Edited version of private advice

Authorisation Number: 1051572239561

Date of advice: 10 September 2019

Ruling

Subject: GST registration

Question

Are you (ABC Pty Ltd) required to be registered for GST under section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act) in relation to your supply of rental accommodation in the n number of apartments (the Apartments) listed below?

n number of apartments listed together with their specified addresses

Answer

No, you are not required to be registered for GST in relation to your supply of the Apartments.

Relevant facts and circumstances

·   You (ABC Pty Ltd) are carrying on a leasing enterprise. You acquired a franchise to operate the leasing enterprise under the franchise name ABC Apartments. Your turnover from this enterprise for the financial year yyyy/yyyy was $. You do not carry on any other enterprise.

·   You are registered with an Australian business number (ABN). You are not registered for GST.

·   Your leasing activities include the lease of the n number strata titled Apartments.

·        The Apartments are located within a number of buildings in an Australian State Central Business District (CBD).

o   x number of unit/s is/are within an apartment complex that contains in total approximately over a number of hundreds of apartments; and

o   y number of unit/s is/are in another separate complex that contains in total approximately a number of hundreds of apartments.

·        The addresses of the Apartments are listed above.

·        The Apartments comprise of 1 and 2 bedroom units. They are fully furnished including bedroom(s), a fully equipped kitchen, bathroom(s), toilet(s), internal laundry, balcony etc.

·   You lease the Apartments from the owners and you then sublease the Apartments in your own right. Where your lease from the owner of an apartment expires, you will continue with the lease either on a periodic month to month basis or renew for another few months.

·   The sub-lessees (Sub-lessees) consist of a variety of professionals. A majority of the Sub-lessees are corporate entities such as Companies and Government agencies who need a 'home away from home'.

·   You advertise on multiple booking channels in order to be seen.

·   You provide medium to long term rentals to the Sub-lessees. You are in the process of changing your structure so that Sub-lessees will be signing an actual lease agreement for the duration of their stay.

·   The Sub-lessees use the Apartments as their residence for the duration of their stay. The duration of stay is anywhere between a few nights to several months at a time. You have a minimum stay policy in place.

·   Sub-lessees are responsible for their own cooking and laundry. Laundry includes bed linen.

·   Utilities are connected and the costs associated with the utilities are incorporated in the rent.

·   A compulsory departure clean is completed at the end of each rental period. The cost of this cleaning is included in the rental charge. Occupants can request a weekly cleaning service if required, at an extra cost to the rental charge.

·   A building manager's office is on site. This manager's office is not related to your leasing enterprise.

·   You do not maintain an office on site. You engage sub-contractors to provide the following services to the Sub-lessees. The subcontractors are:

·         a professional housekeeping company. They provide weekly and departure cleaning services of the Apartments. The cleaning includes a full linen change.

·         a university student who is registered with an ABN to look after the check-ins, such as:

-  meeting Sub-lessees on arrival;

-  handing over keys on arrival;

-  attending to Sub-lessees' request such as when they are locked out; and

-  arranging access for maintenance.

This student is paid on a per job basis. If the student is not available, you will provide the above services.

No other service is provided.

·   Where maintenance is required, such as plumbing, handyman work, furniture assembly and removals, you or your maintenance contractors can only access the Apartments (where occupied) with permission from the relevant Sub-lessee.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 section 23-15

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

A New Tax System (Goods and Services Tax) Act 1999 section 188-10

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

A New Tax System (Goods and Services Tax) Regulations 2019 Regulation23-15.01

Detailed reasoning

GST registration

Section 23-5 provides that you are required to be registered under the GST Act if:

(a) you are carrying on an enterprise, and

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

For the purpose of section 23-15, the current GST registration turnover threshold (other than for non-profit bodies) is $75,000 pursuant to Regulation 23-15.01 of the A New Tax System (Goods and Services Tax) Regulations 2019.

You are carrying on a leasing enterprise. Therefore, you meet the requirement in paragraph 23-5(a).

What we need to determine is whether your annual turnover meets the GST registration turnover threshold of $75,000.

Subsection 188-10(1) provides that you have a GST turnover that meets a particular turnover threshold if:

(a)  your current GST turnover is at or above the turnover threshold, and the Commissioner is not satisfied that your projected GST turnover is below the turnover threshold; or

(b)  your projected GST turnover is at or above the turnover threshold.

Your current GST turnover at a time during a particular month is the sum of the values of all the supplies that you have made, or are likely to make, during the 12 months ending at the end of that month.

Your projected GST turnover at a time during a particular month is the sum of the values of all the supplies that you have made, or are likely to make, during that month and the next 11 months.

When calculating your current and projected GST turnover, supplies that are input taxed are excluded from the calculation.

In this case, it is relevant to determine whether your supply of the Apartments for residential accommodation is a supply of residential premises which is input taxed and therefore to be excluded from the calculation of your current and projected GST turnover.

Residential premises

Under paragraph 40-35(1)(a), a supply of residential premises by way of 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 an entity that owns or controls the commercial residential premises).

Paragraph 40-35(2)(a) qualifies the above stating that the supply will be input taxed only to the extent that the premises are to be used predominantly for residential accommodation (regardless of the term of occupation).

'Residential premises' is a defined term for GST purposes, and 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;

(regardless of the term of the occupation or intended occupation) and includes a floating home.

The phrase 'residential premises are to be used predominantly for residential accommodation (regardless of the term of occupation)' is explained in GSTR 2012/5 Goods and Services Tax Ruling, Goods and services tax: residential premises (GSTR 2012/5). Paragraph 9 states that the term is to be interpreted as a single test that looks to the physical characteristics of the property to determine the premises' suitability and capability for residential accommodation.

Paragraph 10 of GSTR 2012/5 further explains:

The requirement for residential premises to be used predominantly for residential accommodation does not require an examination of the subjective intention of, or use by, any particular person. Premises that display physical characteristics evidencing their suitability and capability to provide residential accommodation are residential premises...

The self-contained apartment units from which you supply accommodation will typically have the physical characteristics relevant to providing basic living facilities such as a bedroom, living area, kitchen, bathroom and toilet. This means the Apartments are suitable and capable of being occupied for residential accommodation. Accordingly, we consider you are making supplies of residential premises to be used predominantly for residential accommodation and paragraph 40-35(1)(a) is partly satisfied. Paragraph 40-35(2)(a) is satisfied.

However, paragraph 40-35(1)(a) will only be fully satisfied if the supply of the premises are not characterised as commercial residential premises. Accordingly, we will consider whether the premises from which you supply accommodation are commercial residential premises.

Commercial Residential Premises

Under section 195-1, the term 'commercial residential premises'means:

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

...

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

However, it does not include premises to the extent that they are used to provide accommodation to students in connection with an education institution that is not a school.

GSTR 2012/6 Goods and Services Tax Ruling, Goods and services tax: commercial residential premises (GSTR 2012/6) provides the Commissioner's view on the characteristics of commercial residential premises.

The terms hotel, motel, inn, hostel and boarding house are not defined in the GST Act and take their ordinary meaning. GSTR 2012/6 lists the ordinary meanings of the terms from a number of dictionaries in interpreting paragraph (a) of the definition. The following meanings are sourced from Macquarie Dictionary 7^th edition:

Hotel a building in which accommodation and food, and alcoholic drinks are available.

Motel a roadside hotel which provides accommodation for travellers in self-contained, serviced units, with parking for their vehicles.

Inn a small hotel that provides lodging, food etc., for travellers and others.

Hostel a supervised place of accommodation, usually supplying board and lodging provided at a comparatively low cost, as one for students, nurses, etc.

Boarding house a dwelling in which lodging is provided to paying residents who share common facilities such as a kitchen, laundry, living room, etc.

Paragraphs 10 and 11 of GSTR 2012/6 explain that the objective factors relevant to characterising premises under paragraph (a) or (f) of the definition include the overall physical character of the premises and how the premises are operated. The test to apply for paragraph (a) of the definition is whether the premises are a hotel, motel, inn, hostel or boarding house and the test for applying paragraph (f) is whether the premises are similar to these, in the sense that they have sufficient likeness or resemblance to any of those types of establishments.

Paragraph 12 of GSTR 2012/6 lists the characteristics that are considered to be common to operating hotels, motels, inns, hostels and boarding houses that are relevant, though not determinative, to characterising premises as commercial residential premises:

·         commercial intention,

• multiple occupancy,
• holding out to the public,
• accommodation is the main purpose,
• central management,
• management offers accommodation in its own right,
• provision of, or arrangement for, services, and
• occupants have status as guests.

GSTR 2012/6 at paragraph 193 notes that there is a relationship between residential premises and some commercial residential premises in the GST Act. In some cases there may be an overlap in that some premises which fit within the definition of residential premises also fit within the definition of commercial residential premises.

Further, GSTR 2012/6 states:

95. In addition to living accommodation areas, premises that are commercial residential premises include commercial infrastructure to support the commercial operation of the premises. This infrastructure may include (but is not limited to) reception areas, dining and bar areas, meeting/function areas, kitchens, laundry facilities, storage areas and car parks. This infrastructure is used to provide services to occupants. Premises described in paragraph (a) and similar premises under paragraph (f) of the definition contain some or all of these areas to some degree.

201. A supply by sale or lease of real property consisting of part of a building cannot be characterised by reference to another supply. For example, a hotel may be strata titled so that each hotel room and the commercial infrastructure are separate strata units. Where the strata units are individually supplied under multiple sale contracts or leases, each individual supply of a strata unit must be characterised without reference to other supplies of strata units...

230. A single strata titled hotel room cannot, by itself, exhibit the characteristics of commercial residential premises. A supply by way of sale or lease of a number of hotel rooms, without the commercial infrastructure to support the operation of the premises as commercial residential premises, is an input taxed supply of residential premises.

In your case you are supplying rental accommodation in the Apartments within a larger complex of apartments. You do not provide services such as a restaurant, room service etc. The Sub-lessees are responsible for their own cooking and laundry however you do arrange for sub-contractors to clean the Apartments if and when requested for an additional fee.

Accordingly, we consider your supplies of accommodation in the Apartments are not supplies of accommodation in commercial residential premises.

Conclusion

Therefore, the requirements in paragraph 40-35(1)(a) are fully satisfied and your supplies of accommodation from the Apartments are input taxed supplies which are excluded from the calculation of your current and projected annual turnover. As you do not carry on any other enterprise or enterprises, your GST turnover will not meet the GST registration turnover threshold. For this reason, you are not required to be registered for GST in relation to your lease of the Apartments.

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