Australia: Residential premises and commercial residential premises - ATO releases final GST rulings

Last Updated: 19 May 2013
Article by Stephanie Barnes

Introduction

On 19 December 2012 the Commissioner of Taxation (Commissioner) released the long awaited final GST ruling on residential premises (RP) and commercial residential premises (CRP). Developers should review existing and proposed developments to determine if the Commissioner's view on GST impacts their pricing and ability to claim input tax credits. The classification of premises as either RP or CRP has long been an area of unnecessary complexity. Given the recent increase in litigation in this area, the Commissioner has released a more detailed, and in some areas, revised view.

The complexity surrounding the classification of premises as RP or CRP arises from different GST treatment. Assuming the supplier is registered for GST, then:

  • the sale and lease of CRP is a taxable supply;
  • the sale of RP, that are not new RP or CRP, is an input taxed supply;
  • the lease of RP is an input taxed supply; and
  • the sale of new RP will be a taxable supply.

If a Developer is making input taxed supplies, this will affect the Developer's ability to claim full input tax credits on their construction costs.

Residential premises

Residential premises

The Commissioner has confirmed in GSTR 2012/5 his longstanding view that:

  • the test to be applied in determining whether premises are "residential premises to be used predominantly for residential accommodation" is a single test that looks at the physical characteristics of the property to determine suitability and capability for residential accommodation; and
  • the subjective intention of, or use by, the purchaser of the premises is irrelevant.

Commercial residential premises

GST Ruling GSTR 2012/6 considers the GST treatment of supplies of CRP and supplies of accommodation in CRP. The definition of CRP includes a number of categories with the main one being "a hotel, motel, inn, hostel or boarding house". The Commissioner states that it is the overall physical characteristics of the premises and how the premises are operated, that are the objective factors which classify premises as CRP.

The Commissioner still places reliance on eight characteristics that may be relevant in characterising premises as CRP as a "hotel, motel, inn, hostel or boarding house". These factors are: (1) commercial intention, (2) multiple occupancy, (3) hiring out to the public, (4) accommodation as the main purpose, (5) central management, (6) management offers accommodation in its own right, (7) provision, or arrangement for services and (8) status of guests. However, the Commissioner has changed his view in that the status of guests for hostels and guest houses is no longer relevant.

A number of other issues such as the supply of non-operating premises and the individual or multiple supply of separately strata titled hotel rooms is considered in detail. Developers should exercise caution when considering the GST treatment of the supply of separately strata titled hotel rooms as they are likely to constitute a supply of RP, not CRP.

The Commissioner has transitional relief for arrangements involving employee accommodation, boarding houses and rooming houses, accommodation supplied by managers and caretakers and home parks, as the Commissioner acknowledges a change in his previous view on these issues.

Long term accommodation CRP

GST Ruling GSTR 2012/7 considers the Commissioner's view of when "long term accommodation" is provided in CRP. This type of accommodation can be concessionally taxed or treated as an input taxed supply if an election is made by the supplier.

To be concessionally taxed, accommodation must be provided to an individual in CRP for a period of 28 days or more and this accommodation must be made available to an individual during that period.

How does this impact you?

All existing and proposed projects involving the sale or lease of RP or CRP should be reviewed to confirm the GST treatment based on the release of the Commissioner's final GST rulings. Any change in view may impact the profit margin on a development project through an increase in the GST liability on sale or lease of the premises and/or a restriction on the ability to claim input tax credits. Norton Rose can assist in undertaking such a GST review.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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