The AAT has affirmed an objection decision of the Commissioner concerning GST on the supply of accommodation.
The taxpayer was a hotel owner and it had a management agreement with an operator. The taxpayer claimed that it had incorrectly accounted for GST and sought a refund totalling $476,610 for the periods between 1 July 2010 and 31 December 2013. Information provided to the ATO by the taxpayer’s accountant was treated as an application for a private binding ruling. The ATO handed down its PBR in a letter dated 8 December 2014. It ruled that the taxpayer was making a taxable supply of accommodation in commercial residential premises for the purposes of the GST Act. The taxpayer objected, the Commissioner disallowed the objection and the taxpayer then sought review of the Commissioner’s objection decision.
The AAT said the only issue it was required to determine was whether the supply of accommodation in the hotel by the taxpayer from May 2014 (apparent date of the management agreement) was correctly described as a supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises. If it was so, then the taxpayer could not claim the supply was input taxed for the purposes of s 40-35(1)(a). The result would be that GST was payable on the supply of the accommodation.
The AAT held the taxpayer had failed to discharge the onus of proving that, on the balance of probabilities, the tax decision concerned should not have been made or should have been made differently. Accordingly, it affirmed the Commissioner’s objection decision.
(Re Paul J Castan & Son Pty Ltd ATF Castan Investments Unit Trust and FCT [2016] AATA 298, AAT, Ref No: 2015/4856, Fice SM, 11 May 2016.)
[LTN 90, 12/5/16]
Extract from AAT decision
- Paul J Castan & Son Pty Ltd (the Trustee) is the freehold owner of a hotel known as Hotel Sophia which is situated at 277-287 King Street, Melbourne. It is comprised of 49 furnished rooms and a number of facilities including: 24 hour reception; business centre and meeting rooms; security card access; cafe style menu; bar service; billiard table; plasma televisions; wireless internet access; and bar fridge.
- It appears that in May 2014 the Trustee entered into a Management Agreement with P. and M. Castan Pty Ltd as trustee for Castan Family (Discretionary) Trust (the Operator). I have used the word appears because the document states that the Management Agreement was made on the [blank] day of May 2014, but at clause 2 states that the agreement is deemed to have commenced on 29 September 2006.
- Under the Management Agreement, the Operator is said to be the exclusive operator of Hotel Sophia (clause 3.1). The Operator was to have such control and discretion in the operation, direction, management and supervision of the Hotel Sophia as was required to give effect to the terms of the Management Agreement (clause 3.3). In performing its duties as Operator, the Operator acted solely as the agent of the Trustee (clause 4.1).
- In a letter dated 25 August 2014 from Moore Stephens, Accountants & Advisers, who acted for the Trustee, the accountants notified the Commissioner of Taxation (the Commissioner) that their client was entitled to a refund of incorrectly paid GST. The refund was in respect to supplies of accommodation made at the Hotel Sophia. Moore Stevens said, at paragraph 5:
… The Taxpayer incorrectly accounted for GST on its supplies of accommodation, because, pursuant to s 40-35(1)(a), the Operator is the entity providing accommodation in the premises, but it is not the entity that owns or controls the premises. Consequently, the Taxpayer is the entity making supplies of input taxed residential premises. (emphasis in original)