Private ruling: GST and commercial residential premises
Published: April 2015

Ruling: Q1: Are you making a taxable supply of commercial residential premises by way of lease for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes | Q2: Are you entitled to input tax credits on the acquisition of the property? | A2: Yes

Relevant facts and circumstances: You are registered for GST and have been since 1 July 2000. You acquired residential units that were held on a single title (i.e. the property has not been strata-titled) under a contract. You acquired these units from a related entity. The property has been designed and constructed for the purposes of providing accommodation. The separate units are each capable of providing accommodation independently of (and concurrently with) the other units that form the property. The property contains: • units - 1 bedroom units and a 2 bedroom unit (the front unit, which was designed to be the manager's unit) • Car parking • Storage area • Gardens • Shared laundry, entry and storage area per two units The property does not contain a reception area or a pool. Utilities are supplied to the property as a whole. The property only has a single water meter and a single electricity supply. It is not possible for utilities to be metered and charged to each individual room. The development approval from the council approved the development of an accommodation building. The local government planning classification is for the provision of short term accommodation. A copy of a letter from the town planning consultant advised that the use of land does not permit permanent accommodation without further approval. The certificate of classification for the building under the Building Code of Australia is: NN x Class 1B accommodation units and 1 x Class 1A Class 1A is a single dwelling being a detached house or one or more attached dwellings. Class 1B is a boarding/guest house or hostel not exceeding 300m 2 and not more than 12 people reside. You acquired the property subject to an existing lease. You subsequently entered into a further lease agreement with the lessee. Under the lease, the tenant may use the premises only as a place of residence. You lease the property fully furnished with kitchenware, cutlery, crockery, towels and linen. The special terms annexure to the lease provides that the landowner supplies weekly cleaning services to the tenant and charges the tenant for these services. You have engaged a manager to manage the leasing of the property. The manager undertakes a range of services including the monitoring of the property and organising and overseeing of repairs and maintenance. As part of the management agreement currently in place between the manager and the owner, the manager is responsible for engaging the third party provider for the weekly cleaning of the units. You have not charged GST on the lease payments and you have not claimed any input tax credits on acquisitions associated with providing the premises by way of lease. The property is being used to accommodate the lessee's employees. Under the conditions of occupancy: • No agreements are entered into for a period of occupancy; • No entry conditions report is completed; • No cleaning fees are charged to occupants; • The occupants are not permitted to alter or modify the premises at all; • The occupants are not permitted to house pets in the premises; • The occupants are not responsible for the connection or payment of electricity or gas services (the employees may however, be responsible for any personal telephone calls that they make); • The occupants are not responsible for the cleaning or minor maintenance of the premises as this is performed by an external third party; • The premises are provided fully furnished to the occupants, including linen, towels and kitchenware; and

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 | A New Tax System (Goods and Services Tax) Act 1999 Section 195-1 | A New Tax System (Goods and Services Tax) Act 1999 Division 11

Reasons for decision: Detailed Reasoning - Detailed reasoning: Section 11-5 provides that you make a creditable acquisition if: (a) you acquire anything solely or partly for a creditable purpose; and (b) the supply of the thing to you is a taxable supply; and (c) you provide, or are liable to provide, consideration for the supply; and (d) you are registered, or required to be registered. Under section 11-15, you acquire a thing for a creditable purpose if you acquired it in carrying on your enterprise and you did not acquire the thing in relation to making input taxed supplies or acquisitions of a private or domestic nature. For there to be a creditable acquisition, you must satisfy all of the requirements of section 11-5. The question to be resolved in this ruling is whether paragraph 11-5(a) has been satisfied. We established at question 1 that the supply of the premises is a taxable supply of commercial residential premises. Therefore, your acquisitions in relation to these premises will be for a creditable purpose as they are acquired in carrying on your enterprise and are not acquired in relation to the making of input taxed supplies or are acquisitions of a private or domestic nature. Therefore, you are entitled to input tax credits for your creditable acquisition of the premises.

• unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) | • all terms marked by an *asterisk are defined terms in 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 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. | Your supply will satisfy section 9-5 as the supply is made for consideration, made in the course or furtherance of your leasing enterprise, the property is located in Australia and you are registered for GST. | Therefore, the supply will be a taxable supply unless the supply is GST-free or input taxed. The issue in this case is whether your supply of the premises is an input taxed supply. Input taxed means that GST is not payable on the supply and there is no entitlement to an input tax credit for anything acquired to make the supply. | Subsection 40-35(1) provides that a supply of premises by lease, hire or license is input taxed if the supply is of residential premises, unless | • it is a supply of commercial residential premises; or | • accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises. | '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, and is capable of being occupied, as a residence or for residential accommodation; | (regardless of the term of the occupation or intended occupation). | The premises satisfy the definition of 'residential premises' under section 195-1. The next step is to consider whether the supply is a supply of 'commercial residential premises'. | 'Commercial residential premises' is defined in section 195-1 and includes a hotel, motel, inn, hostel or boarding house, or anything similar. | Guidance on the character of commercial residential premises is provided in Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential 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 . | Of relevance is whether the premises comprising the units (including one which was designed to be used as a manager's unit) are similar to a hotel, motel, inn, hostel or boarding house. The term hotel, motel, inn, hostel or boarding house are not defined in the GST Act and therefore take their ordinary or common meanings, subject to context. We do not consider that your premises are similar to a hotel or an inn. | GSTR 2012/6 describes the features of motels, hostels or boarding houses at paragraph 141. | Extracts from paragraph 141 is as follows: | • a roadside hotel which provides accommodation for travellers in self-contained, serviced units, with parking for their vehicles. (Macquarie) | • a supervised place of accommodation, usually supplying board and lodging, provided at a comparatively low cost, as one for students, nurses, etc. (Macquarie) | • a house of residence for students at a university or on a course, esp. at a non-residential college, or for some other special class of people. (SOED) | • a dwelling in which lodging is provided to paying residents who share common facilities such as a kitchen, laundry, living room, etc. (Macquarie) | • a dwelling, usually a private house, in which board and lodging are provided for payment. (Macquarie) | The premises do not clearly exhibit the physical features of a boarding house or hostel as described at paragraph 141 of GSTR 2012/6. The premises have some similarities with a motel as they are self contained units and provide parking for occupants. | Having considered the physical features we will consider how the premises are operated. Paragraph 12 of GSTR 2012/6 lists 8 characteristics of operating commercial residential premises, namely: | • Holding out to the public | • Accommodation is the main purpose | • Management offers accommodation in its own right | • Provision of, or arrangement for, services | • Occupants have status as guests | Applying the characteristics to the operation of the premises by the lessee does not provide a clear characterisation that the lessee is providing 'accommodation in commercial residential premises'. The accommodation provided by the lessee is not being held out to the public and limited services are provided to its employees. | In addition, we have considered the government zoning and planning permissions. | Under the council's zoning, the property is zoned to be used for 'motels, boarding-houses, guest-houses, hostels, unlicensed hotels, nursing homes, serviced rooms, or residential clubs and attached accommodation for the owner or the manager but does not include 'Caretaker's residence', 'Detached house', 'Hotel', 'Multiple dwelling' or 'Visitor accommodation'' . | The contractual documentation for the development of the units describes the building as a class 1B building. A class 1B building under the Building Code of Australia is a motel, boarding/guest house or hostel not exceeding 300m 2 where not more than 12 people reside. The attached class 1A dwelling was designed as the manager's unit. | On the basis of the building classification and that the government zoning does not allow the premises to be used to provide permanent accommodation, we consider that the supply of the premises by way of lease is sufficiently similar to a motel. Therefore you are making a supply of commercial residential premises for the purposes of section 195-1. Example 13 in paragraph 90 of GSTR 2012/6 explains that the commercial residential premises include the manager's unit as the unit physically forms part of the premises . | As you are making a supply of commercial residential premises, the supply of these premises will not be an input taxed supply of residential premises under section 40-35 of the GST Act.