is secure, undercover parking within a 6 minute walk from the hotel available for $… per night. The secure parking can be arranged through you. The building was originally constructed with the purpose of supplying student accommodation. This intention was later changed due to insufficient patronage. Acquisition of Business You entered into a contract to purchase a 'Serviced Apartment Business' from entity B. Following settlement you entered into a franchise agreement with entity C. The purchase of the Business was documented under the following contracts. 1. Business sale contract 2. Assignment of, and the Caretaker's Deed 3. Assignment of, and the License Deed 4. Franchise Agreement (details set out under the subheading 'Operation of the Business' below). Copies of the Business sale contract, the Franchise agreements and associated documentation were supplied by you in your application. Operation of the Business Your business operates under four contracts: 1. the Caretakers Deed 2. The License Deed dated. (Note the License Deed is informed in the relevant areas by a Management Plan, for the premises) 3. Franchise Agreement and 4. The leases between the owners of each of the apartments and you.

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 40-35 and | A New Tax System (Goods and Services Tax) Act 1999 section 195-1.

Reasons for decision: Summary: Will the supplies by you, of accommodation from the specified apartments be input taxed supplies pursuant to section 40-35 of the GST Act? Under section 9-5, 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 the indirect tax zone, 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 our case you meet 9-5 (a) to (d) and your supplies are not GST free. Therefore your supplies of accommodation will be taxable supplies unless they are input taxed supplies of accommodation. | Detailed Reasoning - Input taxed: Under paragraph 40-35(1)(a), 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. Under subsection 40-35(2) of the GST Act, the supply will only be input taxed to the extent that the premises are to be used predominately for residential accommodation (regardless of the term of occupation). It is common ground that you supply accommodation in premises that satisfy the definition of residential premises. The issue to be determined is whether those premises are commercial residential premises. | Detailed Reasoning - Commercial Residential Premises and accommodation: '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. Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises provides the Australian Tax Office (ATO) view of the characteristics 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. Paragraphs 140-141 of GSTR 2012/6 list the ordinary meanings of the terms. 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. Paragraphs 10 and 11 of GSTR 2012/6 explain that the objective factors that are relevant to characterising premises under paragraph (a) or (f) of the definition include the overall physical character of the premises and how the premises are operated. The test to apply for paragraph (a) of the definition is whether the premises are a hotel, motel, inn, hostel or boarding house and the test for applying paragraph (f) is whether the premises are similar to these types of premise, in the sense that they have sufficient likeness or resemblance to any of those types of establishments. 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 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. Paragraph 12 of GSTR 2012/6 lists the characteristics that are considered to be common to operating hotels, motels, inns, hostels and boarding houses that are relevant to characterising premises as commercial residential premises: • 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. These factors are further discussed in paragraphs 13-35. 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. Application of the Characteristics to your premises and your supplies of accommodation: (1) Commercial intention: You operate the premises on a commercial basis. You have commercial agreements in place with owners, the Owner's Corporation, and the entities to whom you make supplies of accommodation. (2) Multiple occupancy You have leases over a number of units within the premises. You have the capacity to provide accommodation to multiple unrelated guests in separate rooms. In addition, while each of the units have been leased to you separately and are on a separate titles, your business combines these rooms with other commercial infrastructure such as the reception, laundry and common lounge. GSTR 2012/6 addresses when separately titled rooms can be commercial residential premises in paragraphs 95-107. Example 16 from paragraph 102 demonstrates how an entity, in this example Cloud, combines separately titled rooms with commercial infrastructure to supply accommodation in commercial residential premises. (3) Holding out to the public You offer your accommodation through a website (via your franchise agreement) to the public at large. You also brand your premises with the franchise name and logo. You also advertise your accommodation to the public at large via other means including television, flyers, direct marketing and internet sites. The cost of your accommodation is also calculated on nightly rates. (4) Central management You centrally manage the accommodation you offer. You manage the supply of accommodation in the units (and associated services) through the onsite reception and through your franchise agreement. (5) Management offers accommodation in its own right When you acquired the business from entity B, you acquired the rights to operate your enterprise of supplying accommodation through your leases of the apartments from the Owners' corporation through the license agreement. You had also acquired the trading name, operating systems and licenses you needed to undertake your operations. Under a Franchise Agreement you also acquired additional services to operate your business. Therefore you have control of: a. the apartments through the individual leases, b. the common areas licensed to you to use as reception, communal lounge and storage areas, c. the trading name you acquired through the Business sale contract, Owners Corporation license and d. the rights and responsibilities under the various agreements to operate a serviced apartment business and maintain the common areas through the agreements and leases. We therefore consider that you have the necessary control to supply the accommodation in the premises in your own right. (6) Provision of, or arrangement for, services You provide services and arrange for services for your guests. You provide: • staffed reception (From 9am to 6pm Sunday to Wednesday and 9am to 9pm Thursday to Saturday ) • check-in and check-out services via the onsite reception, • early and late check ins are provided via the onsite reception area • emergency after hours assistance through the onsite manager • furnished rooms • tea and coffee making items and branded basic toiletries • linen and towels, • cleaning at the end of each occupiers stay so that the next guest is provided with a clean room and cleaning during longer stays (additional cleaning can also be performed on request for a fee) • utilities such as electricity, gas and water • internet • arrangement of parking if requested • availability of a continental breakfast pack for purchase. It was advised during the site visit and in correspondence that you do not sell many breakfast packs. However, whether guests avail themselves of services or features offered by management is not the relevant test. What is considered relevant is what is being offered. The availability of the breakfast pack is also not considered to be the determinative feature of the premises. It is one feature taken into consideration as part of looking at the overall physical and operational characteristics of the premises you operate. You have contended that you provide minimal services and low cost accommodation. We acknowledge that the services you provide could be seen as limited when compared to a traditional hotel; however the relevant test is not solely whether premises are a hotel. The relevant tests include whether premises are similar to a hotel, motel, inn or hostel. Nicholas J addressed this issue in the ECC Southbank decision and stated at [70]: [70]… It is true that in comparison with some other types of establishment referred to in the relevant definition, the level of services provided in addition to accommodation may seem slight. But the services provided by staff to residents through the reception desk are by no means insignificant and, should be considered together with all other relevant matters. Budget or low cost accommodation can still meet the characteristic of commercial residential premises. Paragraphs 27-35 of GSTR 2012/6 provide further detail of characteristics of a hostel. The physical characteristics of a hostel reflect that the premises are designed to supply accommodation at a comparatively low cost to the occupant (paragraph 28) and that provision of meals is not an essential feature (paragraph 35). You have advised that the Premises was originally constructed with student accommodation in mind. This intention is reflected in the physical design (such as the mailboxes) and naming of parts of the premises. However, this does not preclude the premises from having the characteristics of, or being operated as, commercial residential premises. You provide sufficient services in addition to the accommodation to possess the characteristic of 'provision of, or arrangement for, services'. (7) Occupants have the status of guests You supply serviced apartment accommodation to the general public including business travellers, corporate clients, and holiday goers. The duration of the accommodation provided is short term. The nature of these clients would indicate they are in a class who ordinarily have their principal place of residence elsewhere and who need or desire accommodation while away for business or pleasure. There is no evidence that the occupants of the units you supply enjoy exclusive rights to occupy the units in the same way as a tenant. That is they have the status of guests. Your supplies of accommodation in the premises possess all the common characteristics of commercial residential premises. Further to this, paragraph 41 of GSTR 2012/6 provides a list of factors that may indicate that premises are not a hotel, motel, inn, hostel or boarding house including: • the operator and occupant agree for accommodation to be supplied for a periodic term (which may be for a period of months or years at a time), such as in a residential lease; • the operator and occupant document the condition of the premises under a written contract before the accommodation is initially supplied and when the occupant ceases to occupy premises; • the operator has the right to impose a cleaning fee on the occupant when the occupant ceases to occupy the premises; • the occupant is permitted, subject to the terms of the lease or licence, to alter the part of the premises occupied by the occupant, such as by attaching hanging devices on a wall; • the occupant is permitted, subject to the terms of the lease or licence, to keep pets in the premises; • the occupant must separately arrange and pay for the connection of a telephone, electricity, or gas service; • the occupant is responsible for the cleaning and minor maintenance of the premises, such as changing light bulbs in their room; and • the premises are unfurnished. While the absence of one or more of the above features does not mean that premises are similar to a hotel, motel, inn, hostel, or boarding house, your premises do not exhibit any of the above features. This further supports our view that the premises have the characteristics of a hotel, motel, inn or hostel. In determining whether your premises are similar to a hotel, motel, inn or hostel, we have considered the premises in their entirety, which is the operation of the serviced apartments and the physical character of the premises. On balance we consider that the premises are similar to a hotel or hostel. As such, for GST purposes, the premises are regarded as commercial residential premises and therefore your supplies of accommodation are not input taxed. | Detailed Reasoning - Previous advice to prior operator of the premises: You have advised that the previous operator of the premises received a Private Ruling stating they were not making supplies of accommodation in commercial residential premises and their supplies were input taxed. Private Rulings are issued on the facts as specified in the ruling, apply the law and ATO view of the law at the time the ruling is issued, and applies only to the entity named in the ruling. Due to privacy and secrecy laws we cannot provide any specific comments on another entity's ruling. We do note however that the current ATO view is based on GSTR 2012/6 which was issued in late December 20XX. GSTR 2012/6 was issued following decision in X. | Detailed Reasoning - Question 2: Are additional charges, for additional bedding and seating, off site parking, additional cleaning services, telephone calls, breakfast supplies, additional internet access (over and above …mb), payments for taxable supplies pursuant to section 9-5 of the GST Act? In your case the supplies listed meet 9-5 (a) to (d) and are not GST free. In addition where they are incidental to the supply of taxable supply of accommodation they will also be taxable and none of the supplies are input taxed. We are unable to comment on the GST status of supplies of parking made directly to guests by unrelated entities. However, where you are invoiced for services received by guests, and you on-charge your guests for these services, you will need to remit GST on the amount on-charged. As all your supplies you make to guests are taxable supplies you will be entitled to GST credits on all of your creditable acquisitions pursuant to section 11-20.

Reasons for decision: In this reasoning, unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)