Reinforcing the divide: commercial residential premises and South Steyne

South Steyne Hotel Pty Ltd v Commissioner of Taxation1. INTRODUCTION

On 20 November 2009, the Full Federal Court heard an appeal by South Steyne Hotel Pty Ltd (Taxpayer) in relation to the characterisation of certain supplies based on their classification as either being residential premises or commercial residential premises. This matter was first heard by Justice Stone of the Federal Court on 30 January 2009, 2 being one of the first interpretations of the amended provisions in A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act) relating to residential premises that were included after the decision in Marana Holdings Pty Ltd & Another v Commissioner of Taxation. 3 Before Justice Stone, heavy emphasis was placed on the ordinary meanings of "reside" and "residential premises", as well as how the ordinary meanings of these terms were interpreted for GST purposes. The Federal Court dismissed the Taxpayer's appeal, finding for the Commissioner in each case under a strict interpretation of the amended provisions in the GST Act.

On appeal by the Taxpayer, the Full Federal Court upheld three of the Federal Court's findings by majority, only conceding that the sale of each apartment to MBI Properties Pty Limited was GST-free under s 38-325 of the GST Act. The point in relation to the supply of a going concern is restricted to the particular facts arising in this case.

The recent decision of the Full Federal Court is important as it reinforces the distinction made between residential premises and commercial residential premises under the amended provisions of the GST Act. Such reinforcement is particularly important given the silence of parliament to date as to the wider consequences of the amendments made to the GST Act. In any event, developers, property owners and business operators (including management right scheme operators) are likely to be affected where they are involved with apartments forming part of a larger scheme which may still be characterised as residential premises rather than commercial residential premises for the purposes of GST.

BACKGROUND FACTS4

In December 2000, the Taxpayer purchased the Sebel Complex (Hotel) located in Manly, New South Wales. The Hotel contained 83 rooms (Apartments), 24-hour reception area, restaurant, bar, swimming pool and conference room. The Hotel was given a 4.5 star rating, offering guests the use of services such as valet parking, safety storage box, cleaning and laundry services, and room service.

Decorated in a similar style, each Apartment contained one or two bedrooms, and contained similar fittings, furnishings and chattels. Importantly each Apartment contained basic facilities to make tea and coffee, a bar fridge and television, linen, ironing board and bathroom supplies. The two bedroom Apartments also contained laundry facilities in the bathroom.

In August 2006, the Apartments were strata titled. New planning restrictions were imposed which precluded the Apartments from being used either as permanent accommodation or as a residential flat building.

An arrangement was put in place to enable the Apartments to be used as part of a serviced apartment business. Under this arrangement, the Taxpayer sold the reception...