Private ruling: GST and commercial residential premises
Published: December 2014

Ruling: Q1: Are you making a taxable supply of accommodation in commercial residential premises, pursuant to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes

Relevant facts and circumstances: You are the freehold owner of a hotel. Entity P is the operator of the hotel. The hotel comprises furnished rooms and the following facilities: • 24 hour reception; • business centre and meeting room; • security card access; • cafe style menu; • bar service; • billiard table; • plasma TVs and wireless internet access; and • bar fridge The tax invoices to guests contain the operator's ABN. Reservations in the hotel are made through the operator. There is a management agreement currently in place between you and the operator. You supplied a copy of the management agreement. The management agreement states: • the Operator acts on your behalf as an agent in respect of the operation of the hotel. • you are responsible for all operating expenditure • the Operator is remunerated for their services by way of a management fee • the room rates and the operating budget are determined in consultation with 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 | A New Tax System (Goods and Services Tax) Act 1999 Section 195-1

Reasons for decision: Summary: In this reasoning, unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (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. Prior to determining whether the supply is input taxed, we will determine whether you are making a supply of the premises to the operator or whether you are making a supply of accommodation to guests. You have entered into a management agreement with the operator which provides that the operator will perform specific services in return for a management fee. Goods and Services Tax Ruling GSTR 2000/37 Goods and Services Tax: agency relationships and the application of the law describes the principal / agent relationship. Paragraph 28 of GSTR 2000/37 provides factors that indicate an agency relationship. 28. In most cases, any relevant documentation about the business relationship, the description used by the parties and the conduct of the parties establish the existence of an agency relationship. Therefore, the following factors may show that you are an agent under an agency relationship, although no single factor (by itself) is determinative: • any description of you as an agent, having authority to act for another party, in an agreement (expressed or implied) between you and the other party; • any exercise of the authority that you are given to enter into legal relations with a third party; • whether you bear any significant commercial risk; • whether you act in your own name; • whether you are remunerated for your services by way of commissions and whether you are entitled to keep any part of your remuneration secret from another party; and • whether you decide the price of things that you might sell to third parties. Having regard to these factors and the terms of the management agreement, we consider that the operator is acting as an agent and is therefore not providing accommodation in its own right. The factors that indicate that an agency relationship exists are: • Under the agreement • the Operator is described as an agent and is authorised to enter into legal relations with a third party; • you are responsible for all operating expenses so the Operator does not bear any significant commercial risk; • the Operator is remunerated for their services by way of a management fee • the room rates and the operating budget are determined in consultation with you. Therefore, we consider that you, via the operator, are making the supply of the accommodation to guests in your own right. 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 used to supply the accommodation to guests satisfies the definition of 'residential premises' for the purposes of the GST Act. The next step is to consider whether the supply of the accommodation is a supply of accommodation in commercial residential premises. 'Commercial residential premises' is also 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. The features of a hotel, motel or inn are described in paragraphs 13 to 25 of GSTR 2012/6. In summary paragraphs 13 to 22 of GSTR 2012/6 list the following features of these premises: • the provision of accommodation for a commercial purpose • the capacity to supply accommodation to multiple occupants • meals are usually offered to guests and there is usually a kitchen where these meals are prepared • usually include a restaurant or dining area • guest rooms are furnished and include a bed, living area and bathroom • linen and towels are usually provided • the travellers who stay there have their principal place of residence elsewhere and they require accommodation while away for business or pleasure. (Although some residential or private hotels my provide accommodation to long term residents). • the visitors are guests who do not usually have an exclusive right to occupy the premises as a tenant. • a reception desk and concierge services • shared kitchens and living facilities for guests are not usually a feature As set out in the facts, the provision of accommodation in the hotel includes a licence to occupy a room in the hotel, in addition to the supply of other services such as access to 24 hour reception, café style food, bar service and other facilities. We consider that the freehold premises possess the features of a hotel. As the premises that you own are commercial residential premises as defined in section 195-1, your supply of the accommodation to guests will be a supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises. Accordingly, your supply will not be an input taxed supply of residential premises for the purposes of section 40-35. Consequently the supply of accommodation will be a taxable supply pursuant to section 9-5 of the GST Act.