Private ruling: GST and supplies of accommodation
Date of advice: 29 September 2015
Published: November 2015

Ruling: Q1: Are you entitled to claim input tax credits on your lease of the Property from its owners? | A1: Yes | Q2: Are your supplies of accommodation at the Property taxable supplies? | A2: Yes

Relevant facts and circumstances: The owner of the Property is registered for GST. You are registered for GST. You operate the Property which comprises xxx one, two and three bedroom strata-titled apartments. The Property is located in a mixed zoning area, which permits residential premises or commercial residential premises (including hotels). Guest facilities include: • 24 hour reception The reception service consists of a staff member available to check guests in/out and answer questions/provide information. It does not provide concierge services such as valet parking, baggage handling and entrance door services. • Secure undercover parking (fee applies) • WiFi internet access • photocopying and business services* • iPod dock in every room • Fully equipped gymnasium • Heated Pool, spa, sauna • Express check-out • Tour Desk Room features include: • Air-conditioning • LCD TV with digital channels • Foxtel • iPod dock • WiFi • CD Player • Full size kitchen • Full size refrigerator • Dishwasher • Microwave • Laundry facilities • Ironing facilities • Hairdryer • Tea and coffee making facilities • Toaster • Digital alarm clock • In room liquor bar • Linen and cleaning • Telephone switch Conference Facilities The Owner previously used the Property for residential rental purposes. The Owner entered into Residential Tenancy Agreements with tenants of the apartments between yyyy and yyyy. All long term residential letting agreements have now been terminated by the Owner and all guests have been vacated. You have leased all residential apartments from the Owner and refurbished them for the purpose of providing short term accommodation. Lease Under the Reference Table to the lease, the premises are to be used for the purpose of "your business" which is further defined as "the business of operating the hotel carried on from the premises…" The leased Premises are defined as the Property. It includes the facilities. Facilities means the facilities that form part of the premises in addition to the hotel as set out in the attached building plan including: (i) lobby, reception, concierge areas; (ii) meeting room; (iii) back of house; (iv) hallways and public areas; (v) administration offices; (vi) staff amenities; (vii) refuse storage; (viii) store rooms; (ix) any back of house delivery area; (x) recreation facilities including pool, spa, gym and sauna; (xi) xxx car parking spaces; and (xii) all other associated areas throughout the centre required by you to operate your business. Hotel means the hotel used for short term accommodation that meets the standard known by the hotel name that is part of the premises, comprising of xxx suites and including the facilities and the FF&E. FF&E means the following items: (i) kitchen equipment excluding fixtures and fixed plant and equipment; (ii) electrical appliances including televisions sets, DVD players, VCRs and other audio visual equipment and whitegoods; (iii) freestanding furniture including dining furniture; (iv) non-fixed floor coverings; (v) window furnishing; (vi) lighting; (vii) loose soft furnishings; (viii) artwork and decorative items; (ix) telephone handsets; (x) maintenance and engineering tools; (xi) any gym equipment provided by us; and (xii) any other items in the premises that are generally regarded as FF&E in the uniform system. You are required to: Pay rent Pay outgoings Pay the operating costs and for services to the premises Pay other costs and GST Have insurance for: • Public liability • Industrial special risks • Workers compensation • Plate glass • Any other insurance required by law Under clause xx, you have access to the common area for purposes consistent with the normal undertakings of the business you operate from the premises in common with: • Other tenants or people in the centre; and • Other people who have rights to use all or part of the common area under the bylaws or rules of the owners corporations. Under clause xx, from the commencement date and at all times during the term and any option period, there must be a liquor licence in place to ensure that alcohol can be served at the premises. Under clause xx: • You must keep the premises clean and tidy • You must keep the premises in good and tenantable order and condition, except for fair wear and tear, including carrying out any repairs and fixing any damage you cause

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 Division 11 | 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

Reasons for decision: Summary: Pursuant to section 9-5, the Owner will be making a taxable supply to the Lessee if: • it makes the supply for consideration; • the supply is made in the course or furtherance of an enterprise that it carries on; • the supply is connected with the indirect tax zone; and • the Owner is registered or required to be registered. However, the supply of the premises will not constitute a taxable supply to the extent that the supply is GST-free or input taxed. Unless the supply of the premises to you is GST-free or input taxed, it will be a taxable supply and your supplies of accommodation from the premises will be taxable supplies of commercial residential accommodation. On the facts supplied, the supply of the premises will not be a GST-free supply. The term 'residential premises' is defined in section 195-1 as land or a building that: • is occupied as a residence or for residential accommodation, or • is intended to be occupied, as a residence or for residential accommodation (regardless of the term of the occupation). The Property satisfies the definition of residential premises in section 195-1. Therefore, pursuant to section 40-35, the supply of these premises by way of lease, hire or licence is an input taxed supply of residential premises unless it is a supply of commercial residential premises. 'Commercial residential premises' is defined in section 195-1, and means: (a) a hotel, motel, inn, hostel or boarding house; or (b) … (f) anything similar to *residential premises described in paragraphs (a) to (e). Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises (GSTR 2012/6) provides guidance on the characteristics of hotels, motels, inns, hostels and boarding houses or similar premises. Paragraph 10 of GSTR 2012/6 explains the factors to be considered in characterising premises: 10. Objective factors that are relevant to characterising premises as falling within either paragraph (a) or (f) of the definition include the overall physical character of the premises and how the premises are operated. Where these objective factors do not give a clear characterisation, the following may also be considered: • contractual documentation that provides evidence of current or future use, and • government zoning and planning permissions. Paragraphs 86 and 87 of GSTR 2012/6 further explain that premises may be characterised under paragraphs (a) or (f) of the definition of commercial residential premises when they are not operating. Premises that are not being operated at the time of supply may be classified by their overall physical character, considered with other objective characteristics. Evidence that may objectively indicate whether premises are a hotel, motel, inn, hostel or boarding house includes: • the premises' physical characteristics, • architectural plans and drawings, • contractual documentation that provides evidence of how the premises will be used in the future, or • council or other government planning and zoning restrictions and approvals and permissions. Paragraphs 95 of GSTR 2012/6 looks at the commercial infrastructure associated with commercial residential premises. 95. In addition to living accommodation areas, 8 premises that are commercial residential premises include commercial infrastructure to support the commercial operation of the premises. This infrastructure may include (but is not limited to) reception areas, dining and bar areas, meeting/function areas, kitchens, laundry facilities, storage areas and car parks. This infrastructure is used to provide services to occupants. Premises described in paragraph (a) and similar premises under paragraph (f) of the definition contain some or all of these areas to some degree. In addition to the apartments, you are being supplied, by way of lease, with the following infrastructure: (i) lobby, reception, concierge areas; (ii) meeting room; (iii) back of house; (iv) hallways and public areas; (v) administration offices; (vi) staff amenities; (vii) refuse storage; (viii) store rooms; (ix) any back of house delivery area; (x) recreation facilities including pool, spa, gym and sauna; (xi) xxx car parking spaces in the centre; and (xii) all other associated areas throughout the centre required by you to operate your business. The Property is located in a mixed zoning area, which permits residential premises or commercial residential premises (including hotels). Further, as per the Reference Table to the lease, the premises are to be used for the purpose of "your business" which is further defined as "the business of operating the hotel carried on from the premises…". The premises contain serviced apartments and the necessary infrastructure to provide the stated accommodation and services to guests, that are similar to those provided in a hotel. Therefore, the supply of the premises to you is a taxable supply. Division 11 deals with entitlement to input tax credits. On the facts provided, you are making a creditable acquisition of the premises by way of lease of the premises. Therefore you are entitled to claim the associated input tax credits. As explained in paragraph 8 of GSTR 2012/6, a supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises is a taxable supply. By way of the lease, you control the premises from which you make supplies of accommodation to guests. On the facts provided, your supplies satisfy requirements (a) to (d) of a taxable supply. Further, your supplies are neither GST-free nor input taxed supplies. Therefore, your supplies of accommodation at the Property are taxable supplies

Reasons for decision: 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) | • all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act