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Edited version of private advice

Authorisation Number: 1012653866050

Ruling

Subject: GST and supply of accommodation

Question 1

Are you making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when you supply fully serviced accommodation from your premises located at a specified address in Australia (the Property)?

Advice/answer

Yes. You are making a taxable supply under section 9-5 of the GST Act when you supply fully serviced accommodation from your premises. GST is payable on the supply. That is, you are required to include GST in the price of your room rate.

Question 2

Are you entitled to input tax credits under section 11-20 of the GST Act when you make acquisitions in relation to construction and operation of the Property?

Advice/Answer

Yes. You are entitled to input tax credits under section 11-20 of the GST Act when you make creditable acquisitions in relation to construction and operation of the premises. Your entitlement to the input tax credits will be reduced if you acquire anything partly for a creditable purpose.

Your entitlement to input tax credits for creditable acquisitions cease unless they are included in your assessed net amounts within a limited period (generally 4 years).

Relevant facts and circumstances

You, (name inserted) are an individual and you are registered for GST from ddmmyyyy.

You own a property located at the specified address (the Premises).

You are constructing a luxury house on the Property which you intend to rent. You anticipate the Property will be available for rent in a few months' time.

You will operate the supply and management of the accommodation. You will employ staff primarily involved in the operation of the business such as housekeeping, maintenance of the Property and a manager who will look after the Property.

Your company, (name of company inserted), will only provide management services such as human resources, sales and marketing and bookkeeping services for a flat fee.

Documents available include:

The Property is approximately n square meters (sqm) of bushland with ocean views to the south and rural bushland to the north. The house measures close to x sqm and comprises:

The outdoor "living spaces" include a large oriental bath and a filtered billabong that can be used as a swimming hole for children.

You will treat all aspects of the room offering as if it were a miniature hotel. You will market the Property as luxury boutique accommodation targeting the high end bespoke traveller with a large family or multiple families wanting all the amenities of a luxury hotels experience. The house is also home to an extensive collection.

The resident house-manager shall prepare a group arrival form and separate door keys for each booked guest. Prior to guest arrival the keys shall be tested to ensure that they operate the main gate, the front door and that they only provide internal access to the reserved guest room.

Guests will always be met and escorted by a member of staff to the main living/dining area where they will be offered a welcome drink and greeted by the duty chef. The guests are also escorted to their pre-assigned rooms and demonstrated the facilities and asked if anything is required. Guests will always be seen off by a member of staff.

Your sales analysis has revealed that you can expect that the Property will be rented, on average, for a minimum of a specified number of nights for the first year, a specified number of nights for year 2 and a specified number of nights for year 3. Sales will spike in the spring and summer, then decline in the autumn and winter months.

Your proposed room rates for next year have been set at:

The rates for the rooms will be at a nightly, 3 nightly or weekly rates. The rate includes:

A concierge service will include access to experienced Yoga teachers, spa treatments, fitness trainers, surf coaches and cooking lessons. All of these services are charged as extras.

You intend for the house to be the best bed and breakfast operation in the country. You have to consider that the level of bed and breakfast competition is relatively high but that most residences do not offer anywhere near the same level of service as your premises.

You intend to start marketing with publication of editorial in certain specified magazines. A specified person has been commissioned to take a comprehensive array of photographs and video to display on the web site and to send to the media. The web site will have 3 formats - Ipad, PC and phone adaptations as well as the ability to make bookings directly.

Relevant legislative provisions

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 section 9-5

The A New Tax System (Goods and Services Tax) Act 1999 section 11-5

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 11-25

The A New Tax System (Goods and Services Tax) Act 1999 section 11-30

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 section 195-1

The A New Tax System (Goods and Services Tax) Act 1999 Subdivision 40-B

Reasons for decision

Note: In this ruling, unless otherwise stated,

Question 1

Are you making a taxable supply under section 9-5 when you supply fully serviced accommodation from your premises?

Section 9-5 states that you make a taxable supply if:

You intend to let rooms in your property to guests. In applying section 9-5 to your situation, we have taken the following into account:

Accordingly, when you supply the accommodation, we consider the requirements specified in paragraphs 9-5(a) to (d) will be satisfied and your supply will be a taxable supply. This is provided your supply is not GST-free or input taxed. Accordingly, it is relevant to examine the GST-free and input taxed provisions under Division 38 and 40 respectively.

Division 38 provides for certain supplies to be GST-free. Where a supply is GST-free, GST does not apply to the supply. We consider Division 38 will not apply to your supply of the accommodation to make your supply GST-free.

Division 40 provides for certain supplies to be input taxed. Where a supply is input taxed, GST does not apply to the supply. Of relevance to your situation is Subdivision 40-B which discusses residential rent.

Section 40-35 states:

(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); ...

...

'Residential premises' as defined in section 195-1 means land or a building that:

(a) is occupied as a residence or for residential accommodation; or

(b) is intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation;

Residential premises are discussed in Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5). The ruling states that premises displaying physical characteristics that evidence their suitability and capability to provide residential accommodation are residential premises. Paragraph 15 also states that to satisfy the definition of residential premises, premises must provide shelter and basic living facilities.

The house from which you provide accommodation includes bedrooms, laundry, shower, toilet and kitchen.

Accordingly, under the guidelines in GSTR 2012/5, your house displays the physical characteristics suitable and capable for providing residential accommodation as they provide shelter and basic living facilities. Therefore, we consider the house satisfies the definition of residential premises under section 195-1, and under paragraph 40-35(1)(a), the supply of the property by way of lease, hire or licence will be an input taxed supply. This is the case, unless the exception in parentheses in paragraph 40-35(1)(a) applies.

The exception applies if the supply of residential premises is 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. Where the exception applies, the supply will not be an input taxed supply. Accordingly, it is necessary to determine whether your premises are commercial residential premises.

The definition of 'commercial residential premises' in section 195-1 includes the following:

Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises (GSTR 2012/6) includes explanations on the characteristics of hotels, motels, inns, hostels and boarding houses or similar premises. Paragraphs 11 and 12 state:

GSTR 2012/6 further explains:

In characterising your premises, we have taken into account the following:

Based on the above analysis, we consider your premises have sufficient features to be characterised as being similar to a hotel, motel or inn under paragraph (f) of the definition of commercial residential premises in section 195-1.

The operation of your property is also similar to the character of the bed and breakfast operation in example 2 in GSTR 2012/6, extracted below:

Accordingly, we determine that your premises satisfy the definition of commercial residential premises and the exception to the input taxed supply provision in paragraph 40-35(1)(a) will apply. This means your supply of the rooms will not be an input taxed supply. Your supply will be a taxable supply under section 9-5 and GST is payable on the supply of the rooms at your premises.

Question 2

Are you entitled to input tax credits under section 11-20 of the GST Act when you make acquisitions in relation to construction and operation of the Property?

Section 11-20 provides that you are entitled to the input tax credit for any creditable acquisition that you make.

Section 11-5 states that you make a creditable acquisition if:

We consider in supplying the accommodation you will satisfy paragraphs 11-5(a) and (d). If the supply of the thing to you is a taxable supply made by the supplier and you provide or are liable to provide consideration for the supply, then paragraphs 11-5(b) and (c) will also be satisfied, which means that you are making a creditable acquisition. Although section 11-20 provides that you are entitled to the input tax credit for any creditable acquisition that you make, section 11-25 includes a provision that the amount of the input tax credit is reduced if the acquisition is only partly creditable.

The term 'partly creditable' is defined in section 195-1 to include a reference to the meaning given by section 11-30. Paragraph 11-30(1)(a) states that an acquisition that you make is partly creditable if it is a creditable acquisition to which you make the acquisition only partly for a creditable purpose.

Section 11-15 provides the meaning of 'creditable purpose':

(1) You acquire a thing for a creditable purpose to the extent that you acquire it in *carrying on your *enterprise.

(2) However, you do not acquire the thing for a creditable purpose to the extent that:

You have constructed the property with the intention of operating the enterprise of providing accommodation. Accordingly, the acquisitions you make in relation to the construction of the premises and operation of the accommodation enterprise are for a creditable purpose. However, this is provided subsection 11-15(2) does not apply.

Paragraph 11-15(2)(a) specifies that you do not acquire the thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed. On the facts provided, we have determined earlier in this ruling your supply of accommodation will not be input taxed. Therefore, paragraph 11-15(2)(a) does not apply to your situation.

Paragraph 11-15(2)(b) specifies that you do not acquire the thing for a creditable purpose to the extent that the acquisition is of a private or domestic nature.

We have determined earlier in this ruling that you are supplying accommodation in commercial residential premises to your guest. Therefore, your supply will not generally be of a private or domestic nature. However, it is relevant to consider the industry norm in which such accommodation may be provided to guests (for example, family and friends) under an arrangement that is of a private or domestic nature, particularly during the quiet seasons. To the extent that this is the case in your situation, the relevant acquisitions will not be for a creditable purpose, and the amount of the input tax credit will be reduced under section 11-25.

Further information on determining the extent of creditable purpose is available in Goods and Services Tax Ruling GSTR 2006/4, Goods and services tax: determining the extent of creditable purpose for claiming input tax credits and for making adjustments for changes in extent of creditable purpose (GSTR 2006/4). This ruling provides guidance on how to determine the extent of your creditable purpose in making acquisitions and importations to enable you to claim the correct amount of input tax credits.

Accordingly, we determine that you are entitled to input tax credits under section 11-20 when you make creditable acquisitions in relation to construction and operation of the premises. Your entitlement to the input tax credits will be reduced if you acquire anything partly for a creditable purpose.

Additionally, your entitlement to input tax credits for creditable acquisitions cease unless they are included in your assessed net amounts within a limited period (generally 4 years).

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