Issue
Is the entity, a hostel that provides accommodation to students that undertake a secondary course at a separate institution, making a GST-free supply under subsection 38-105(2) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when: • it provides accommodation to students who are from outside of Australia and to students who are from rural or remote locations in Australia, and • its primary purpose is to provide accommodation to students from outside of Australia?
Decision
No, the entity is not making a GST-free supply under subsection 38-105(2) of the GST Act. The entity is making a taxable supply under section 9-5 of the GST Act.
Facts
The entity is a hostel and its stated and demonstrated primary purpose is the provision of accommodation to students from outside of Australia.
Occasionally it will supply accommodation to students from rural or remote locations in Australia.
All students being accommodated are undertaking a secondary course at a separate institution.
The entity is registered for goods and services tax and the supply satisfies the other positive limbs of section 9-5 of the GST Act.
Reasons for Decision
A supply is GST-free under subsection 38-105(2) of the GST Act if: • it is a supply of student accommodation to students undertaking a primary, secondary or special education course, and • the accommodation is provided in a hostel whose primary purpose is to provide accommodation for students from rural or remote locations who are undertaking such courses.
The entity is supplying accommodation in a hostel to students who are undertaking a secondary course. The remaining requirement in subsection 38-105(2) of the GST Act is that the hostel's primary purpose must be to provide accommodation for students from 'rural or remote locations'.
The entity's primary purpose is the provision of accommodation to students from outside of Australia. Therefore, it must be determined whether overseas students are from 'rural or remote locations'.
The GST legislation only applies to Australia and its States and Territories. Therefore, it excludes areas outside Australia unless specified. The term 'rural or remote locations' is not defined in the GST Act and as such is considered to be rural or remote locations in Australia only.
Rural or remote locations in Australia are listed in the Rural, Remote and Metropolitan Areas Classification (RRMA) (see Note 1), which delineates Australia into a seven-scale classification system. Of the seven classifications, two are metropolitan, three are rural and two are remote. A student will be from a rural or remote location if they are from an area designated as R1, R2, R3, Rem 1 or Rem 2 as described in the following table. RRMA Category Code Description Capital City M1 Capital city urban area Other Metropolitan M2 Other metropolitan centres with population >100,000 Large Rural Centre R1 Large rural centre with population 25,000-99,999 Small Rural Centre R2 Small rural centre with population 10,000-24,999 Other Rural Centre R3 Other rural areas with population <10,000 Remote Centres Rem1 Remote centres with population >5000 Remote Other Areas Rem2 Remote area with population <5001
RRMA Category | Code | Description
Capital City | M1 | Capital city urban area
Other Metropolitan | M2 | Other metropolitan centres with population >100,000
Large Rural Centre | R1 | Large rural centre with population 25,000-99,999
Small Rural Centre | R2 | Small rural centre with population 10,000-24,999
Other Rural Centre | R3 | Other rural areas with population <10,000
Remote Centres | Rem1 | Remote centres with population >5000
Remote Other Areas | Rem2 | Remote area with population <5001
The entity's primary purpose is to provide accommodation to students from outside of Australia, not to provide accommodation to students from 'rural or remote locations'. Therefore, the entity does not satisfy the requirements in subsection 38-150(2) of the GST Act and is not making a GST-free supply even when made to students from rural or remote locations.
The entity is registered for GST and the supply satisfies the other positive limbs of section 9-5 of the GST Act. The supply is neither GST-free under any other provision in Division 38 of the GST Act nor input taxed under Division 40 of the GST Act. Therefore, the entity is making a taxable supply under section 9-5 of the GST Act. Note 1: The Commonwealth Departments of Primary Industries & Energy and Human Services and Health developed a methodology in 1994 to determine rural or remote locations within Australia. The RRMA is a methodology that has been widely applied by governments as an indicator or remoteness for policy, legislation and funding decisions. The RRMA identifies Statistical Local Areas based on 1991 Census data. Note 2: Where the primary purpose test is met, it does not matter which location an individual student originates from. For example, a supply of accommodation to a student from outside of Australia is GST-free if the primary purpose test is met (see ATO ID 2004/977). Note 3: As a hostel is commercial residential premises as defined in section 195-1 of the GST act, it is supplying commercial accommodation to the overseas students. If each of the supplies is made for a continuous period of 28 days or more, the supplier can choose to use Division 87 of the GST Act to reduce the value of the supply if the further requirements of the division are met. [HISTORY: This ATO ID was amended on 25 June 2007. Note 3 was added to clarify the ATO ID.]