Foreign purchaser additional duty and vacant residential land tax apply to residential property. However, for the purpose of these taxes, residential property does not include commercial residential premises.
Sole or primary use
The definition of residential property focuses on the property as a whole. It is the sole or primary use of the property that determines its character for the purposes of the foreign purchaser additional duty or vacant residential land tax.
If the sole or primary use of the property is as commercial residential premises, then the property will not be residential property and will not attract foreign purchaser additional duty or vacant residential land tax.
What are commercial residential premises?
These premises have the same meaning as in s195-1 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) and includes:
- a hotel, motel, inn, hostel or boarding house
- premises used to provide accommodation in connection with a school. Schools have a particular meaning for these purposes but generally will be a pre-primary, primary or secondary school but not a higher education institution
- a caravan park or a camping ground
- anything similar to residential premises described above.
As this definition is based on Commonwealth legislation, there is more guidance about the meaning of commercial residential premises available on the Australian Taxation Office (ATO) website.
Hotel, motel, inn, hostel or boarding house
These premises are not defined in the A New Tax System (Goods and Services Tax) Act 1999 (Cth). They take their ordinary meaning so it is necessary to consider their characteristics.
A hotel, motel, inn, hostel or boarding house generally has the following characteristics:
- The premises are operated on a commercial basis or businesslike manner.
- The premises have the capacity to provide accommodation to multiple, unrelated guests or residents at the same time.
- The premises offer accommodation to the public.
- Providing accommodation is the main purpose of the premises.
- The premises have central management to accept reservations, allocate rooms, receive payments and perform a range of services.
- The entity operating the premises supplies accommodation in its own right rather than as an agent.
- Management provides guests and residents with services and facilities, or arranges for third parties to provide them.
- The occupants have the status of guests – and are predominantly travellers who have their principal place of residence (home) elsewhere. The occupants do not enjoy an exclusive right to occupy any particular part of the premises in the same way as a tenant.
Premises used to provide accommodation in connection with a school
Premises used to provide accommodation in connection with a school are commercial residential premises and therefore do not attract foreign purchaser additional duty or vacant residential land tax.
A school is an institution supplying preschool courses, primary courses, secondary courses or special education courses (course providing special programs designed specifically for children or students with disabilities).
For the purpose of the definition of commercial residential premises, a ‘school’ does not include a higher education institution.
Accommodation provided in connection with a higher education institution (e.g. university and other tertiary institutions)
A property that provides accommodation to students of a higher education institution may be commercial residential premises. A key point is whether the accommodation is provided to students in connection with a higher education institution. If so, the property is not commercial residential premises and could be subject to foreign purchaser additional duty or vacant residential land tax. It does not matter whether the student accommodation is run by the higher education institution or privately. Examples include:
- University or tertiary college owned and run residential accommodation.
- Privately owned accommodation let to a university or tertiary college for student accommodation.
- Privately owned and run accommodation for students of a particular higher education institution under an arrangement or agreement with that institution.
If the accommodation is not provided in connection with a higher education institution, and depending on the nature of the premises, the property may fall under one of the other limbs of commercial residential premises. For example, if the premises provides low cost accommodation, shared rooms, a supervised reception desk that is staffed 24 hours a day and common areas, then the premises are likely to be considered a hostel or similar to a hostel and therefore commercial residential premises. As such, they would not attract foreign purchaser additional duty or vacant residential land tax.
What is ‘in connection with’?
In deciding whether accommodation is supplied ‘in connection with’ a higher education institution, the ATO has listed a number of factors that are relevant in their GST ruling GSTR 2001/1. These are:
- Whether the education institution has any input in the running of the accommodation facility including setting rental charges and determining the relationship between the accommodation supplier and the occupier. The input may be made through a third party.
- Whether there is any specific or implied requirement that preference must be given to students of the education institution.
- Whether the housing facility is constructed on land owned by the education institution.
- Whether the land has been acquired or used by the education institution for the purpose of entering into agreements for the construction and running of the housing facility.
- Whether the facility is in fact to be occupied by students of the education institution during the academic year or at other times.
- Whether the education institution has any interest, even if not directly reflected, in the entity providing the accommodation.
- How the housing facility is marketed.
- The identity of the operator and nature of their business. Is their business the supply of accommodation to students?
- The intention of the education institution in entering into any arrangements and any relevant agreements relating to the housing facility.
- Whether the provision of the facility reflects an education institution's charter or other governing instruments.
A decision should not be based on any of these factors on its own. They must be considered together, along with any other factors relevant to the particular case.
In determining these matters, we take into account the classification and therefore the GST treatment that the ATO applies to the property.
Separately titled rooms and apartments
Separately titled rooms or apartments are capable of being used solely or primarily for residential purposes. As a separately titled room or apartment by itself cannot exhibit the characteristics of commercial residential premises, purchasing a separately titled room or apartment in a hotel or serviced apartment may be residential property for the purposes of additional duty.
Frequently asked questions
- Is a privately owned building marketed as providing accommodation to higher education students considered to be commercial residential premises?
- What about student accommodation that is not provided in connection with a higher education institution?
- Can premises be commercial residential premises even if the accommodation is provided in connection with a higher education institution?
- Does it make a difference if the building is let to a higher education institution for student accommodation?
- What if non-students are able to let the rooms?
- Does the location of the accommodation matter?
- Does it make a difference if the accommodation is on or off campus?
- When will accommodation be in connection with a school?
1. Is a privately owned building marketed as providing accommodation to higher education students considered to be commercial residential premises?
This depends on whether or not the accommodation is provided ‘in connection with’ a higher education institution.
Accommodation provided in connection with a higher education institution cannot be commercial residential premises. The ATO, in GST ruling GSTR 2001/1, has set out a number of factors to help determine whether accommodation is provided ‘in connection with’ a higher education institution. How a property is marketed is one of those factors. Other factors are:
- Whether the education institution has any input in running the accommodation facility including setting rental charges and determining the relationship between the accommodation supplier and the occupier. The input may be made through a third party.
- Whether there is any specific or implied requirement that preference must be given to students of the education institution.
- Whether the housing facility is constructed on land owned by the education institution.
- Whether the land has been acquired or used by the education institution for the purpose of entering into agreements for the construction and running of the housing facility.
- Whether the facility is in fact to be occupied by students of the education institution during the academic year or at other times.
- Whether the education institution has any interest, even if not directly reflected, in the entity providing the accommodation.
- The identity of the operator and nature of their business. Is their business the supply of accommodation to students?
- The intention of the education institution in entering into any arrangements and any relevant agreements relating to the housing facility.
- Whether the provision of the facility reflects an education institution’s charter or other governing instruments.
A decision should not be based on any of these factors on its own. They must be considered together, along with any other factors relevant to the particular case. We will also consider any ruling obtained from the ATO on the classification of the accommodation/premises and whether the accommodation is provided ‘in connection with’ a higher education institution.
If the accommodation is not provided in connection with higher education institution, then it is necessary to consider if the property meets the other limbs of commercial residential premises, most relevantly hostel or hostel-like accommodation.
2. What about student accommodation that is not provided in connection with a higher education institution?
Accommodation that is not provided in connection with a higher education institution may be commercial residential premises if it satisfies one of the other limbs of the definition of commercial residential premises. For example, if the premises provides low cost accommodation, shared rooms, a supervised reception desk staffed 24 hours a day and common areas, then the premises are likely to be considered a hostel or similar to a hostel and therefore commercial residential premises. As such, the property would not attract foreign purchaser additional duty or vacant residential land tax.
If the property does not satisfy one of the other limbs, it remains residential property for the purpose of foreign purchaser additional duty and vacant residential land tax.
3. Can premises be commercial residential premises even if the accommodation is provided in connection with a higher education institution?
No. If it is determined that the accommodation is provided ‘in connection with’ a higher education institution, the accommodation will not be commercial residential premises. This is the case even if the premises is of a kind listed elsewhere in the definition of commercial residential premises, such as a hostel, boarding house or similar. The other limbs of the definition of commercial residential premises are irrelevant and the property will be residential property for the purpose of foreign purchaser additional duty and vacant residential land tax.
4. Does it make a difference if the building is let to a higher education institution for student accommodation?
If privately owned premises are let to a higher education institution for student accommodation, and assuming the students only attend the institution in question, this would ordinarily show the accommodation is being provided ‘in connection with’ the institution. Accommodation provided in connection with a higher education institution cannot be commercial residential premises and will be residential property for the purpose of foreign purchaser additional duty and vacant residential land tax.
5. What if non-students are able to let the rooms?
Residential property for foreign purchaser additional duty and vacant residential land tax purposes is property capable of being used solely or primarily for residential purposes. It will not be residential property, however, if it is capable of being used solely or primarily for commercial residential purposes.
The focus of the definition is on the property. Accordingly, if the premises is on a single title (that is, each room is not separately titled) then it is necessary to determine what the premises as a whole is solely or primarily used for. If it is solely or primarily used for student accommodation provided in connection with the higher education institution, then it is not commercial residential premises. The fact that some rooms at the premises may be used by non-students will not change the overall character or classification of the whole premises.
6. Does the location of the accommodation matter?
The location of property is relevant but not conclusive in determining if the student accommodation is provided ‘in connection with’ a higher education institution. It is one of the many factors to look at. Other factors include how the premises are marketed, whether the higher education institution has any interest in the property and/or any interest in, or agreements with, the owner or operator of the premises.
7. Does it make a difference if the accommodation is on or off campus?
Whether the property is on or off campus is relevant but not conclusive. It is one of the many factors to look at. Generally, however, student accommodation located on campus is likely to be considered to be provided in connection with that higher education institution as the institution is likely to be directly or indirectly involved with, or have control over, the provision of that accommodation to its students.
8. When will accommodation be in connection with a school?
This depends on a range of factors. The factors set out by the ATO in GST ruling GSTR 2001/1 to help determine whether accommodation is provided in connection with an education institution that is not a school, should also be used to decide whether accommodation is provided in connection with a school. These include:
- Whether the school has any input in the running of the accommodation facility including setting rental charges and determining the relationship between the accommodation supplier and the occupier. The input may be made through a third party.
- Whether there is any specific or implied requirement that preference must be given to students of the school.
- Whether the housing facility is constructed on land owned by the school.
- Whether the land has been acquired or used by the school for the purpose of entering into agreements for the construction and running of the housing facility.
- Whether the facility is in fact to be occupied by students of the school during the academic year or at other times.
- Whether the school has any interest, even if not directly reflected, in the entity providing the accommodation.
- How the housing facility is marketed.
- The identity of the operator and nature of their business. Is their business the supply of accommodation to students?
- The intention of the school in entering into any arrangements and any relevant agreements relating to the housing facility.
- Whether the provision of the facility reflects the school’s charter or other governing instruments.
A decision should not be based on any of these factors on its own. They must be considered together, along with any other factors relevant to the particular case.
If accommodation is provided in connection with a school, it will be commercial residential premises and would not attract foreign purchaser additional duty and vacant residential land tax.
If the accommodation is not provided in connection with a school, it is necessary to consider the nature of the premises to see if it meets any of the other limbs of commercial residential premises. If it does not, the property would be residential premises and attract foreign purchaser additional duty and vacant residential land tax.
The definition of a school is set out in s195-1 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) as: an institution supplying preschool courses, primary courses, secondary courses or special education courses, which are courses providing special programs designed specifically for children or students with disabilities.
The definition of school excludes institutions providing any other education course, which generally means higher education institutions are not schools. Accommodation provided in connection with an education institution that is not a school is expressly excluded in the definitions from being commercial residential premises.
