On Wed 22.8.18, the ATO issued GST Ruling GSTR 2018/1, which sets out the ATO view on when supplies of ‘real property’ are ‘connected with the indirect tax zone’ (ie Australia) under s 9-25(4) of the GST Act.
GSTR 2018/1 states that a supply of real property ‘is connected with the indirect tax zone’ [broadly Australia] if the relevant ‘land’ is in Australia.
The relevant ‘taxable supply’ requirements, are as follows.
- A supply must be “connected with the indirect tax zone [Australia]” to be a ‘taxable supply’. [s9-5(c) of the GST Act]
- A supply of ‘real property’ will be connected with the indirect tax zone, if the “real property … is in the indirect tax zone” or “if the … land to which the real property relates, is in the indirect tax zone“. [s9-25(4)]
- ‘real property’ is defined in s195-1 as including: (a) any interest in or right over land; or (b) a personal right to call for, or be granted any interest in, or right over, land; or (c) a licence to occupy land, or any other contractual right exercisable over, or in relation to, land.
- ‘Land‘ is not defined (but, no doubt, takes its ordinary meaning).
Thus, even a ‘right to occupy’ Australian land is ‘real property’ (and so, also, is some other ‘contractual right exercisable over or in relation to [such] land’). One of the tests of being relevantly ‘connected with [Australia]’ is that right was ‘in [Australia]’. But the ruling is not about this first limb test.
Rather, the ruling deals with the second limb test, for the supply to be ‘connected with [Australia]’. This is that the relevant ‘land’ is ‘in [Australia]‘.
‘Land’ means the ‘physical land‘, according to the Commissioner [para 6].
Thus, land that is ‘physically’ in [Australia], is enough to ‘connect’ a related supply, with Australia, and thus make it potentially ‘taxable’ [para 8].
The ruling confirms this, saying that the supply of a right to accommodation, in Australia, constitutes the supply of real property, connected with Australia. There is no need for the supplier (eg a tour operator) to provide any actual accommodation, to the recipient, the ATO says [para 8].
The ruling includes the following examples of supplies of real property that are connected with Australia:
- selling land situated in Australia;
- granting, assigning or surrendering a lease or licence of land situated in Australia;
- a personal right to call for or be granted any interest or right over land in Australia;
- granting a put or call option over land situated in Australia;
- a licence to occupy land in Australia; or
- granting contractual rights to occupy, or stay at, accommodation in Australia (including a stay at a hotel or motel on presentation of a voucher or travel document).
In Examples 1 & 2, the scenario is a tour operator (respectively: a resident and a non-resident) who grants a traveller, the right to stay at a Perth hotel, where the hotel is operated by a different entity. He rules that the supply, of this right to accommodation, is a supply of ‘real property’ and that, because the hotel is in Australia, the supply is taxable, because it is relevantly ‘connected with [Australia]’.
DATE OF EFFECT: 22 August 2018.
The ruling replaces GSTD 2004/3, which ruled that a supply of rights to accommodation in Australia, is a supply of ‘property’ that relates to land that is in Australia – and thus ‘connected with Australia’ – and therefore, potentially a ‘taxable supply’. This Determination was withdrawn on, and with effect from, Wed 22.8.2018.
[LTN 161, 22/8/18; Tax Month -August 2018]
Comprehension questions (answers available)
- Is this a ruling about when a supply of ‘real property’ is relevantly ‘connected with [Australia]’ such that it could be a ‘taxable supply’?
- Is ‘real property’ the same thing as ‘land’?
- Does the definition of ‘real property’ include: ‘an interest in or right over’ land?
- Does ‘real property’ include: “a contractual right exercisable over or in relation to land”?
- Is the place where the contractual right was created (viz: inside or outside Australia) relevant for whether the supply is taxable or not?
- Is the place where the land is situated (viz: inside or outside Australia) relevant for whether the supply is taxable or not?
- Does the Commissioner rule, that a foreign tour operator, who grants a right to occupy an Australian hotel, through a third party operator of the hotel, does NOT make a taxable supply?