This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.
You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.
Authorisation Number: 1051263928588
Date of advice: 22 August 2017
Subject: GST and supply of residential premises by way of lease
Where your annual turnover is over $75,000 from making supplies of furnished accommodation in residential premises by way of sublease, are you making a taxable supply under section 9-5 of the GST Act and therefore GST is payable on the supply?
No, where you only making supplies of furnished accommodation in residential premises by way of sublease, you are making input taxed supplies under section 40-35 of the GST Act which means GST is not payable on the supplies. This is the case even if your annual turnover from making these supplies is over $75,000.
Relevant facts and circumstances
You are an individual registered with an Australian Business Number. You are not registered for GST.
You carry on an enterprise of supplying furnished rooms or houses by way of sublease to the public. You refer to these activities as that of running a share house business where you lease the houses from real estate agents or private landlords. You then furnish the houses and sublease to the public, mainly people who are predominantly young adults, students or travellers. You carry out the subleasing activities in your own right and not acting as agent in any way. Whilst you provide all furniture in the houses you have nothing to do with other things such as cleaning, food and house rules.
Utilities are connected under your name but you split the utility bills among the people occupying the house when they fall due.
The term of the leases between yourself and the occupants of the house are periodic and you take a bond from them.
Currently, you have a specified number of houses under this arrangement. Each of the houses has a specified range in number of bedrooms. You furnish the houses using second hand furniture bought from sites such as gumtree.com.au for which you have not got any receipt from the sellers.
Generally, you would spend around $x amount to fully furnish a house. The furnishings include white goods, television, electronic products, furniture, mops, vacuum cleaners, and kitchenware.
Your annual turnover from this subleasing enterprise is currently approximately $x amount a year. You do not carry on any other enterprises or activities.
None of the premises you sublease are commercial premises such as shops or other commercial buildings.
Relevant legislative provisions
The A New Tax System (Goods and Services tax) Act 1999 paragraph 9-5(d)
The A New Tax System (Goods and Services tax) Act 1999 paragraph 11-15(2)(a)
The A New Tax System (Goods and Services tax) Act 1999 paragraph 40-35(1)(a)
The A New Tax System (Goods and Services tax) Act 1999 paragraph 40-35(2)(a)
The A New Tax System (Goods and Services tax) Act 1999 section 9-5
The A New Tax System (Goods and Services tax) Act 1999 section 11-15
The A New Tax System (Goods and Services tax) Act 1999 section 11-20
The A New Tax System (Goods and Services tax) Act 1999 section 23-5
The A New Tax System (Goods and Services tax) Act 1999 section 40-35
The A New Tax System (Goods and Services tax) Act 1999 subsection 11-15(2)
The A New Tax System (Goods and Services tax) Act 1999 Division 38
The A New Tax System (Goods and Services tax) Act 1999 Division 40
The A New Tax System (Goods and Services tax) Act 1999 Division 188
Reasons for decision
Are you making a taxable supply?
Section 9-5 states that:
You make a taxable supply if:
(a) you make the supply for * consideration; and
(b) the supply is made in the course or furtherance of an * enterprise that you * carry on; and
(c) the supply is * connected with the indirect tax zone; and
(d) you are * registered, or * required to be registered.
However, the supply is not a * taxable supply to the extent that it is * GST-free or * input taxed.
The term 'indirect tax zone’ generally means Australia.
In your case:
● you are subleasing the houses or rooms in the houses for a rental income amount
● you are carrying on an enterprise of subleasing premises
● the houses from which you conduct the sublease of premises are in Australia
● you are currently not registered for GST
Accordingly, your supply satisfies paragraphs 9-5(a) to (c) and will only be a taxable supply if:
● you are 'required to be registered’ for GST, and
● your supply is not GST-free or input taxed.
Division 38 provides for certain supplies to be GST-free. We consider Division 38 has no application to your supply of the rooms or houses by way of subleases.
Division 40 provides for certain supplies to be input taxed. If a supply is input taxed, then no GST is payable on the supply. Further, there is no entitlement to an input tax credit for anything acquired or imported to make the supply.
Paragraph 40-35(1)(a) states that a supply of premises that is by way of lease, hire or licence (including a renewal or extension of a lease, hire or licence) is input taxed if the supply is of residential premises (other than a supply of commercial residential premises or a supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises).
However paragraph 40-35(2)(a) explains that the supply is input taxed only to the extent that the premises are to be used predominantly for residential accommodation (regardless of the term of occupation).
Paragraphs 9 and 15 of Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) explain that a single test looking at the physical characteristics of the property will determine the premises suitability and capability for residential accommodation. To satisfy the definition of residential premises, the premises must provide shelter and basic living facilities.
Paragraph 7 of GSTR 2012/5 explains that the physical characteristics of the premises will determine whether the property is residential premises for the purposes of subsection 40-35(1).
It states that the definition of residential premises 'refers to premises that are designed, built or modified so as to be suitable to be occupied, and capable of being occupied, as a residence or for residential accommodation. This is demonstrated through the physical characteristics of the premises’.
From the information and facts provided, you are subleasing houses/rooms in houses. We consider the premises provide shelter and basic living facilities. The premises have the physical characteristics that make them suitable for and capable of being occupied as residential accommodation. This means the premises satisfy the condition specified in section 40-35 as 'residential premises to be used predominantly for residential accommodation (regardless of the term of occupation)’
Accordingly, your sublease of the premises is an input taxed supply. That is, you are not making a taxable supply under section 9-5 and therefore GST is not payable.
Additionally, you are also not making a taxable supply if it is determined that you are not required to be registered for GST.
Are you required to be registered for GST?
Section 23-5 states:
You are required to be registered under this Act if:
(a) you are * carrying on an * enterprise; and
(b) your * GST turnover meets the * registration turnover threshold.
In your case, you are carrying on an enterprise of subleasing residential premises. It is relevant to establish if your GST turnover meets the registration turnover threshold.
Generally, if your GST turnover is $75,000 or above the registration turnover threshold will be met. However, Division 188 states that in calculating your GST turnover you disregard the values of supplies that are input taxed.
Further information and guidance in working out the GST turnover is available in Goods and Services Tax Ruling GSTR 2001/7, Goods and services tax: meaning of GST turnover, including the effect of section 188-25 on projected GST turnover.
We have already determined earlier in this ruling that you are only making input taxed supplies from carrying on your subleasing enterprise. You do not carry on any other enterprise. In applying Division 188 to work out your GST Turnover, you need to disregard the values of your input taxed supplies. This means, your GST turnover will not meet the registration turnover threshold. Accordingly, you are not required to be registered for GST under section 23-5. This means paragraph 9-5(d) is not satisfied and you are not making taxable supplies and GST is also not payable.
You are not making a taxable supply under section 9-5 and GST is not payable. Where you choose to register for GST, your supply will still not be subject to GST as you are making input taxed supplies.
This also means you are not able to claim input tax credits in relation to the costs incurred for making the input taxed supplies.
Section 11-20 provides that a registered entity is entitled to an input tax credit for any creditable acquisition that the entity makes. One of the conditions for an acquisition to be creditable is that the entity acquires anything solely or partly for a creditable purpose.
However, under paragraph 11-15(2)(a), an entity does not acquire a thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed.
In your case, you are only making input taxed supplies of residential rent in your subleasing enterprise, and you do not carry on any other enterprise. Accordingly, you are not able to claim input tax credits in relation to the costs incurred in making the input taxed supplies. This is the case even if you choose to register for GST.