How far can you go for GST exemption – are pontoons and waterways included?

Question

We received the following question from a member recently:

I have a rather interesting question that I would appreciate your opinion on with regards to a Pontoon/Waterway lease and whether you think it can be included as part of a residential premises, and therefore GST exempt.

Background

The pontoon is a private structure owned by the resident and adjoins their land. However, the lake to which the pontoon sits over belongs to the State and Council acts as trustee. The lease of the waterway to the resident is limited to the area of the pontoon structure.  The resident claims that the ‘pontoon lease’ is part of the residential property and therefore should be GST free. Council currently includes GST on the lease.

The resident has referred to the example below in GST Ruling GSTR 2012/5 as support for the supply to be classified as residential:

16. A supply of a residential apartment in a building may include a garage, car-parking space, or storage area located within the building complex. The garage, car-parking space, or storage area is ancillary or incidental to the dominant component of the supply being the residential apartment. It can be reasonably concluded that the garage, car-parking space, or storage area are to be used for the better enjoyment of the residential apartment. They do not form a dominant part of the supply. The supply is therefore a composite supply of residential premises to be used predominantly for residential accommodation.[3] This is still the outcome where the garage, car-parking space, or storage space is separately titled from the residential apartment, but is physically located within the same building complex.

The primary purpose of the Lake is to provide an effective flood control solution for the surrounding urban development. Secondary to that is to provide residents navigational access to an adjoining river via the lock and maintain amenity and visual quality of public spaces. The lake is open to the general public and can be used for general activities such as canoeing, recreational fishing, fire control and other activities prescribed by Council from time to time. Council may agree to allow certain commercial operations on the lake such as water taxi, vessel hire, etc. Leased pontoons are not available for public use. My question is whether, in your opinion, the lease of the pontoon/waterway would meet the criteria of being a residential lease (GST exempt) or Commercial (GST Inclusive).

My question is whether, in your opinion, the lease of the pontoon/waterway would meet the criteria of being a residential lease (GST exempt) or Commercial (GST Inclusive).

Answer

Good question, and certainly an interesting one.

Based on the information you have provided, Council is granting to the resident a lease (or right of access) to the waterway where the pontoon is located.

Council is a GST-registered entity, and making a supply by way of lease or licence to access the waterway, or something similar. This supply would be subject to GST under the normal taxable supply rules, and would only be GST-free or input taxed if a specific provision in the GST law applies to that supply.

A supply of residential premises is input taxed. However, residential premises is defined as premises capable of being occupied primarily for residential accommodation. Council would not be making a supply of residential premises (the right to access the waterway, of itself, is incapable of meeting the definition of ‘residential premises’). Therefore, it would be a taxable supply.

The example provided refers to a supply of residential premises which includes the supply of other components (e.g., garage, car-parking space, or storage). These additional supplies are ancillary to the main supply (a supply of the residential premises) and therefore take on the same GST classification as the supply of the residential premises (input taxed). If the resident was to rent out its property, and that rental including allowing the tenant to use the pontoon, that whole supply would likely to input taxed.

However, in your case, the only supply being made by Council is that of access to the waterway and/or the right to have a pontoon on the waterway. Council is not making any supply of ‘residential premises’ (as defined). Therefore, the supply would default to being a taxable supply, and would be subject to GST.

Note: The above Q&A highlights an important aspect when classifying supplies for GST purposes. While the resident has done some research and identified the example in the ruling, the actual supply being made by Council differs to the supplies being referred to in the example. Such a misinterpretation is understandable, particularly with transactions that are not common or straightforward. Ultimately, the GST treatment will depend on the facts and circumstances of each case.

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