GSTR 2018/1 – GST: supplies of real property that are ‘connected with’ Australia – including rights to occupy a hotel in Australia, created by a foreign tour operator (via the local hotel operator)

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:

1. selling land situated in Australia;
2. granting, assigning or surrendering a lease or licence of land situated in Australia;
3. a personal right to call for or be granted any interest or right over land in Australia;
4. granting a put or call option over land situated in Australia;
5. a licence to occupy land in Australia; or
6. 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.

FJM 8.9.18

[LTN 161, 22/8/18; Tax Month -August 2018]

Comprehension questions (answers available)

1. Is this a ruling about when a supply of ‘real property’ is relevantly ‘connected with [Australia]’ such that it could be a ‘taxable supply’?
2. Is ‘real property’ the same thing as ‘land’?
3. Does the definition of ‘real property’ include: ‘an interest in or right over’ land?
4. Does ‘real property’ include: “a contractual right exercisable over or in relation to land”?
5. Is the place where the contractual right was created (viz: inside or outside Australia) relevant for whether the supply is taxable or not?
6. Is the place where the land is situated (viz: inside or outside Australia) relevant for whether the supply is taxable or not?
7. 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?
8. Why?