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

Ruling: Q2: If the answer to question 1 above is no, will any portion of the building be considered to not be for residential purposes? Advice/Answer An answer to this question is not relevant -please refer to the 'Reasons for decision' below.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. X individuals are registered for GST as a partnership. You are currently constructing a 'retreat' on farmland that you own, located at the specified address in Australia. The retreat is designed to be a 'green' building and will offer guests a specific living experience. The buildings will be constructed from various environmentally friendly methods, and using eco-friendly materials. Many of the materials and/or construction methods have not been used in the specified region previously. The buildings will be constructed as a number of pavilions, in close proximity to each other. You will live in one pavilion. The building for your residence is not a subject of this ruling. The other buildings, which is the subject of this ruling, is being constructed specifically for the purpose of guest accommodation, amongst other things. This pavilion is part of your broader green living business. It is expected that the accommodation will be provided equally to visiting professionals as well as to tourists. The layout of the apartment will include: (a) A number of bedrooms, each with ensuite, can accommodate up to a specified number of adults. They are designed to specifically allow them to be rented out to unrelated parties. Each of the bedrooms is lockable, with separate keys. (b) There will also be a multi-purpose room. This room has been designed to operate as: (i) A space for guests to cook using produce from the adjoining food garden (ii) A dining/lounge area for guests (iii) A facility to deliver cooking classes (iv) A boutique conference centre (which will include catering) (v) A facility to deliver education programs and training courses (both in relation to the property and its eco-developments and gardens, as well as general primary production courses on farming methods, food and cooking classes, etc) The occupant of each room does not receive a right to use the entire premises upon payment of the accommodation tariff, as they are expected to share the common areas with any occupants of the other room, and /or any other persons who are using the multipurpose room for the various training courses, etcetera. You intend to list the rooms online as available for accommodation to any interested member of the general public. Your target market for the accommodation is: · 'Pompadours' (those who demand luxury) · Middle to high income domestic and international tourists · Mid-week professionals/business executives · Middle to high income festival or other functions , for example wedding attendees · Mid to high income short break, for example romantic weekend, special celebration, hens party, retreat You are also looking at promoting the premises (both in terms of accommodation and for other uses) in conjunction with other local tourist offerings and attractions. You intend for the rental of the accommodation to have a professional feel to it as you intend to provide similar services as would be provided by luxury accommodation providers. You intend for the accommodation to be made available throughout the entire year. You will reside in the house in close proximity to the premises and will manage the accommodation and services, including taking bookings/reservations and payments. You also plan for relief staff to be on hand to welcome guests and offer services. Locums will be placed for extended absences. Customers may contact you via your proposed website, email, facebook, twitter, landline, post box or visiting you on site. The property is currently zoned rural. You are undertaking the necessary steps to ensure that the offering of accommodation and services complies with all local council zoning, building codes and health regulations requirements. You will be offering the accommodation in your own right. You will not be entering into an agreement or an arrangement to enable another entity to let the premises in their own right and to your exclusion. You plan to offer accommodation and other services in a specified number of stages: In stage 1 you will offer 3 main products being: · accommodation with a range of services · sale of organic accredited free range eggs, and · tours of the design features of the apartment and food garden. In the other stages you will consider having the multi-functional room as a facility to deliver cooking class, a conference centre, a facility to deliver education programs or a hireable venue. You will also consider developing the area surrounding the premises as a venue for boutique weddings. You also state that your business plan will focus on stage 1 only. Your guests will receive the right to occupy and enjoy the room they hire as a consequence of paying the accommodation tariff. The guests will not have any legal interest in the premises. You will retain the right of entry to each of the rooms, as this is necessary for undertaking the provision of the guest services (for cleaning and restocking the mini bars, etcetera). Guests will not be required to provide anything themselves during their stay, as the rooms will be fully cleaned and serviced including mini bars being provided and various options to cover their meal requirements, including: · an a la carte menu · food hampers should they wish to prepare their own meals · breakfast provisions which guests can cook for themselves · laundry services · room service · movies on demand · links to local tour operators and pushbike and canoe rental · tours of the farm and onsite gardening demonstrations. You have provided the following documents: · 2 copies of certificates of title · a copy of development approval · a copy of building plans · a copy of business plan Since the building plans were developed, the business model changed from a bed and breakfast to a serviced apartment. As a consequence, the council requires additional fire protection in the form of emergency lighting that comes on when the smoke alarms are activated. These dual units (smoke alarm and emergency lighting) need to be fitted one in each bedroom, one in the hallway and one in the guest entrance. In the other building to be used as your residence, you were only required to install two smoke alarms (with no emergency lighting). Council regards the development as multi-residential and will be rated accordingly. As part of the green living business, you have plans to develop the surrounding area as a venue for boutique weddings. The pavilion will become an integral part of that development. You are intending for the provision of the accommodation to become a regular feature of tourism in the specified area. Your reason for constructing the second building in addition to your own residence is the belief that it will be a source of income for you. You are constructing the premises with both the intention and prospect of profit.

Relevant legislative provisions: The A New Tax System (Goods and Services Tax) Act 1999 Section 9-5. | The A New Tax System (Goods and Services Tax) Act 1999 Section 195-5.

Reasons for decision: Summary: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. The building itself is not commercial residential premises. The building is residential premises for GST purposes. Where you sell the relevant premises, you will be making a supply of residential premises (not commercial residential premises). Whether the supply of the residential premises is taxable or input taxed is dependant on the circumstances surrounding the transaction at the time of the sale. Where you supply your premises for residential accommodation, for example, under a tenancy contract, you will be supplying residential premises that are not commercial residential premises. In this case your supply will generally be an input taxed supply. Where you supply the premises to guests through your booking or reservation system, together with the services you have planned to provide, we will consider you to be making a supply of accommodation in commercial residential premises. The supply will be taxable where you satisfy all the requirements of a taxable supply under section 9-5. | Detailed Reasoning - Detailed reasoning: In this ruling: unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) all reference material referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au 'Commercial residential premises' is defined in section 195-1: Commercial residential premises means: (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 terms marked with an asterisk are defined in section 195-1. Based on the facts and circumstances provided, we note paragraphs (b) to (e) of the definition of commercial residential premises are not relevant to your situation. The terms 'hotel', 'motel', 'inn' 'hostel' and 'boarding house' in paragraph (a) of the definition of commercial residential premises are not defined within the GST Act and, therefore, take their ordinary meanings in context. Goods and Services Tax Ruling Goods and services tax: commercial residential premises (GSTR 2012/6) considers how certain provisions in the GST Act apply to supplies of commercial residential premises and supplies of accommodation in commercial residential premises. Paragraphs 13 to 40 of GSTR 2012/6 discuss the features of hotels, motels, inns, hostels and boarding houses, whilst paragraph 41 provides a list of factors that may indicate that premises are not a hotel, motel, inn, hostel, boarding house or similar premises. Ultimately, whether premises are commercial residential premises is a matter of overall impression involving the weighing up of all relevant factors. In considering the features of hotels, motels, inns, hostels and boarding house as outlined in GSTR 2012/6, we note your premises will not meet definition (a) of 'commercial residential premises'. Accordingly, paragraph (f) remains for consideration. That is, whether your premises is similar to a hotel, motel, inn, hostel or boarding house. Paragraph 12 of GSTR 2012/6 sets out the characteristics of operating hotels, motels, inns, hostels and boarding houses or similar premises. Accordingly, when you commence operation in providing accommodation, paragraph 12 will be relevant to your situation. GSTR 2012/6 states: 12. Common characteristics of operating hotels, motels, inns, hostels and boarding houses that are relevant, though not necessarily determinative, to characterising premises as commercial residential premises are: · Commercial intention The premises are operated on a commercial basis or in a business-like manner even if they are operated by a non-profit body. · Multiple occupancy The premises have the capacity to provide accommodation to multiple, unrelated guests or residents at once in separate rooms, or in a dormitory. · Holding out to the public The premises offer accommodation to the public or a segment of the public. · Accommodation is the main purpose Providing accommodation is the main purpose of the premises. · Central management The premises have central management to accept reservations, allocate rooms, receive payments and perform or arrange services. This can be provided through facilities on-site or off-site. · Management offers accommodation in its own right. The entity operating the premises supplies accommodation in its own right rather than as an agent. · Provision of, or arrangement for, services Management provides guests and residents with some services and facilities, or arranges for third parties to provide them. · Occupants have status as guests Predominantly, the occupants are travellers who have their principal place of residence elsewhere. The occupants do not usually enjoy an exclusive right to occupy any particular part of the premises in the same way as a tenant Although the building that you plan to provide accommodation from is not yet ready for occupation, you have prepared a business plan for your provision of accommodation and services to guests. In considering paragraph 12 of GSTR 2012/6 we have taken into account the following: | Detailed Reasoning - Commercial intention: Your reason for constructing the second building in addition to your own residence is the belief that it will be a source of income for you. You are constructing the premises with both the intention of income and the prospect of profit. You have a business plan in which you have detailed your plans for the operation of the premises. You described the building as a serviced apartment. You intend to list the rooms online as available for accommodation to any member of the general public. It is your intention to make the accommodation available throughout the year. You will manage the accommodation and services yourselves and have relief staff on hand to welcome guests and offer services. Locums will be placed for extended absences. You are intending for the provision of the accommodation to become a regular feature of tourism in the specified area. You intend for the rental of the accommodation to have a professional feel to it as you intend to provide similar services as would be provided by other luxury accommodation providers. You have a development plan for the area of the property that will be used as part of the business of green living. This includes future use of the building in your plans to develop a wedding venue. Based on the information we consider the premises are intended to be operated on a commercial basis or in a business-like manner and that you have a commercial intention in the operation of the relevant premises is satisfied. | Detailed Reasoning - Multiple occupancy: Your relevant building has a number of bedrooms and each of the bedrooms can be locked with separate keys. The occupant of each room does not receive the right to use the entire premises upon payment of the accommodation tariff. The occupants are expected to share the common area with any other occupants of the other bedroom(s), and/or other persons who are using the dining/lounge (multi-purpose room) and surrounding areas of the premises for various training courses or other functions. We consider your premises have the capacity to provide accommodation to multiple, unrelated guests or residents at any one time. | Detailed Reasoning - Holding out to the public: Once construction of the building is completed you intend to list the rooms online as available for accommodation to any interested member of the public. You intend to provide the accommodation to visiting professionals as well as tourists. You are also looking at promoting the premises in conjunction with other local tourist offerings and attractions. You will also ensure that the premises will comply with local and council zoning, building code and health regulation requirements. Your target market for the accommodation is: · 'Pompadours' (those who demand luxury) · Middle to high income domestic and international tourists · Mid-week professionals/business executives · Middle to high income festival or other functions , for example wedding attendees · Mid to high income short break, for example romantic weekend, special celebration, hens party, retreat We consider your premises offer accommodation to the public or segments of the public and will meet the holding out of the accommodation to the public criteria. | Detailed Reasoning - Accommodation is the main purpose: You intend to list the rooms online as available for accommodation to any member of the general public. It is your intention to make the accommodation available throughout the year. You plan to offer accommodation and other services in a specified number of stages: In stage 1 you will offer 3 main products being: · accommodation with a range of services · sale of organic accredited free range eggs, and · tours of the design features of the apartment and food garden. In the other stages you will consider having the multi-functional room as a facility to deliver cooking class, a conference centre, a facility to deliver education programs or a hireable venue. You will also consider developing the area surrounding the premises as a venue for boutique weddings. You also state that your business plan will focus on stage 1 only. We accept that providing accommodation is the main purpose of the premises at this time. However, where other activities become your predominant supply of which accommodation is a part or ancillary to that supply, we may consider that the provision of accommodation is not the main purpose of the premises. If this is the case, you will need to seek advice from your tax agents or the tax office again. | Detailed Reasoning - Central management: You will reside in the house in close proximity to the premises and will manage the accommodation and services including taking bookings/reservations and payments. You also plan for relief staff to be on hand to welcome guests and offer services. Locums will be placed for extended absences. Customers may contact you via your proposed website, email, facebook, twitter, landline, post box or visiting you on site. We consider the premises have central management to accept reservations, allocate rooms, receive payments and perform or arrange services. | Detailed Reasoning - Management offers accommodation in its own right: You own the relevant premises and the property on which the building is constructed. You will be offering the accommodation in your own right. You will not be entering into an agreement or an arrangement to enable another entity to let the premises in their own right and to your exclusion. Accordingly, we consider you will be supplying accommodation in your own right. | Detailed Reasoning - Provision of, or arrangement for, services: You plan to provide a wide range of services and guests will not be required to provide anything themselves during their stay. The rooms will be fully cleaned and serviced including mini bars being provided and various options to cover their meal requirements. Services include provision of the following: · an a la carte menu · food hampers should they wish to prepare their own meals · breakfast provisions which guests can cook for themselves · laundry services · room service · movies on demand · links to local tour operators and pushbike and canoe rental · tours of the farm and onsite gardening demonstrations. We consider you provide a level of services that is sufficient to satisfy this common characteristic. | Detailed Reasoning - Occupants have status as guests: You retain the right of entry to each of the rooms as it is necessary for the undertaking the provision of guest services such as cleaning, restocking mini bars and so on. The guests will be required to share the common areas of the premises. Under the circumstances, we consider the occupants of your accommodation are predominantly travellers who have their principal place of residence elsewhere. They will also not enjoy an exclusive right to occupy any particular part of the premises in the same way as a tenant or have any legal interest in the premises. Accordingly, we consider the occupants of your premises will have the status of guests. GSTR 2012/6 also provides various examples to illustrate a supply of accommodation in commercial residential premises. We consider example 2 is relevant for consideration. Example 2 - bed and breakfast accommodation 49. Bob operates a bed and breakfast accommodation business from his premises. The premises contain three bedrooms, communal dining and lounge areas and sealed car parking spaces for guests. The premises contain a room used as an office/reception as well as a kitchen that is suitable to prepare meals for guests. Bob lives on site. He advertises the accommodation in a tourist magazine. The rooms are not self-contained and are cleaned daily during stays and after each stay. The daily cleaning includes replacing towels and making beds. Breakfast is provided in the dining room. 50. Bob operates the premises which are aimed at providing accommodation to travellers (guests). The premises provide accommodation on a multiple occupancy basis. The guests do not have overall control over their rooms. Bob provides central management and services. The accommodation is supplied by Bob in his own right. Bob's bed and breakfast accommodation has the characteristics of commercial residential premises. The premises have sufficient features to be characterised as being similar to a hotel, motel, or inn. Alternatively, the premises may be characterised as sufficiently similar to a boarding house. Bob's supplies of accommodation are taxable supplies of accommodation in commercial residential premises. We have weighed the facts you have provided against the common characteristics of commercial residential premises that are in operation in paragraph 12 of GSTR 2012/6 and conclude that the overall impression is that you will be making a supply of accommodation in commercial residential premises when you supply the accommodation to guests together with the services you have planned. Your supply of the accommodation will be a taxable supply where all the requirements of a taxable supply specified in section 9-5 are met. 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 Australia, 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. Paragraphs 86 to 88 of GSTR 2012/6 state: 86. 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. 87. 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. These types of evidence may be relevant where the premises have been newly constructed and not yet operated. Where these indicators reveal that the premises have been specifically constructed for a different purpose (for example, to be used as a retirement village), or not designed as a hotel, motel, inn, hostel, boarding house or similar premises, the non-operating premises are not commercial residential premises. 88. The supply of a vacant house that was not designed, built or modified as a boarding house is not a supply of commercial residential premises. Therefore, in the absence of contractual documentation and council or other government planning and zoning restrictions or approvals or permissions that objectively evidence that the premises are to be operated as a boarding house, the supply of a vacant house is not the supply of commercial residential premises. We do not consider the relevant building has been specifically designed as a hotel, motel, inn, hostel, boarding house or similar premises. Although the building was constructed for the purposes of a serviced apartment, the physical character of the premises is of residential premises. Paragraph 98 of GSTR 2012/6 explains that if you sell the premises, the sale will be a supply of residential premises and not a supply of commercial residential premises. The GST implication will depend on the circumstances surrounding the transaction, such as, whether the premises are new residential premises at the time of sale, etcetera.

Will your building, which is located at a specified address in Australia be considered commercial residential premises for goods and services tax (GST) purposes? | No. The relevant building of itself will not be considered commercial residential premises for GST purposes. This is because the entire building and the land surrounding the building is considered residential premises that are not commercial residential premises. | Where you sell the relevant premises in a sale of real property, we will consider you to be making a supply of residential premises (not commercial residential premises). Whether the supply of the residential premises is taxable or input taxed is dependant on the circumstances surrounding the transaction at the time of the sale. | Where you supply the premises to guests through your booking or reservation system, together with the services you have planned to provide, we will consider you to be making a supply of accommodation in commercial residential premises. The supply will be taxable where you satisfy all the requirements of a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). | These reasons for decision accompany the Notice of private ruling for the named partnership.