Private ruling: Goods and services tax (GST) and commercial residential premises
Published: December 2012

Ruling: Q1: Are you liable for GST on the income you receive for the supply of your units? | A1: No.

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. You are registered for GST. You own a number of units in a Resort. The units are managed by the Resort. The Resort arranges the letting of the units, pay for the expenses relating to the units and remit the net income to you. The Resort provides you with a statement at the end of each month detailing the net income remitted to you throughout the month. You have provided a floor plan for the units. You have provided a copy of the agreement between you and the Resort appointing them as your agent.

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 9-40, | 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: Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you must pay GST on any taxable supply that you make. Under section 9-5 of the GST Act, you make a taxable supply if: · you make the supply for consideration · the supply is made in the course or furtherance of an enterprise that you carry on · the supply is connected with Australia, and · 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 your case, you have entered in to an agreement with the Resort appointing them as your agent for letting and property management. The Resort manages the letting and collection of rent for your apartments within the Resort. In return for the services, the Resort deducts its commission and expenses from your rental. Therefore, you make the supply of your apartments for consideration. In addition, you are registered for GST and supply the apartments which are located in Australia in the course of your rental enterprise. Therefore, you satisfy (a), (b), (c) and (d) above. There are no provisions in the GST Act that would make the supply of your apartments GST-free. However, it is necessary to determine whether the supply of the apartments is input taxed under Division 40 of the GST Act. | Detailed Reasoning - Input taxed supplies: Subsection 40-35(1) of the GST Act provides that a supply of premises by lease, hire or license is input taxed if the supply is of residential premises (other than 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 of the GST Act 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). 'Commercial residential premises' is also defined in section 195-1 of the GST Act and includes a hotel, motel, inn, hostel or boarding house, or anything similar. Guidance on whether premises are characterised as residential premises or commercial residential premises is provided in Goods and Services Tax Ruling GSTR 2000/20 Goods and Service Tax: commercial residential premises (GSTR 2000/20) and further clarified in Draft Goods and Services Tax Ruling GSTR 2012/D1 Goods and services tax: residential premises and commercial residential premises . Paragraphs 9 and 16 of GSTR 2012/D1 explain that a single test looking at the physical characteristics of the property will determine the premises suitability and capability for residential premises, and to satisfy the definition of residential premises, the premises must provide shelter and basic living facilities. Given the physical characteristics of your units it is considered that your units will satisfy the definition of 'residential premises'. However, it is necessary to further consider whether the supply of your units is a supply of commercial residential premises. Paragraph 52 of GSTR 2000/20 considers strata and other separately titled premises and explains that an individual unit only takes on the character of commercial residential premises when it is aggregated with others and run by an entity who has acquired the interests necessary to let their rooms in its own right, in the same manner as a hotel, motel, inn or hostel. For example, when an entity has acquired the rights under a lease or a license and is operating the hotel in its own right. When this person lets out the rooms they are subject to GST. Further clarity on separately titled rooms, apartments, cottages or villas, is provided in paragraphs 91 to 94 of GSTR 2012/D1, which explains that in order for premises to be commercial residential premises, the living accommodation areas must be accompanied by commercial infrastructure to support the commercial operation of the premises. Commercial infrastructure includes (but is not limited to) reception areas, dining and bar areas, meeting/function areas, kitchens, laundry facilities, storage areas and car parks. This commercial infrastructure is used to provide services to occupants. A supply by sale or lease of real property consisting of part of a building cannot be characterised by reference to another supply. This means that a supply by sale or lease of strata titled rooms, apartments, cottages or villas is an input taxed supply of residential premises to be used predominantly for residential accommodation regardless of whether the building complex, or any part of it, is being operated as commercial residential premises. This characterisation does not change where an entity makes multiple supplies to another entity under an overarching agreement that together constitute a hotel or other commercial residential premises. In your case, we consider that while you make a supply of your apartments which meet the definition of residential premises, you do not have control over the commercial infrastructure necessary to provide services to occupants and make a supply of commercial residential premises. The Resort has the management rights for the resort. This is further illustrated in paragraphs 266 to 269 of the GSTR 2012/D1, which is about agency agreements in strata titled premises, and outlines a situation similar to your own situation. It is a common arrangement for strata titled premises to be let by onsite agents/managers who purchase the management rights from the developer and enter into individual agreements with room or unit owners who want to let their properties. An agency relationship exists for the supply of accommodation in premises where the rights conferred under these arrangements are not sufficient to enable the on-site agent to let the rooms as principal in its own right. Under these arrangements, the agent may supply the accommodation in the premises on the owner's behalf. In your case, we consider your circumstances are similar to that illustrated in paragraph 269 of GSTR 2012/D1. The supply of accommodation by you, through the Agent to the Guest, is an input taxed supply of residential premises. As such, you are not entitled to input tax credits on the acquisition of the agency services as these services relate to you making input taxed supplies of residential premises. Therefore, you are not liable for GST on the income you receive for the supply of your units.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.