South Steyne Hotel Pty Ltd v Commissioner of Taxation

INTRODUCTION 1 This proceeding concerns the application of the goods and services tax (GST) to various supplies made in connection with the Sebel Manly Beach Hotel (Hotel) between September 2006 and October 2007. For the purposes of A New Tax System (Goods and Services Tax) Act 1999 (Cth) (the GST Act) the applicants seek declarations as to the characterisation of certain supplies made in relation to each room or apartment in the Hotel. In referring to the accommodation areas within the Hotel the applicants and the respondent use the terms "room" and "apartment" respectively. In these reasons the terms are used interchangeably. Occasionally the Hotel is also referred to as the Sebel Complex.

The facts 2 The factual background, about which there is no dispute, can be stated briefly. The respondent's written outline of submissions, which refers to the Hotel as the Sebel Complex, states the "critical facts" as follows: (a) On 8 December 2000, the first applicant ("South Steyne") purchased the Sebel Complex; (b) On 10 August 2006, each Apartment in the Sebel Complex was individually strata-titled; (c) On 29 September 2006, South Steyne: (i) sold the 'Management Lot' - which included the reception area, offices and car parking spaces - in the Sebel Complex to Mirvac Hotels Pty Ltd ("MHL"); and (ii) leased each of the 83 Apartments to Mirvac Management Pty Ltd ("MML") under individual lease agreements. Each lease obliged MML to operate a scheme whereby the Apartment was, together with the other Apartments, operated as part of a serviced apartment business; (d) From at least 29 September 2006, MHL had exclusive control of the operation of the serviced apartment business pursuant to an agreement ("Serviced Apartment Management Agreement") with MML, which agreement also conferred upon MHL the benefit of MML's rights under the lease agreement; (e) Between 29 September 2006 and 31 October 2007, South Steyne sold 15 Apartments to various investors, including the second applicant ("MBI"). Each Apartment was sold subject to the applicable leave to MML. Each contract for sale permitted the purchaser to participate in a 'Management Rights Scheme', which mirrored the scheme provided for under the lease agreements. Each purchaser elected to participate in the Scheme; (f) On 17-18 October 2007, Ms Emily Young, an employee of the third applicant ("Morgan & Banks"), stayed at Apartment 403 and made use of various services available to guests of the Sebel Complex. 3 The applicants' outline of submissions contains more detail, much of which is irrelevant to the question at issue; however some amplification of the bald facts provided by the respondent gives the flavour of the enterprise in which the applicants were engaged. 4 The Hotel contains 83 guest rooms, a reception area, restaurant, bar, swimming pool and conference rooms. The development consent which permitted the land to be brought under strata title precluded its use, or conversion for use, as permanent accommodation or as a residential flat building without further consent. The areas used to manage the Hotel (including the reception area, management offices and car parking spaces) were included in a separate Management Lot and the conference facilities within the Hotel became the Conference Lot. From May 2006 the Hotel restaurant was leased and operated by Red Elm Pty Ltd which, under a Services Agreement with MHL dated 11 May 2006, was to provide restaurant services including room service to guests in the Hotel. Red Elm was also required to maintain a liquor licence for the service of alcohol in the restaurant and for room service, as well as in the bar, mini-bars, conference facilities and hotel rooms. 5 The applicants' written submissions also summarised evidence about the operation of the Hotel as follows: From 30 April 2006 the Hotel was managed and operated as a multiple occupancy Hotel by MHL. The Hotel was assessed by AAA Tourism, classified as a "hotel" and given a 4.5 star rating. MHL maintained (and continues to maintain) a 24-hour reception service from the reception desk. Members of the public are offered short-term accommodation in the Hotel by various means including via the internet. Guests are charged a tariff according to the number of days they stay at the Hotel. Guests do not enter into residential tenancy agreements with MML. Guests enjoy all the services ordinarily associated with hotel accommodation, including housekeeping, access to car parking, valet parking, complimentary morning newspapers, valet dry cleaning and laundry services, safety deposit box storage and room service. Utility services (electricity, communications, data and hot and cold water) are provided to the Hotel Rooms and other areas in the Hotel via common systems. With the exception of telephone and data services, the services cannot be separately metered according to the usage in particular Hotel Rooms. With limited variations, the Hotel Rooms are decorated in uniform style and contain the facilities, furnishings, fixtures and chattels ordinarily associated with hotel accommodation, with some variations from room to room. The Hotel Rooms include basic facilities of the kind normally found in hotel rooms, including tea and coffee making facilities, bar fridge, linen, ironing board and iron and bathroom supplies such as soap, shampoo and conditioner. 6 In an affidavit affirmed on 14 March 2008 Mr Graham Brand, a director of the first, second and third applicants, gave more detailed evidence about the apartments contained in the Hotel. Rooms 111, 304 and 604 were described as indicative of the range of accommodation contained in the Hotel. Photographs of these rooms exhibited to the affidavit of Lurdes Maria Novo de Oliveira, affirmed on 14 March 2008, confirm the description given by Mr Brand and provide additional details. 7 Room 111 is the smallest and has a combined bed/sitting area, a bathroom and small terrace. The bed/sitting room contains a king size bed, bedside and coffee tables, a sofa bed, armchair, desk, drawers and a television and entertainment unit. The bathroom has a toilet, hand basin and shower. The room has no kitchen but there is an alcove containing a mini-bar refrigerator and kettle. 8 Room 604 is the largest of the three rooms. It has "two bedrooms, a combined living and dining area, a large outdoor area, a bathroom and kitchen". The dining/living area has a table with four chairs, a sofa, armchairs, coffee tables, desk, lamp and entertainment unit. There is a kitchen with a refrigerator, hotplates, microwave, kettle and various cooking appliances and implements. Room 304 is similar to room 604 except it has only one bedroom and the kitchen facilities are more limited. It also has a washing machine, clothes dryer and laundry tub in a laundry cupboard in the bathroom.