The application of GST concerning residential premises and commercial residential premises has been an area of contention for some time. It is complex and affects many transactions.
The Tax Office has released three major rulings dealing with:
- GST and supplies of residential premises – GSTR 2012/5
- GST and commercial residential premises – GSTR 2012/6
- GST and long-term accommodation in commercial residential premises – GSTR 2012/7.
GST Rulings GSTR 2012/5
GSTR 2012/5 states that the requirement in ss 40-35, 40-65 and 40-70 of the GST Act – 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 to determine the premises’ suitability and capability for residential accommodation.
Accordingly, in the Tax Office’s view, this means 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 another purpose – for instance, where they are used as a business office.
The Tax Office considers that premises must provide shelter and basic living facilities to satisfy the definition of ‘residential premises’.
GST Rulings GSTR 2012/6
In GSTR 2012/6, the Tax Office says 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, can also be considered.
The ruling lists eight characteristics that may be relevant to characterising premises, while noting that the s 195-1 definition “necessarily raises questions of fact involving matters of impression and degree”. Those characteristics include:
- The premises are operated on a commercial basis or in a businesslike manner, even if they are operated by a non-profit body.
- The premises have the capacity to provide accommodation to multiple unrelated guests or residents at once, in separate rooms or in a dormitory.
- The premises offer accommodation to the public or a segment of the public.
- Providing accommodation is the main purpose of the premises (while noting that the main purpose of a hotel may include serving food and beverages, as well as providing accommodation).
The ruling states that separately titled rooms, apartments or adjacent cottages or villas located on adjoining or abutting land can be combined with “sufficient commercial infrastructure” so that, as a whole, the property can be operated similarly to a hotel, motel, inn or hostel.
GST Rulings GSTR 2012/7
GSTR 2012/7 sets out the Commissioner’s views on how Div 87 and s 40-35 of the GST Act apply to supplies of long-term accommodation in commercial residential premises. For an entity to provide commercial accommodation to an individual, the Tax Office considers that the individual must be provided with a right to occupy the whole or any part of the commercial residential premises for living accommodation – that is, the individual must have a right to stay.
These three rulings are important and should be referred to by practitioners when looking at GST issues concerning residential premises.
