GST win for developer and lessor of shared and studio apartments
ECC Southbank Pty Ltd atf Nest Southbank Unit Trust and Urbanest Southbank Leasing Pty Ltd atf Urbanest Southbank Leasing Trust v Commissioner of Taxation
31 July 2012: The Federal Court has ruled in favour of two taxpayers, finding that certain supplies relating to the ‘Urbanest Southbank’ development in Brisbane were taxable supplies for GST purposes. The decision should enable the taxpayers to recover GST input tax credits on the costs of developing, leasing and operating the Urbanest premises.
Although this decision is concerned with premises developed predominantly for student accommodation, the issues raised have possible application to the broader property development sector, including retirement village developments. Depending on the particular characteristics that a residential development possesses, there may now be a greater scope to argue that supplies of the premises, or of accommodation in them, are taxable and that input GST is recoverable.
The Urbanest premises were designed and developed as student accommodation and serviced apartments. The premises comprise 132 shared apartments (each incorporating a cluster of four, five or six study/bedrooms and shared kitchen and living facilities), 27 studio apartments, and various common areas including a 24-hour reception desk. The first taxpayer undertook the Urbanest development and after completion leased the premises to the second taxpayer to supply managed residential accommodation to students and others.
The taxpayer commenced declaratory proceedings in the Federal Court to clarify whether the premises, considered as a whole, were “commercial residential premises” within the meaning of the GST law, and thus attracted GST when they, or accommodation in them, were supplied. The four supplies considered by the Court were:
- The lease of the whole of the Urbanest premises by the first taxpayer to the second taxpayer
- Four months accommodation provided by the second taxpayer to an individual in a single occupancy study/bedroom within a shared apartment
- Three months accommodation provided by the second taxpayer to an individual in a double occupancy study/bedroom within a shared apartment
- Six months accommodation provided by the second taxpayer to an individual in a studio apartment.
The main issue for determination by the Court was whether the premises are “commercial residential premises” because they are a “hotel, motel, inn, hostel or boarding house…or…anything similar…” to any of those establishments.
The Commissioner of Taxation’s position was that the supplies by the taxpayers were input taxed supplies of “residential premises” such that GST did not apply. He submitted that none of the words ‘hotel’, ‘motel’, ‘inn’, ‘hostel’ or ‘boarding house’ describes accommodation similar to that which would be expected for those who own or rent a house or apartment. According to the Commissioner, residents of the Urbanest premises rent their accommodation in much the same way as a person would rent any apartment for the purpose of exclusive or shared residence, and that it is the policy of the GST law that persons renting a house or apartment are to be on the same footing as persons who own their own homes in that neither is to pay GST in connection with such occupation.
After considering the dictionary definition of each type of establishment, and taking into account the particular features/characteristics of the Urbanest premises, the Court found insufficient similarity to a hotel, motel, boarding house or inn. The Court concluded however, that the Urbanest premises, if not a ‘hostel’, are at least very similar to one. The Court relied on the comparatively low cost of the accommodation offered at the Urbanest premises, the way that the accommodation had been configured with the needs of students seeking low cost accommodation in mind, and the supervision of the premises that is provided by the 24-hour reception desk.
In support of its finding that the Urbanest premises are ‘commercial residential premises’, the Court also noted that they possess all of the attributes that Parliament identified such premises as normally having when it amended related aspects of the GST law in 2006 (i.e. operation by a controller for a commercial purpose, multiple occupancy, held out to the public as commercial residential premises, central management, services provided in addition to commercial accommodation, and use for the main purpose of accommodation).
|To discuss the potential implications of this decision for your business, please contact a member of the Deloitte Indirect Tax team.|