Edited version of private advice

Authorisation Number: 1012668652173

Subject: GST and supply of accommodation

Ruling

Question 1

Are your premises, 'commercial residential premises' under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Advice/answer

No

Question 2

Are you required to be registered for GST in relation to your enterprise of providing accommodation?

Advice/answer

No

Question 3

If you are not required to be registered for GST, what is the procedure to cancel your GST registration?

Advice/answer

A ruling will not be provided for question 3 as this question does not require the interpretation of the GST legislation. An answer to question 3 is provided as additional information in the reasons for decision.

Question 4

If GST does not apply to your supply of the premises, what is the procedure with your previous tax returns, that is, do you re-submit your business tax returns for the previous three years, apply for reimbursement of the GST that you have already paid during the financial year, simply stop submitting a business activity statement (BAS) and report on earnings as per normal tax accounting at the end of the current financial year?

Advice/answer

This answer is solely confined to your GST obligations; not your income tax obligations.

You will be entitled to a refund of the overpaid GST if you reimburse your customer an amount which corresponds to the overpaid GST. This is to prevent businesses from obtaining a windfall gain at the expense of their customers when they incorrectly charge GST.

For tax periods prior to 31 May 2014, section 105-65 of Schedule 1 to the Taxation Administration Act 1953 (TAA) provides that the Commissioner is not required to refund an overpayment that would otherwise be refundable if either:

• the taxpayer does not reimburse a corresponding amount to the recipient of the supply; or

• the recipient of the supply is registered or required to be registered for GST.

Relevant facts and circumstances

You own a property which you describe as a 'private residential boarding house'.

You received advice that you were required to be registered for GST so you formed a partnership and registered for GST.

The boarding house is fully accredited under state government boarding house requirements.

The boarding house is a house that has been converted into X rooms with shared kitchen and bathroom facilities.

The floor plan of the building on the property shows one floor containing X rooms marked as R1 to RX, an office, 2 WCs (toilets) and a shower.

The floor plan of the lower level shows 6 spaces marked as store, 1 space as a workshop and another space as a laundry. This level also contains the space marked as common area and a bathroom.

Residents sign rooming accommodation agreements. These agreements stipulate that the owner/manager is providing 'accommodation only' to the tenant. Should the resident be able to afford a bond then a condition report is completed.

You provided a copy of a typical rooming accommodation agreement that you enter into with tenants.

The current residents are mainly older, the majority of whom have resided there for many years. The residents are vulnerable people with physical, mental and personal difficulties.

In some instances the resident provides their own furniture for their room and on other occasions you may assist in arranging furniture, at no cost for residents who do not own furniture for their bedroom.

The residents treat the house as their home and are responsible for the cleaning of their rooms and common areas, minor maintenance including changing light bulbs, minor plumbing, mowing and gardening, painting their rooms and common areas and assisting with other minor maintenance (for example: fixing fences, washing machines). They receive no money for their efforts in maintaining the premises. You are able to charge a cleaning fee if a room is left in a state of disrepair.

You do not live on site and only attend infrequently when circumstances require. The property is not a supervised place of accommodation and there is no on site manager. If residents have a problem they will contact you. Whilst you are responsible for the building, you do not provide any services such as meals, care or on-site management. If a plumbing problem or electrical problem arises and a resident raises this, you will contact a tradesman to have it fixed.

Residents are allowed to keep certain pets. Although dogs and cats are not allowed, previous tenants have been permitted to keep licensed snakes, caged birds and fish. The residents are permitted to alter their rooms, attach hanging devices, connect pay TV, change the carpet, acquire their own furniture, paint their room, remove wallpaper, hang pictures etc.

There are numerous separate electricity and gas connections to the premises. You have in the past arranged for tenants to pay separately for electricity and gas. However, you currently pay all utility bills. At any time you can alter the arrangements and require tenants connected to individual meters to make their own utility arrangements.

If residents want a land line to their room they must separately arrange for connection and payment of the telephone. Residents currently arrange and pay for their own mobile telephone contracts.

The tenants are charged rent on a weekly/fortnightly basis from which the GST is calculated. You do not identify GST as a separate figure from the rent when negotiating the agreements as you just absorb this believing it is part of your tax obligations. Many of the residents are one step from homelessness and cannot afford a 10% increase in their rent. You have not increased the rent since you acquired the property and did not increase the tenants' rent to incorporate the GST.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 23-5

A New Tax System (Goods and Services Tax) Act 1999 section 40-35

A New Tax System (Goods and Services Tax) Act 1999 section 195-1

A New Tax System (Goods and Services Tax) Act 1999 Division 142

A New Tax System (Goods and Services Tax) Act 1999 Division 188

Schedule 1 to the Taxation Administration Act 1953 section 150-55

Schedule 1 to the Taxation Administration Act 1953 section 150-65

Reasons for decision

Note: In this ruling, unless otherwise stated,

• all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

• all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act

Question 1

Are your premises 'commercial residential premises' under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Section 9-5 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, for GST.

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.

Your supply of the premises will satisfy the requirements listed in paragraph 9-5(a) to (d) above and will be a taxable supply unless it is a GST-free or an input taxed supply.

We consider that your supply of the accommodation is not a GST-free supply. We will examine whether your supply is an input taxed supply. Input taxed means that GST is not payable on the supply and there is no entitlement to an input tax credit for anything acquired to make the supply.

Paragraph 40-35(1)(a) provides that a supply of residential premises by way of lease, hire or licence (other than 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) is input taxed.

Under paragraph 40-35(2)(a) the supply will only be input taxed to the extent the premises are to be used predominately for residential accommodation (regardless of the term of occupation).

The term 'residential premises' is defined in section 195-1 as land or a building that is occupied as a residence or for residential accommodation (regardless of the term of the occupation).

Based on the presented facts, the supply of your premises by way of lease, hire or licence is an input taxed supply of residential premises unless it is a supply of accommodation in commercial residential premises provided by an entity that owns or controls the commercial residential premises.

Accordingly, it is necessary to establish if your premises are considered 'commercial residential premises' for the purpose of the GST Act.

'Commercial residential premises' is defined in section 195-1, and means:

(a) a hotel, motel, inn, hostel or boarding house; or

...

(f) anything similar to *residential premises described in paragraphs (a) to (e).

...

This definition encompasses similar establishments or establishments that exhibit characteristics that place them on a similar footing to hotels, motels, inns, hostels and boarding houses.

Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises (GSTR 2012/6) provides guidance on the characteristics of hotels, motels, inns, hostels and boarding houses or similar premises.

Having regard to the facts, we do not consider that your premises are similar to a hotel, motel or an inn. Of relevance is whether the premises are a 'boarding house' or 'hostel' or similar to a 'boarding house' or 'hostel'. Neither term is defined in the GST Act. Therefore these terms take on their ordinary meaning.

Paragraph 141 of GSTR 2012/6 provides a number of meanings as sourced from the Macquarie Dictionary 5th Edition (Macquarie), the Oxford English Dictionary 2nd and 3rd editions (OED) and the Shorter Oxford English Dictionary 5th Edition (SOED) as follows:

Hostel

• a supervised place of accommodation, usually supplying board and lodging, provided at a comparatively low cost, as one for students, nurses, etc. (Macquarie)…

• a public house of lodging and entertainment for strangers and travellers; an inn, a hotel. (OED)

• a house of residence for students at a university or on a course, esp. at a non-residential college, or for some other special class of people. (SOED)

Boarding House

• a dwelling in which lodging is provided to paying residents who share common facilities such as a kitchen, laundry, living room, etc. (Macquarie)

• … a dwelling, usually a private house, in which board and lodging are provided for payment. (Macquarie)

• a house offering board and lodging for paying guests. (SOED)

Boarding house

Whilst your premises may appear to be similar to a boarding house, you do not provide meals to the residents. Paragraph 184 of GSTR 2012/6 explains that where owners are not required to provide meals to the occupants, the premises do not satisfy the necessary features to be regarded as a 'boarding house'.

Hostel

Paragraphs 26 to 35 of GSTR 2012/6 list a number of features that are common to a hostel. Paragraph 26 explains that a hostel includes premises that can be described as a hostel, hotel or inn. As previously advised we do not consider your premises to be a hotel or an inn, or similar to a hotel or an inn.

The features of a hostel in paragraphs 27 to 28 refer to the Macquarie definition as stated above, being 'a supervised place of accommodation usually supplying board and lodging provided at a comparatively low cost'. Paragraph 29 explains that hostels that are a supervised place of accommodation have an on-site manager where occupants can raise queries and concerns pertaining to the management of the premises. Paragraph 29 also explains that hostels are typically centrally managed by an on-site manager who manages the accommodation and arranges or provides services.

Having considered the features of your premises, we are of the view that these premises are not a boarding house or hostel or similar.

In addition, the factors which are cited in paragraph 41 of GSTR 2012/6 provide further support for this view.

Paragraph 41 states:

Features that indicate premises that are not a hotel, motel, inn, hostel, boarding house or similar premises

41. Ultimately, whether premises are commercial residential premises is a matter of overall impression involving the weighing up of all relevant factors. While not an exhaustive list, factors that may indicate that premises are not a hotel, motel, inn, hostel, boarding house or similar premises include:

(a) the operator and occupant agree for accommodation to be supplied for a periodic term (which may be for a period of months or years at a time), such as in a residential lease;

(b) the operator and occupant document the condition of the premises under a written contract before the accommodation is initially supplied and when the occupant ceases to occupy premises;

(c) the operator has the right to impose a cleaning fee on the occupant when the occupant ceases to occupy the premises;

(d) the occupant is permitted, subject to the terms of the lease or licence, to alter the part of the premises occupied by the occupant, such as by attaching hanging devices on a wall;

(e) the occupant is permitted, subject to the terms of the lease or licence, to keep pets in the premises;

(f) the occupant must separately arrange and pay for the connection of a telephone, electricity, or gas service;

(g) the occupant is responsible for the cleaning and minor maintenance of the premises, such as changing light bulbs in their room;

(h) the premises are unfurnished; and

(i) the right to occupy the residential premises is supplied to the occupant in exchange for the occupant loaning an amount to the operator together with other fees. See Example 1 at paragraph 43 of this Ruling.

Having weighed up the features stated in paragraph 41 with the features of your premises we find that you satisfy paragraph (a)(b)(d)(e)(g) and (h) of the above listed features. Accordingly your premises are not a hotel, motel, inn, boarding house or hostel or similar to these premises.

As your premises do not satisfy the definition of commercial residential premises in section 195-1, you are not making a taxable supply of accommodation in commercial residential premises provided to an individual by an entity that owns or controls the commercial residential premises. Accordingly, your supply of accommodation is an input taxed supply of residential premises under section 40-35.

Question 2

Are you required to be registered for GST in relation to your enterprise of providing accommodation from the premises?

Section 23-5 of the GST Act states that you are required to be registered for GST if:

(a) you are *carrying on an *enterprise; and

(b) your *GST turnover meets the *registration turnover threshold.

The registration turnover threshold is currently $75,000 unless you are a non-profit body.

You are operating an enterprise of providing accommodation and based on ATO records, your GST turnover meets the registration turnover threshold.

However in calculating an entity's GST turnover, any supplies that are input taxed are not included in the calculation. As we have determined that you are making an input taxed supply of residential premises, these supplies are not included when calculating the GST turnover.

Therefore, you are not required to be registered for GST unless your turnover from any other taxable supplies that you make, is $75,000 or more.

Question 3

If you are not required to be registered for GST, what is the procedure to cancel your GST registration?

Information on cancelling GST registration is available on the ATO website. Some parts of the guidelines have been extracted for your information:

Cancelling your GST registration

You may also choose to cancel your GST registration if your GST turnover is below the threshold for compulsory registration …

Cancellation date

You can choose the date you would like your GST registration to be cancelled. We will usually cancel your GST registration from the date you choose.

You cannot:

• cancel your registration retrospectively if you were still operating on a GST-registered basis after the date you chose.

• choose a cancellation date and then continue to operate on a GST-registered basis after that date

You operate on a GST-registered basis if you:

• tell other businesses you are registered for GST

• issue tax invoices or adjustment notes

• claim GST credits, special transitional credits or indirect transitional credits.

Completing your last GST activity statement

You must complete an activity statement for the tax period your registration cancellation 'date of effect' occurs in. You must report all the following information:

• all sales, purchases and importations made in your final tax period, including  

• the sale of the business

• the sale of any of the business's assets 

• adjustment for any assets held after cancellation

• any other adjustments discussed in Making an adjustment on your activity statement.

If you operate on a cash basis, you will need to record all the sales and purchases that you still need to attribute from a previous tax period.

You will need to lodge any outstanding activity statements and account for any outstanding GST amounts.

If you still have PAYG withholding, PAYG instalments or fringe benefits tax obligations, you will continue to report these obligations to us on an instalment activity statement.

In your case, you have been operating on a GST registered-basis. You have been reporting GST and claiming input tax credits.

Before you cancel your GST registration, you need to complete your BAS for the tax period that your registration cancellation 'date of effect' occurs in.

If you wish to cancel your GST registration, you can do so by:

• completing an 'application to cancel registration' form.

• if you are registered to deal with us electronically, you can go online using the:

n Australian Business Register at www.abr.gov.au

n Business and tax agent portals at www.ato.gov.au

• by phone: call 13 28 66.

• use your tax agent

Question 4

If GST does not apply to your supply of the premises, what is the procedure with your previous tax returns, that is, do you re-submit your business tax returns for the previous three years, apply for reimbursement of the GST that you have already paid during the financial year, simply stop submitting a BAS and report on earnings as per normal tax accounting at the end of the current financial year?

Answer

This answer is solely confined to your GST obligations; not your income tax obligations.

The answer to question 3 advises the procedures for cancelling your GST registration. If you cancel your registration you will not be required to lodge a Business Activity Statement (BAS) from the date of cancellation.

Repayments of overpaid GST

Where your supply of the premises was incorrectly treated as a taxable supply and you wish to seek a refund of overpaid GST, section 105-65 of the Schedule 1 to the Taxation Administration Act 1953 (TAA) restricts the repayment of refunds unless certain conditions are met.

Section 105-65 of the TAA provides that the Commissioner need not give you a refund if:

(a) you overpaid the amount, or the amount was not refunded to you, because a *supply was treated as a *taxable supply; or an arrangement was treated as giving rise to a taxable supply, to any extent; and

(b) the supply is not a taxable supply, or the arrangement does not give rise to a taxable supply, to that extent (for example, because it is *GST-free); and

(c) one of the following applies:

(i) the Commissioner is not satisfied that you have reimbursed a corresponding amount to the recipient of the supply or (in the case of an arrangement treated as giving rise to a taxable supply) to an entity treated as the recipient;

ii) the recipient of the supply, or (in the case of an arrangement treated as giving rise to a taxable supply) the entity treated as the recipient, is registered or required to be registered.

Section 105-65 of the TAA applies to tax periods prior to 31 May 2014.

Even if the conditions in section 105-65 of the TAA are met the Commissioner may exercise a discretion to choose to pay a refund in certain circumstances.

Paragraph 128 of Miscellaneous Taxation Ruling MT 2010/1 Restrictions on GST refunds under section 105-65 of Schedule 1 to the Taxation Administration Act 1953 provides advice on the circumstances under which the Commissioner will exercise the discretion to pay a refund of overpaid GST. This ruling is available on the ATO website at www.ato.gov.au.

If you consider that the restrictions in section 105-65 of the TAA apply and you wish to seek a ruling on whether the Commissioner will exercise the discretion under this provision, the application form for a private ruling is also available on our website.

For tax periods commencing on or after 31 May 2014, Division 142 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) applies.

Division 142 of the GST Act also stipulates that certain conditions be met in order to obtain a refund of GST. Under Division 142, an amount of extra GST (excess GST) is taken to have always been payable except where the taxpayer has not passed on the GST to a recipient, or if the amount of extra GST has been passed on, the recipient of the supply has been reimbursed. Under Division 142 you may determine your entitlement to a refund of excess GST under specific conditions. If these conditions are not satisfied, taxpayers are not entitled to a refund of the excess GST.

Division 142 also allows the Commissioner to exercise a discretion to allow a refund of the GST in certain circumstances.

Four year time limit

For tax periods starting before 1 July 2012, your entitlement to a refund will expire four years from the end of the tax period to which the refund relates unless either of the following applies:

• You notify us of your entitlement to the refund during the four-year period.

• We notify you of your entitlement to the refund during the four-year period.

For tax periods from 1 July 2012, a four year period of review applies. The period of review starts on the day we give notice of the assessment and ends four years from the day after the notice of assessment was given.

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