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The use of the phrase 'commercial part' in paragraph 27, could be misleading due to the definition of 'commercial residential premises' in the Act. The business use of the residence is not a defined item under the definition, 'commercial residential premises'. The terminology appears to suggest that the rooms excluded from input taxed treatment are commercial premises. Perhaps other wording should be used to avoid confusion. The division of part residential and part not residential appears to be at odds with the Sunchen principle.

The emphasis in the paragraphs is on the use. This appears contrary to the Sunchen principle. The rooms, which were changed in paragraph 26 of the example, may still have characteristics suitable for residential use. The room used as an operating theatre may become a home theatre room should the premises revert to a residence. It appears that the basic presumption should be that once used as a residence, it is always capable of being a residence.

The draft ruling appears to introduce a new concept that if the modifications are substantial then the property is no longer a residential premises. I believe that this requirement, which I call 'substantiality of modification', is not a requirement in the legislation to determine if the residence is to be used predominantly for residential purposes.

It appears that the basic presumption should be that once used as a residence, it is always capable of being a residence and therefore treated as input taxed.