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
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.
The Commissioner has confirmed in GSTR 2012/5 his longstanding
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
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
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
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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The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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