Edited version of private ruling

Authorisation Number: 1011490895952

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Ruling

Subject: GST and supply of accommodation

Question 1

If you sell accommodation through your networks under an arrangement with an accommodation owner who makes a non-taxable supply to you, are you making a taxable supply of accommodation using Model A agreements, where you charge your customers the cost of accommodation and a booking fee/ commission?

Answer

You supply accommodation to your customers under Model A agreements in your own right. The characteristics of the accommodation you supply to your customers will determine whether your supply is taxable or not. If the property has the characteristics of residential premises, the supply is an input taxed supply and is not taxable. If the property has the characteristics of commercial residential premises, the supply is taxable. Please refer to reasons for decision for further explanation.

Question 2

Is the supply of your services taxable, where you charge your customers a booking fee/commission under Model B?

Answer

Yes. Your supply of services is taxable where you charge your customers a booking fee/commission under Model B.

Relevant facts and circumstances

You are an accommodation provider and you operate under various brand names.

You provide services to customers that enable them to search, reserve and confirm prepaid accommodation reservations through your networks and telephone call centres.

You are registered for GST and charge GST on hotel rooms that are sold in Australia.

You have a standard contract that you enter into with accommodation providers whereby they make accommodation available on your networks. There are two different models that can be adopted by an accommodation provider: Model A and Model B.

Model A

There are two types of agreements that the accommodation provider may enter into with you under this model.

(i) Agreement 1

· The accommodation provider agrees to make rooms available at a room rate. The room rate includes an agreed percentage of commission.

· You make accommodation available to customers for booking at the room rate.

· The customer pays the room rate to you when they make the room booking.

· The accommodation provider authorises you to deduct the commission from the amount due to them.

· The accommodation provider will issue you with a tax invoice for the consumed room at the room rate, excluding any incidental charges and less the commission.

· You claim input tax credit for the cost of accommodation when you hold the tax invoice issued by the accommodation provider.

(ii) Agreement 2

· The accommodation provider agrees to make room available to you at the net room rate. The net room rate is non-commissionable.

· You make accommodation available to the customers for booking on a prepaid basis at a marked up rate. The difference between the two rates is your commission.

· The accommodation provider will issue a tax invoice for the consumed accommodation at the net room rate to you and you will then claim the input tax credit.

· The terms and conditions are similar to Agreement 1 except for the offering of the net room rate.

Model B

· The customer pays a deposit/booking fee to you which will be your commission. The customer will pay the balance of the fee to the accommodation provider when they arrive at the premises.

· The general terms and conditions of the agreement are similar to the agreements under Model A.

You issue confirmation voucher to the customers when they pay for the room booking. The confirmation voucher has your name and ABN printed on it.

You are considering expanding your business to sell holiday accommodation (strata titled units) which are not commercial in nature and these properties are declared as zero rated for GST on the property profile form. The owners of the properties are not registered or required to be registered for GST. Often they sign with a management company to offer the accommodation. The management company then enters into an agreement with you, using the same agreements as above and they can choose to adopt either Model A or Model B.

Reasons for decisions

Summary

1. The characterisation of a supply of accommodation as either residential or commercial residential premises can only be determined on a case by case basis, taking into account the relevant characteristics of that accommodation.

2. Generally when you do nothing to change the characteristics/quality of the accommodation, that is, you merely list the accommodation for sale through your networks, the GST status of the supply of accommodation that you make will be the same as the GST status of the supply of accommodation made to you.

3. It is important to note that you cannot solely rely on the status of the supply to you to determine the status of the supply by you. For example the supply to you may be non-taxable, even though it exhibits the characteristics of commercial residential premises, because the supplier's turnover is below the GST registration threshold.

Detailed reasoning

Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you must pay GST on any taxable supply that you make.

Taxable supply

Section 9-5 of the GST Act states:

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 Australia; 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.

(* denotes a defined term in section 195-1 of the GST Act)

You advised that in providing accommodation you act as an intermediary between the accommodation providers and consumers to facilitate the making of accommodation reservations. You have agreements with the accommodation providers either under Model A or Model B.

Therefore, in order to determine the GST application on your supply of accommodation to your customers, it is necessary to consider whether you supply the accommodation to customers as a principal in your own right or you act as an agent of the accommodation providers in supplying the accommodation.

Agency relationships

Goods and Services Tax Ruling GSTR 2000/37 provides guidance on agency relationships. At paragraph 28 it provides some factors that indicate an agency relationship as below:

28. In most cases, any relevant documentation about the business relationship, the description used by the parties and the conduct of the parties establish the existence of an agency relationship. Therefore, the following factors may show that you are an agent under an agency relationship, although no single factor (by itself) is determinative:

· any description of you as an agent, having authority to act for another party, in an agreement (expressed or implied) between you and the other party;

· any exercise of the authority that you are given to enter into legal relations with a third party;

· whether you bear any significant commercial risk;

· whether you act in your own name;

· whether you are remunerated for your services by way of commissions and whether you are entitled to keep any part of your remuneration secret from another party; and

· whether you decide the price of things that you might sell to third parties.

29. In some situations, these factors may be difficult to establish. For example, situations may arise where:

· the existence of a principal is disclosed but not named; or

· the existence of a principal is not disclosed to third parties.

However, documents used by the parties and the conduct of the parties may still indicate the existence of an agency relationship.

The relationship between the parties is determined by an examination of the particular facts surrounding relevant transactions. However, should there be any doubt about the position of the parties in a transaction, an agreement may contain descriptions that clarify the relationship.

Depending on the terms of the agreements an intermediary has with its suppliers, the intermediary could be acting as buyer and reseller rather than agent.

1. Model A

There are two types of agreements under this Model: Agreement 1 and Agreement 2.

(a) Agreement 1

No such word as 'agent' or 'principal' has been stated in the agreement to describe the relationship between you and the accommodation provider.

The terms and conditions in this agreement were determined by you without any prior consultation or negotiation with the accommodation provider. Under this agreement you have the full authority to accept or decline bookings on specific dates without prior approval from the accommodation provider.

Further, the accommodation provider is not permitted to display their contact details at your networks and you reserve the right to refuse to display the details of the accommodation provider and property details without prior consent or notification.

Further, the accommodation provider does not set the terms and conditions with which you contract with the customer.

The billing arrangement under this agreement is more to your commercial benefit as the accommodation provider is restricted to issue you an invoice at a specified time rather than at the time the supply is made. This situation demonstrates that you are in control of the invoicing procedures as well.

You receive the room rate which includes the commission from the customers when they make the booking. Under the terms of the agreement, the accommodation provider is required to issue a tax invoice to you at the specified time with the room rate less the commission. You hold the tax invoice and claim input tax credits. This clearly indicates that you are the recipient of the supply of accommodation. You make a creditable acquisition to acquire the room accommodation from the accommodation provider and in turn you supply the accommodation to customers at the room rate through your networks.

Accordingly, based on all the terms and conditions of this agreement and your actions in implementing the agreement, we consider that you are providing the accommodation to customers as principal in your own right rather than as an agent of the accommodation provider.

(b) Agreement 2

The terms and agreement of this agreement is similar to Agreement 1 except the accommodation provider makes rooms available to you at a net room rate.

You advertise the room at your networks with a marked up price. The accommodation provider does not have the authority to determine the mark up rate and you are not required to disclose details of the mark up rate in the agreement.

Similarly, the accommodation provider issues tax invoice to you for the consumed room with the net room rate and you would claim input tax credit for the room accommodation. In addition to other terms and conditions discussed above, this condition further indicates that you are acting in your own right in providing accommodation to customers and the mark up rate represents your profit margin when you on-sell the accommodation to your customers.

GST application

As we have now determined that you are supplying the accommodation in your own right as a principal rather than as an agent, the next step is to determine the GST application on your supply of accommodation under Model A.

You advised that accommodation providers for the strata titled units are either the property owner or their management company who are not registered or required to be registered for GST and you do not pay any GST on your acquisition of the accommodation from them. However, the characteristics of the supply made by your supplier (accommodation provider) to you cannot determine the GST implications of your supply to your customer. In order to determine the GST application of your supply of accommodation to your customer all the relevant facts and circumstances need to be considered and the characteristics of your supply determined.

From the information provided, your supply of accommodation in strata titled units to your customers meets the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act, as:

(a) you receive consideration for the supply of accommodation

(b) the supply of accommodation is in the course or furtherance of an enterprise that you carry on

(c) the supply is connected with Australia as you make the supply through an enterprise you carry on in Australia, and

(d) you are registered for GST.

However, a supply is not taxable to the extent that it is GST-free or input taxed. There is no provision in the GST Act that makes your supply of accommodation in Australia GST-free.

Therefore, what remains to be determined is whether your supply of accommodation in the strata titled units is input taxed.

Input taxed supplies of accommodation

Subsection 40-35(1) of the GST Act provides 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:

(a) 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); or

(b) the supply is of commercial accommodation and Division 87 of the GST Act (which is about long-term accommodation in commercial premises) would apply to the supply but for a choice made by the supplier under section 87-25 of the GST Act.

However subsection 40-35(2) of the GST Act provides:

(a) 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); and

(b) the supply is not input taxed under this section if the lease, hire or licence, or the renewal or extension of a lease, hire or licence, is a long-term lease.

Residential premises

Section 195-1 of the GST Act defines residential premises as land or a building that is occupied as a residence or for residential accommodation or is intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation (regardless of the term of the occupation or intended occupation) and includes a floating home.

To be used for residential accommodation or to be occupied as a residence, premises do not have to be a home or a permanent place of abode. Premises need only provide sleeping accommodation and the basic facilities for daily living, even if for a short term, to be used for 'residential accommodation'. This would include premises such as strata titled apartments, single rooms or suites of rooms within larger premises.

However, a supply of commercial residential premises or a supply of accommodation in commercial residential premises provided to an individual by an entity that owns or controls the commercial residential premises would not be input taxed.

Commercial residential premises

Goods and Services Tax Ruling GSTR 2000/20 provides the definition of commercial residential premises and guidance on residential premises. This ruling can be accessed at our website.

The definition of commercial residential premises is central to the interpretations of Subdivision 40-B and 40-C of the GST Act, as it provides a point of demarcation between supplies of residential premises that are input taxed and supplies of commercial residential premises that are taxable.

Commercial residential premises include a hotel, motel, inn, hostel or boarding house or something similar. These terms are not defined in the GST Act and therefore take their ordinary or common meaning.

According to GSTR 2000/20, premises are similar to a hotel, motel, inn, hostel or boarding house for this purpose when they exhibit characteristics that place them on a similar footing.

Paragraphs 83 to 109 of GSTR 2000/20 list the main characteristics of a hotel, motel, inn, hostel or boarding house or something similar as follows:

(a) commercial intention: the premises are conducted in a business like manner and generally for reward.

(b) multiple occupancy: the premises provide sleeping accommodation on a multiple occupancy basis rather than accommodation offered to one person or a small group living or travelling together.

(c) holding out to the public: the premises are presented to the general public as being readily available for hire.

(d) accommodation is the main purpose: the provision of accommodation is the primary purpose of the premises existing. Where packages in resort style or similar accommodation offer supplies of such things as recreational activities, sight-seeing or self-improvement courses, these do not detract from the primary purpose being the provision of accommodation.

(e) central management: an owner or manager has some control or manages the premises as a whole and is readily accessible, even though this may be only for limited times throughout the day.

(f) management offers accommodation in its own right: the management lets the premises to a guest in its own right rather than on behalf of another, for example, the owner of the premises. This may be because the management holds a lease or licence or some other right to occupy the premises from the owner, or may even be the actual owner of the premises itself.

(g) Services: a range of services are provided to guests with the tariff charged to the guest including amounts to cover the cost of these services. Services may include periodic cleaning (daily or weekly) during a guest's stay, facilities for guests to make their own meals, replacing linen, laundry and other minor services, such as, wake-up calls or providing local information. A lack of services provided with the accommodation may indicate that the premises are not commercial residential premises.

(h) status of guests: hirers of accommodation are guests or lodgers who have the right to occupy and enjoy the premises without having a legal interest in the premises. Management retains the right to entry of the premises unlike the tenancy of an individual under a residential tenancy agreement.

GSTR 2000/20 considers that premises would need to possess each of the above characteristics to some degree to be commercial residential premises.

Supply of accommodation in strata titled units by you

The supply of accommodation in a strata titled unit will only be a supply of accommodation in commercial residential premises when the accommodation meets the main characteristics of commercial residential premises as explained above.

Therefore, if at the time of the supply, your supply of accommodation in the strata titled units meets the characteristics of being 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, the supply will be taxable. Hence GST will be payable on the amount you charge your customers which includes the cost of accommodation and the booking fee/commission.

If the supply is of residential premises and does not meet the characteristics of being 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 the supply will be input taxed and therefore, not taxable. Hence GST will not be payable on the amount you charge your customers which includes the cost of accommodation and the booking fee/commission.

2. Model B

Under Model B, the customer pays you a deposit which is your commission. The customer will pay the balance of the amount to the accommodation provider upon their arrival at the property.

The terms and conditions under this agreement are similar to the previous agreements except Clause X which provides that you will collect the commission from the guest at the time that the booking is made.

Under this agreement, the accommodation provider will not invoice you for the consumed rooms. The accommodation provider will invoice you at the specified time for any non-consumed room. This invoice serves the purpose of notifying you to charge the cancellation fees under the terms you entered into with the customers and remit the cancellation fees to the accommodation provider.

There is no clause in this agreement that requires you to issue a tax invoice to the accommodation provider for the commission/deposit you received from the customer.

This agreement does not indicate an agency arrangement between you and the accommodation provider.

Based on the information provided, you supply a booking service to the customers under this agreement. The deposit is the consideration paid for your service. The customers pay their accommodation fees to the accommodation provider upon their arrival at the property. Therefore, you do not supply the accommodation to the customers.

The supply of your booking service satisfies all the requirements in paragraphs (a) to (d) of section 9-5 of the GST Act as mentioned above.

There is no provision in the GST Act that makes your supply of service to customers in Australia input taxed or GST-free. Accordingly, the supply of your booking service is a taxable supply and GST is payable on the booking fee/commission.

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