GST and supply by way of lease of a building designed to provide tertiary student accommodation

Is the entity, a developer, making a supply of: • a hostel, or • residential premises similar to a hotel, motel, inn, hostel or boarding house

that is commercial residential premises as defined in section 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when it leases a building designed to provide tertiary student accommodation to an accommodation provider?

No, the entity is not making a supply of: • a hostel, or • residential premises similar to a hotel, motel, inn, hostel or boarding house

that is commercial residential premises as defined in section 195-1 of the GST Act when it leases a building designed to provide tertiary student accommodation to an accommodation provider. The entity is making a supply of residential premises.

The entity is a developer of a multi-storey building that is designed to provide student accommodation to tertiary students. The building is constructed on land designated as an educational precinct.

The accommodation rooms in the building are arranged in individual apartments or clusters which consist of a number of study bedrooms with an ensuite (room), each designed for single occupancy, an adjoining shared kitchen and lounge area. The ground floor of the building includes common recreational areas, reception area and coin-operated laundry facilities. The building is keyed to allow each occupant access to the building, an apartment and a room.

The design of the apartments in the building together with its purpose of accommodating tertiary students results in the accommodation in the building being regulated under the relevant State laws. These laws require the accommodation provider and the occupants of this type of accommodation to enter into an agreement which allows the occupants to live in a room as their residence. The prescribed terms of the agreement provide the occupants with exclusive possession of a room for a fixed period.

The building is not a hotel, motel, inn or boarding house under the ordinary or common meanings of these terms for the purposes of the definition of commercial residential premises in section 195-1 of the GST Act.

The entity intends to lease the newly constructed building to an accommodation provider.

Paragraph 40-35(1)(a) of the GST Act provides that a supply of premises by way of lease, hire or licence is input taxed if it is a supply of 'residential premises'. However, the supply will not be an input taxed supply if it is a supply of 'commercial residential premises' or a supply of accommodation in 'commercial residential premises' provided to an individual by the entity that owns or controls the 'commercial residential premises'.

The policy intent for applying the GST law to residential premises is set out in the Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 which states: 5.164 When you supply residential premises such as houses or flats, the supply will be input taxed to ensure comparable treatment with owner occupiers.

The terms 'residential premises' and 'commercial residential premises' are defined in section 195-1 of the GST Act.

'Residential premises' means land or a building that: a) is occupied as a residence or for residential accommodation, or b) is intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation (regardless of the term of the occupation or intended occupation) and includes a floating home.

The intention with which premises are designed, built or modified which, to some extent, will be reflected in their suitability for a particular purpose will determine whether premises are residential premises under paragraph (b) of the definition of residential premises. This is overlayed by the further requirement that the premises are capable of occupation as a residence (see Marana Holdings Pty Ltd v. Commissioner of Taxation (2004) 141 FCR 299 at 313; [2004] FCAFC 307 at 62; 2004 ATC 5068; (2004) 57 ATR 521 ( Marana )).

The definition of residential premises was amended post- Marana to confirm that premises that provide shelter and basic living facilities such as a bedroom and bathroom come within the definition of residential premises in the GST Act (see South Steyne Hotel Pty Ltd v. Commissioner of Taxation [2009] FCA 13 at [31]; 2009 ATC 20-090 at 9331; (2009) 71 ATR 228 at 239).

Further, in Vidler v. Federal Commissioner of Taxation (2010) 183 FCR 440; [2010] FCAFC 59; 2010 ATC 20-186; (2010) 75 ATR 825, the Full Federal Court stated at [30]: The expression "residential accommodation", added by the post-Marana amendments, connotes "lodging, sleeping or overnight accommodation": South Steyne at [37]. Each of the English cases this amendment was designed to pick up involved premises in which lodging, sleeping or overnight accommodation took place - a study bedroom at a residential college, a building to accommodate students for short term courses and "living accommodation".

The policy intent underlying the input taxed treatment of residential premises was not altered by the post- Marana amendments.

Whether newly constructed premises that provide shelter and basic living facilities are residential premises, or another type of premises, may be ascertained by establishing the purpose for which the premises are designed and built.

A building's suitability to be occupied for a residential purpose or a commercial purpose may be determined by its form or fit-out which is a direct reflection of the specifications provided in documentation associated with the construction of the building. This documentation may include design plans, approvals, permitted use, and compliance with applicable legislation and regulations. All of this documentation may provide objective evidence of the purpose for which the building was designed and built.

Based on the facts provided, the building is designed to provide living accommodation to students. However, it must be determined whether the supply of the building by the entity to the accommodation provider is a supply of residential premises but not commercial residential premises.

'Commercial residential premises' is defined to mean, among other things: a hotel, motel, inn, hostel or boarding house, or ... anything similar to residential premises described in paragraphs (a) to (e).

Paragraph 75 of GSTR 2000/20 explains that the terms 'hotel, motel, inn, hostel and boarding house' are not defined in the GST Act and take their ordinary or common meaning subject to context. The building is not a hotel, motel, inn or boarding house under the ordinary or common meanings of those terms.

The Macquarie Dictionary , 1997, 3rd edn, The Macquarie Library Pty Ltd, New South Wales defines 'hostel' as follows: Hostel 1. A supervised place of accommodation, usually supplying board and lodging provided at a comparatively low cost, as one for students, nurses, or the like. 2. [cross reference] Youth hostel: a simple lodging place for young travellers.

The term 'hostel' was considered by McLauchlan J in Noosa Shire Council v. Staley [2002] QPEC 18 ( Noosa Shire Council ) where his Honour stated at [14] that the ordinary meaning: ...implies budget accommodation involving shared sleeping arrangements and shared toilet and ablution facilities between people who are unrelated and who cannot be regarded as constituting a household.

The meaning of the term 'hostel' in the GST Act is derived from its context in paragraph (a) of the definition of commercial residential premises and the context in which the term 'commercial residential premises' is used in the whole of the GST Act. This includes the exclusion of 'commercial residential premises' from being input taxed as residential premises in subsection 40-35(1) of the GST Act.

The use of the term 'hostel', when read in conjunction with the terms 'hotel, motel, inn and boarding house' infers that this term should be limited to the class or genus of premises described, the supply of which is not input taxed.

The class of premises described in paragraph (a) of the definition of commercial residential premises is commonly used to provide accommodation to guests or travellers and is thereby distinguished from premises that are used to provide accommodation to owners or tenants. This characteristic is one of the characteristics identified as being common to this class in paragraph 83 of GSTR 2000/20. Premises that are commercial residential premises under paragraph (f) of the definition of commercial residential premises are residential premises that are used to exhibit these characteristics in a manner to place them in this class, rather than with premises of another kind.

The entity intends to supply newly constructed premises to an accommodation provider by way of lease.

Based on the facts provided, the building is constructed on land designated as an educational precinct. While the design of the building allows for the sharing of kitchen and lounge facilities within the confines of each apartment, the provision of a private room with an ensuite is not consistent with the design of a hostel as held in Noosa Shire Council . The layout of these premises is common to a particular type of building specifically designed to provide tertiary student accommodation.

The design of the apartments in the building together with its purpose of accommodating tertiary students is consistent with the accommodation in the building being regulated under the relevant State laws. These laws prescribe that a particular form of accommodation agreement is entered into between any accommodation provider and the occupants of this type of building. Under the prescribed terms of the agreement, the occupants of the building will be granted exclusive possession of their room for a fixed period.

This right of exclusive possession is inconsistent with the class of premises described in paragraph (a) of the definition of commercial residential premises. The building is designed to be occupied by students who will obtain rights more akin to those of a tenant. Consequently, the level of control management may have over these premises as a whole will be less than that retained by the management of the types of premises listed in paragraph (a) of the definition of commercial residential premises.

Consequently, the design of the building for the provision of tertiary student accommodation and associated requisite compliance with the relevant State laws indicates that these premises are not intended to be used to provide accommodation that is similar to the class of premises included in paragraph (a) of the definition of commercial residential premises. This excludes these premises from the class of premises described in paragraph (a) and prevents the premises from being similar to those types of premises under paragraph (f) of the definition of commercial residential premises.

Therefore, the entity is making a supply of residential premises that is not commercial residential premises under section 195-1 of the GST Act when it leases a building designed to provide student accommodation to an accommodation provider.