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GST and residential premises

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In late 2012 the ATO issued three new GST Rulings. These relate to GST and residential premises (GSTR 2012/5), GST and commercial residential premises (GSTR 2012/6), and GST and long-term accommodation in commercial residential premises (GSTR 2012/7). The Rulings were previously released as Draft GST Ruling GSTR 2012/D1 and replace GSTR 2000/20.

GST and residential premises

GSTR 2012/5 sets out the Commissioner's views on how GST applies to supplies of residential premises.

Background

A supply of residential premises may be:

  • an input taxed supply by way of lease, hire or licence of residential premises to the extent that the premises are to be used predominantly for residential accommodation (regardless of the term of occupation): s 40-35(1)(a) of the GST Act;

  • a taxable supply by way of sale, or long-term lease, of new residential premises (other than those used for residential accommodation before 2 December 1998): s 40-65; or

  • an input taxed supply by way of sale, or long-term lease, of residential premises (other than new residential premises) to the extent that the premises are to be used predominantly for residential accommodation (regardless of the term of occupation): s 40-70.

Premises, comprising land or a building, are residential premises under para (a) of the definition of "residential premises" in s 195-1 where the premises are occupied as a residence or for residential accommodation, regardless of the term of occupation. The ATO considers that the actual use of the premises as a residence or for residential accommodation is relevant to satisfying this limb of the definition.

As an alternative, para (b) of the s 195-1 definition extends to premises that are intended to be occupied, and are capable of being occupied, as a residence or for residential accommodation, regardless of the term of the intended occupation. This limb of the definition refers to premises that are designed, built or modified so as to be suitable to be occupied, and capable of being occupied, as a residence or for residential accommodation. In the ATO's view, this is demonstrated through the physical characteristics of the premises.

Residential premises used predominantly for residential accommodation

The Ruling states that the requirement in ss 40-35, 40-65 and 40-70 that premises be "residential premises to be used predominantly for residential accommodation (regardless of the term of occupation)" is to be interpreted as a single test that looks to the physical characteristics of the property in order to determine the premises' suitability and capability for residential accommodation.

Accordingly, in the ATO's view, this means that the test does not require an examination of the subjective intention of, or use by, any particular person. Rather, premises that display physical characteristics evidencing their suitability and capability to provide residential accommodation are residential premises even if they are used for a purpose other than to provide residential accommodation, eg where the premises are used as a business office.

Conversely, premises that do not display physical characteristics demonstrating that they are suitable for, and capable of, being occupied as a residence or for residential accommodation are not residential premises to be used predominantly for residential accommodation, even if the premises are actually occupied as a residence or for residential accommodation.

Other important points raised in the Ruling include the following:

  • Shelter and basic living facilities – The ATO does not consider the term "residential premises" to be restricted to extended or permanent occupation – it can incorporate lodging, sleeping or overnight accommodation. Rather, the ATO states that premises must provide shelter and basic living facilities to satisfy the definition. Put conversely, premises that do not have the physical characteristics to provide these are not residential premises to be used predominantly for residential accommodation.

  • Fit for human habitation – The Ruling makes the not unreasonable assertion that premises must be fit for human habitation in order to be suitable for, and capable of, being occupied as a residence or for residential accommodation. A partially built building is not residential premises until it becomes fit for human habitation.

GST and commercial residential premises

GSTR 2012/6 sets out the Commissioner's views on how GST applies to supplies of commercial residential premises and supplies of accommodation in commercial residential premises.

Background

The definition of “commercial residential premises” is important because it determines:

  • the premises for which a supply by way of lease, hire or licence is excluded from input taxed treatment (by s 40-35(1)(a) of the GST Act);

  • the premises for which a supply by way of sale or long-term lease is excluded from input taxed treatment (by s 40-65(2)(a) and s 40-70(2)(a) respectively); and

  • the classes of premises to which the special rules in Div 87 may be applied.

The term "commercial residential premises" is defined in s 195-1 by reference to seven specific paragraphs. Paragraph (a) includes a "hotel, motel, inn, hostel or boarding house" as commercial residential premises. This element receives the most attention of the Ruling, which is to be expected as disputes over its meaning have formed the basis of most of the litigation in this area.

Characteristics of hotels, motels, etc

The ATO states that objective factors in characterising premises as commercial residential premises include the "overall physical character of the premises and how the premises are operated". Contractual documentation that provides evidence of current or future use, as well as government zoning and planning permissions, may also be considered.

The Ruling lists eight characteristics below that may be relevant to characterising premises as commercial residential premises, while noting that the s 195-1 definition "necessarily raises questions of fact involving matters of impression and degree".

  • 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. (The ATO notes that the main purpose of a hotel may include serving food and beverages as well as providing accommodation.)

  • 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.

The Ruling then proceeds to outline a number of salient features for each of the categories in para (a), ie for hotels/motels/inns, hostels and boarding houses. The Ruling then attempts to illustrate the application of these rules and features in a number of detailed examples, which run to over eight pages.

GST and long-term accommodation in commercial residential premises

GSTR 2012/7 considers, among other things, how Div 87 and s 40-35 of the GST Act apply to supplies of long-term accommodation in commercial residential premises. It states that commercial accommodation is the right to occupy the whole or any part of the commercial residential premises for living accommodation (including lodging, sleeping or overnight accommodation), and does not require any degree of permanence of occupation.

According to the Ruling, for commercial accommodation to be provided to an individual as long-term accommodation, it is only necessary for the supply of commercial accommodation to be made to an entity for 28 days or more and, under the terms of the agreement, to be able to be taken up by an individual. Further, it states that it is not necessary for the accommodation to actually be taken up by the individual.

Withdrawal of previous ATO publications

Due to the release of the above Rulings, the ATO has also withdrawn the following with effect from 19 December 2012:

  • GST Ruling GSTR 2000/20: Commercial residential premises;
  • GST Bulletin GSTB 2003/2: Long-term accommodation at marinas;
  • GST Industry Issues GSTII PC1: Are all boarding houses treated as "commercial residential premises"?
  • GST Industry Issues GSTII PC2: Input tax credits – input taxed supply or taxable supply;
  • GST Industry Issues GSTII PC3: Separately titled garage – supplied with a residential unit;
  • GST Industry Issues GSTII PC4: Separately titled garage – not sold with a residential unit; and
  • GST Industry Issues GSTII PC5: Supply by way of lease – input taxed supply or taxable supply.

Date of effect

The Rulings apply both before and after their date of issue (19 December 2012). Note, there are specific transitional provisions for GSTR 2012/6.

Sources: GST Rulings GSTR 2012/5 (http://law.ato.gov.au/pdf/pbr/gstr2012-005.pdf), GSTR 2012/6 (http://law.ato.gov.au/pdf/pbr/gstr2012-006.pdf) and GSTR 2012/7 (http://law.ato.gov.au/pdf/pbr/gstr2012-007.pdf), 19 December 2012.

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