Commissioner publishes three GST rulings on residential premises

Today the Commissioner finalised its rulings dealing with GST and residential premises.  Instead of one ruling, the Commissioner has helpfully split the ruling into three separate rulings, being GSTR 2012/5 ‘Residential premises’; GSTR 2012/6 ‘Commercial residential premises’ and GSTR 2012/7 ‘Long term accommodation in commercial residential premises’.  The rulings were previously issued in draft form in GSTR 2012/D1 and GSTR 2011/D2.

Each of the rulings is summarised below, with some areas of interest highlighted.

GSTR 2012/5

This ruling deals with the application of Subdivisions 40-B and 40-C of the GST Act apply to supplies of residential premises.  It does not deal with the following issues:

  • when a sale is of “new residential premises” – that is dealt with in GSTR 2003/3
  • when premises are “commercial residential premises” – that is dealt with in GSTR 2006/6

The concept of “residential premises to be used predominantly for residential accommodation

The ruling takes the view that the requirement in section 40-35, 40-65 and 4070 that premises “be premises to be used predominantly for residential accommodation” is to be interpreted as a single test that looks to the physical characteristics of the property – there is no requirement to examine the subjective intention of, or use by, any particular purpose.  The Commissioner relies on the decision of the Full Federal Court in Suncheon Pty Ltd v Federal Commissioner of Taxation [2010] FCAFC 138 where the Court looked at the physical characteristics of the property rather than the intended use of any person.

Where premises include basic living facilities for residential accommodation, but those facilities are incidental or ancillary to the premises primary function which is not to provide residential accommodation (e.g., office buildings and hospitals), those premises are not residential premises to be used predominantly of residential accommodation.

Ancillary supplies with residential accommodation

Where a residential apartment includes a garage, car-parking space or storage area within the complex, the ruling considers that these supplies are ancillary or incidental to the dominant supply of the residential apartment – therefore there is a composite supply of residential premises.  This is the same even if these other items are separately titled, but located within the same complex. These matters may not be ancillary or incidental where they are supplied after the original supply of the residential unit, or they are located in a separate building.

Apportionment

The ruling takes the view that the supply of premises needs to be apportioned to the extent that part of the premises is not residential premises to be used predominantly for residential accommodation.  Foe example, if a house is modified so that part of it is used as a doctor’s surgery.  Looking at the ruling, whether apportionment is required will be a matter of degree in each case, and a question will also be whether the non-residential use is ancillary or incidental to the residential use (and also whether the residential use is ancillary or incidental to the non-residential use).

Vacant land

The ruling considers that vacant land cannot be residential premises.  The Commissioner relies on the decision of the Full Federal Court in Vidler v Federal Commissioner of Taxation [2010] FCAFC 59.

GSTR 2012/6

This ruling deals with the application of Subdivisions 40-B and 40-C of the GST Act apply to supplies of commercial residential premises and supplies of accommodation in commercial residential premises.

Definition of “commercial residential premises”

The ruling provides a detailed analysis of the definition of “commercial residential premises” in s 195-1 of the GST Act.

The ruling accepts that premises may still fall within the definition if they are not operating at the time of the supply – this is because such premises may be classified by their overall physical character, considered with other objective characteristics.  For example, a newly constructed hotel (although vacant) would still be commercial residential premises.

Separately titled rooms, apartments, cottages or villas

The ruling accepts that separately titled rooms, apartments or adjacent cottages or villas on adjoining or abutting land can be combined with sufficient commercial infrastructure so that, as a whole, it can be operated similarly to a hotel, motel, inn or hostel.  Further, a single supply by sale or lease of premises consisting of rooms, apartments, cottages or villas as well as commercial infrastructure, regardless of whether they are separately titled, is a supply of commercial residential premises under paragraph (a) or (f) of the definition.

However, the supply by sale or lease of part of building cannot be characterised by reference to another supply.  For example, a supply by sale of residential apartments without sufficient commercial infrastructure will not be the supply of commercial residential premises. The ruling adopts the analysis of the Full Federal Court in South Steyne Hotel Pty Ltd v Commissioner of Taxation [2009] FCAFC 155.

Employee accommodation

The ruling departs from GSTR 2000/20 on the treatment of accommodation provided by employers.  In GSTR 2000/20 (which was withdrawn today) the Commissioner’s view (at [39]) was that as a general proposition accommodation provided by an employer in premises controlled by them or their associate is usually residential premises.  At [39], this general proposition was modified providing that short-term accommodation provided in specific circumstances was not a supply of residential premises, nor of commercial residential premises, and the supply was subject to the basic rules.  In the current ruling, the Commissioner considers that the supply will be either an input taxed supply of residential premises or a taxable supply of commercial residential premises, depending on the circumstances.

Given this change in view, the Ruling contains transitional provisions to address those circumstances where taxpayers may be financially disadvantaged.

Boarding houses and rooming houses

The Commissioner has adopted a position consistent with the decision of the Federal Court in ECC Southbank Pty Ltd and trustee for the Nest Southbank Unit Trust v Commissioner of Taxation [2012] FCA 795 and notes that he previously issued advice to some members of the boarding house and rooming house industry that supplies of accommodation to residents that do not have the status of guests are input taxed supplies of residential premises.  Further, the Commissioner accepts that this previous advice created a general administrative practice for the purposes of PSLA 2011/27.

To address this change of position, the ruling provides for transitional rules to allow operators to change their systems to correctly account for GST.

GSTR 2012/7

This ruling deals with the application of Division 87 and s 40-35 of the GST Act to supplies of long-term accommodation in commercial residential premises.

The ruling considers that the supply of commercial accommodation does not need to be provided to an individual, allowing corporate entities to acquire long-term accommodation for their employees to benefit from the concessionary treatment.  In such cases, the employee is being provided with the accommodation, but the corporate entity is the recipient of the supply.  The Commissioner accepts that it is only necessary to establish that the supply of commercial accommodation is being made to an entity and is for 28 days or more and the accommodation, under the terms of the agreement, is able to be taken up by an individual.  It is not necessary that the commercial activity is actually taken up by the individual.

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