Edited version of private advice

Authorisation Number: 1051802879624

Date of advice: 10 February 2021

Ruling

Subject: GST and commercial residential premises

Question

Will the Partnership be making a taxable supply of accommodation in commercial residential premises in accordance with section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, if the Partnership is registered or required to be registered for GST.

Relevant facts and circumstances

You or the Partnership are a partnership not registered for GST. The Partnership was previously registered for GST from ddmmyyyy to ddmmyyyy.

The Partnership is carrying on two enterprises:

•   Enterprise A.

•   Bed and breakfast accommodation trading as Enterprise B.

Partner A lost their job because of COVID-19 and began focussing on Enterprise A. As a consequence, the Partnership intends to register for GST as its GST turnover is likely to satisfy the GST registration threshold of $75,000.

The bed and breakfast premises are located at the same site as your family home (the Premises).

The Premises comprise a separate building consisting of a King room and a Queen room. There is also a temporary reception desk (an old bar) with signage on the front deck of your family home which you use to greet and check-in guests. There is a gravel car park for use by the guests which is also used by the family home. Guests also have access to a pool located in the backyard of your family home. There is also a small street sign.

You have provided images of the aerial view, sign, reception desk, King room and Queen room.

The Queen room and King room are self-contained i.e. bathroom and kitchen but no laundry. The King room has a full kitchen including full stove and oven, bathroom, bed, lounge, dining room. The Queen room has a kitchenette with microwave (i.e. no oven), bathroom, bed lounge, and dining room. There is no communal laundry for guests to do laundry. Both rooms have a separate deck with barbecue.

You complete a Registration Form with guests on arrival. You have provided a copy.

The price of the accommodation is $X for the Queen room and $X for the King room per night. Guests can obtain a cheaper rate if calling direct as there is no commission to booking sites. The price includes a daily continental breakfast.

Guests are provided with a continental breakfast in their room on arrival (replaced daily) including juice, bread, cereal, milk, fruit, yogurt, tea and coffee. There are no separate communal dining or lounge areas and no other meals are prepared or provided for guests.

The supply of the room includes linen. Towels are also available for the pool if needed.

Free Wi-Fi is provided. Free access to Spotify through a Google home hub in each room to play music is provided. These services are linked to the family home. There are televisions and DVD players, but no TV streaming services.

You do not provide or arrange any other services for guests. You may advise about local attractions but do not arrange bookings.

You clean the rooms between stays and guests are not expected to do any cleaning. You also clean the reception desk.

When guests stay longer, towels are changed every second day. You also complete a full clean, including changing sheets after seven days.

The EFTPOS machine and paperwork stays in the family home and is brought out to the reception desk when guests arrive.

Partner B's personal mobile is used to receive phone calls from guests as there is not a dedicated phone.

The accommodation is advertised on the internet through booking.com, Expedia, Google business website, and Facebook.

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 40-35

Reasons for decision

The Partnership (you) are liable for GST on any taxable supply that you make.

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

(a) you make the supply for consideration

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

(c) the supply is connected with the indirect tax zone (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.

An entity, in this case the Partnership, only registers for GST once even if it is operating more than one enterprise.

The Partnership is operating two enterprises and is making supplies in Enterprise A and supplies of accommodation in its bed and breakfast enterprise for consideration in Australia. The supplies satisfy paragraphs 9-5(a), (b) and (c) of section 9-5.

As the Partnership is not registered for GST, it will need to check each month to see if its GST turnover from both enterprises has reached the registration turnover threshold (currently, $75,000), or is likely to exceed it.

Your GST turnover is your total business income (not your profit), minus any:

•   GST included in sales to your customers

•   sales that aren't for payment and aren't taxable

•   sales not connected with an enterprise you run

•   input taxed sales you make

•   sales not connected with Australia.

If the Partnership becomes registered or is required to be registered for GST, it will also satisfy paragraph 9-5(d). This will mean that the Partnership will be liable for GST on any taxable supplies it makes. However, a supply is not a taxable supply to the extent that it is GST-free or input taxed.

Of relevance, in this case, is whether the Partnership's supplies of accommodation in its bed and breakfast enterprise are input taxed.

Paragraph 40-35(1)(a) relevantly provides that a supply of residential premises by way of lease, hire or licence (other than a supply of accommodation in commercial residential premises provided to an individual by the entity that controls the commercial residential premises) is input taxed.

The bed and breakfast premises (the Premises) is comprised of a building with two separate rooms (each containing a bathroom and kitchen / kitchenette) located at your family home.

The Premises will satisfy the definition of 'residential premises' in section 195-1. This is because the Premises provide shelter and basic living facilities as outlined in paragraphs 9 and 15 of Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises.

Therefore, your supply of accommodation in the Premises will be input taxed unless the Premises satisfy the definition of 'commercial residential premises'.

Commercial residential premises

Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises sets out the ATO view on how GST applies to supplies of accommodation in commercial residential premises.

The term 'commercial residential premises' is defined in section 195-1, in part, as:

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

...

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

...

The definition of 'commercial residential premises' encompasses establishments similar to, or establishments that exhibit characteristics that place them on a similar footing to, hotels, motels, inns, hostels and boarding houses.

As stated in paragraphs 140 and 141 of GSTR 2012/6, the terms hotel, motel, inn, hostel and boarding house are not defined in the GST Act and therefore take their ordinary meaning in context. The Macquarie Dictionary 5^th Edition provides the following definitions:

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.

a dwelling, usually a private house, in which board and lodging are provided for payment.

In their ordinary meanings, these terms share the common attribute of providing accommodation to guests. Paragraph (f) of the definition of commercial residential premises extends the scope of the definition to premises that are 'similar' to the class of establishments described in paragraphs (a) to (e).

Premises that are 'similar' to establishments that are commercial residential premises must have sufficient characteristics in common with the class of premises described.

The tests to be applied in determining whether premises fall within either paragraph (a) or (f) of the definition of 'commercial residential premises' necessarily raise questions of fact involving matters of impression and degree which include consideration of the overall physical character of the premises together with how the premises are operated.

Paragraph 25 of GSTR 2012/6 provides that when determining whether premises are, or are similar to a hotel, motel or inn, it is necessary to consider the premises in its entirety. It is not sufficient to only consider the features of part of the premises, such as an individual room, in which accommodation is provided.

Paragraph 12 of GSTR 2012/6 identifies a number of characteristics common to those exhibited by operating hotels, motels, inns, hostels and boarding houses:

•   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

•   occupants have status of guests.

In your case, you satisfy all of the above characteristics:

•   The Premises are operated by the Partnership on a commercial basis and in a business-like manner.

•   The Premises have capacity to provide accommodation to multiple unrelated guests at once in two separate rooms.

•   Accommodation is offered to the public.

•   The main purpose of the Premises is for providing accommodation.

•   You are on-site to accept reservations, allocate the rooms and receive payment.

•   The Partnership offers the accommodation in its own right and not as an agent.

•   Services are provided to guests, continental breakfast, Wi-Fi, Spotify, television and DVD player, access to the pool.

•   Guests are travellers who have their principal place of residence elsewhere and do not enjoy an exclusive right to occupy any particular part of the premises in the same way as a tenant.

Paragraphs 13 to 24 of GSTR 2012/6 list the following features which are typical in a hotel, motel or inn:

13. A motel is a particular type of hotel that primarily caters to the needs of motorists seeking roadside accommodation. An inn is a small hotel at which board (meals) and lodging are provided to travellers. Subject to those qualifications, the following features of hotels are equally relevant to motels and inns.

14. Hotels provide accommodation for a commercial purpose. Non-profit entities can also operate commercial residential premises. For example, various non-profit organisations operate hotels in a business-like manner.

15. Hotels have the capacity to supply accommodation for multiple occupancies.

16. Hotels usually offer meals to guests and they usually have a kitchen where meals are prepared for guests. The premises usually include a restaurant or dining room for guests. A motel does not necessarily have a dining room, but guests of the motel may still be provided meals.

17. The guest rooms in a hotel are invariably furnished, and always include a bed, and some living area, and usually an adjoining bathroom. In some cases, hotel rooms may also have a kitchenette for self-catering.

18. Linen and towels are usually supplied. The rooms are usually cleaned and serviced by staff on a daily basis, with the costs of these services being included in the tariff.

19. Predominantly, the guests of hotels are travellers who ordinarily have their principal place of residence elsewhere, and who need or desire accommodation while away for business or pleasure. However, this feature may not be evident in hotels, sometimes referred to as residential or private hotels, that provide accommodation to long-term residents for whom the premises are a permanent place of residence.

20. Guests of hotels do not usually enjoy an exclusive right to occupy any particular part of the premises in the same way as a tenant to whom a house or apartment is let. Nor does a guest of a hotel usually let a room for a term. The guest is usually charged at a daily rate multiplied by the number of days of occupancy. However, it is not essential that all guests in a hotel stay for a short period. This feature may not be evident in hotels that provide accommodation to long-term residents.

21. Hotels usually have a reception desk to handle the requirements of both management and guests, particularly when guests check in or check out of the establishment. Hotels may also offer concierge services either at the reception desk or at a separate concierge's desk.

22. Hotels do not normally provide shared accommodation to guests in the sense of having a number of unrelated guests sharing a kitchen and living facilities.

23. A hotel is centrally managed by the operator, typically having at least one person present, or offsite but readily accessible, to manage the accommodation and arrange or provide services.

24. Accommodation in a hotel is supplied by the operator of the hotel in its own right and not in the capacity of agent for a third party. The arrangement between the parties will reveal whether there is an agent-principal relationship.

In your case, the above features are present, with the following exceptions:

•   The Partnership only provides a daily continental breakfast (in room) with no other meals offered to guests.

•   The rooms are serviced and cleaned between stays rather than daily. When guests stay longer, towels are changed every second day and a full clean, including changing sheets after seven days.

Ultimately, whether premises are commercial residential premises is a matter of overall impression involving the weighing up of all relevant factors.

Paragraph 41 of GSTR 2012/6 provides a list of factors (not exhaustive) that may indicate that the premises are not operated in a way that is similar a hotel, motel, inn, hostel, boarding house or similar premises:

(a)  The operator and occupant agree for accommodation to be supplied for a periodic term (which may be 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 a 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.

(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.

In your case, none of these factors are present.

On balance, the Premises have sufficient features to be characterised as being sufficiently similar to a hotel, motel, inn, or boarding house and the Premises will fall within paragraph (f) of the definition of commercial residential premises defined in section 195-1. Therefore, the supply will not be an input taxed supply of residential premises due to the exclusion in subsection 40-35(1).

The Partnerships supply of accommodation in the bed and breakfast enterprise will satisfy all the requirements of a taxable supply under section 9-5 if the Partnership is registered or required to be registered for GST. Where this is the case, the Partnership will make a taxable supply of accommodation in commercial residential premises under section 9-5.

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