Edited version of private advice

Authorisation Number: 1052018720313

Date of advice: 15 August 2022

Ruling

Subject: Supply of accommodation in residential premises

Question 1

Is your supply of accommodation (in corporate housing apartments) a supply of residential premises or commercial residential premises?

Answer

The supply of accommodation (in corporate housing apartments) is a supply of residential premises.

Question 2

Is your supply of accommodation a taxable supply that is not GST-free or input taxed?

Answer

Your supply of accommodation is not a taxable supply, it is an input taxed supply of residential premises.

Question 3

Are you required to be registered for GST in relation to your business of supplying accommodation in executive serviced/corporate apartments?

Answer

No, you are not required to be registered for GST as the only supplies you make are input taxed supplies which are excluded from the calculation of GST turnover.

This ruling applies for the following period:

15 August 20XX to 14 August 20XX.

Relevant facts and circumstances

You are not registered for GST.

You operate a business of providing executive serviced/corporate apartments.

You lease the apartments from individual owners through their letting agents. You then sub-lease the apartments to clients in your own right.

The average period that occupants have stayed in the apartments is approximately eight weeks.

All of the apartments leased by the business are full-sized residential apartments, with at least one bedroom and bathroom, an internal laundry and a full-sized kitchen. They are fully furnished and self-contained and are located in residential apartment complexes.

Clients are charged a flat rate per night to occupy an apartment regardless of the length of stay. As part of the flat nightly rate, you include a limited number of services.

The rent received by you for the supply of the accommodation in the apartments is in excess of $XXX a year, however, apart from such rent, your yearly gross income would be less than $XXX as you have no other income.

Relevant legislative provisions

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

Section 9-5

Division 23

Section 40-35

Division 188

Section 195-1

Detailed reasoning

Section 9-5 of the GST Act provides that you make a taxable supply if:

•         you make the supply for consideration

•         the supply is made in the course or furtherance of an enterprise that you carry on

•         the supply is connected with the indirect tax zone (essentially Australia), and

•         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.

You meet the first three requirements of a taxable supply as your supplies of accommodation in the apartments are for consideration (you charge a nightly rate for the accommodation), made in the course of an enterprise that you carry on (consisting of leasing premises on a regular basis), connected with Australia (the apartments are located in Australia).

It is noted that you are not currently registered for GST.

Should your only supplies be input taxed supplies of residential premises (rather than supplies of commercial residential premises, which are generally taxable), then you would also not be required to be registered for GST. This would be the case regardless of the income generated from such supplies, as input taxed supplies are excluded from the calculation of turnover for GST purposes (refer to Divisions 23 and 188 of the GST Act).

You would only be required to be registered for GST if you were supplying commercial residential premises and the total value of rent received and/or likely to be received from such supplies for the relevant 12 month period reached or exceeded $75,000.

It is, therefore, necessary to determine whether the supply by you of accommodation in the apartments is an input taxed supply. For completeness, it is also noted that none of the GST-free provisions in the GST Act operate to make your supply of accommodation in the apartments GST-free.

Division 40 of the GST Act deals with input taxed supplies and section 40-35 of the GST Act (which deals with residential rent) relevantly provides as follows:

(1)  A supply of premises 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 (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.

(1A) ...

(2)  However:

(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)  ...

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

As seen from section 40-35 of the GST Act, it is necessary to determine whether or not you are supplying residential premises, and if so, whether what you are supplying are also commercial residential premises or accommodation in commercial residential premises provided to an individual where you either own or control the commercial residential premises.

Residential premises

Section 195-1 of the GST Act provides that 'residential premises' 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.

Goods and Services Tax Ruling 2012/5 Goods and services tax: residential premises (GSTR 2012/5), relevantly explains what is meant by 'residential premises' in the following paragraphs:

6. Premises, comprising land or a building, are residential premises under paragraph (a) of the definition of residential premises in section 195-1 where the premises are occupied as a residence or for residential accommodation, regardless of the term of occupation. The actual use of the premises as a residence or for residential accommodation is relevant to satisfying this limb of the definition.

7. Premises, comprising land or a building, are also residential premises under paragraph (b) of the definition of residential premises if the premises are intended to be occupied, and are capable of being occupied, as a residence or for residential accommodation, regardless of the term of the intended occupation. This limb of the definition refers to premises that are designed, built or modified so as to be suitable to be occupied, and capable of being occupied, as a residence or for residential accommodation. This is demonstrated through the physical characteristics of the premises.

14. 'Residential premises' are not limited to premises suited to extended or permanent occupation. Residential premises provide 'living accommodation', which does not require any degree of permanence. It includes lodging, sleeping or overnight accommodation.

15. To satisfy the definition of residential premises, premises must provide shelter and basic living facilities. Premises that do not have the physical characteristics to provide these are not residential premises to be used predominantly for residential accommodation.

The apartments you lease as a part of your enterprise clearly show the indicators of residential accommodation.

Commercial residential premises

Commercial residential premises are defined in section 195-1 as:

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

(b)  premises used to provide accommodation in connection with a *school; or

(c)   a *ship that is mainly let out on hire in the ordinary course of a *business of letting ships out on hire; or

(d)  a ship that is mainly used for *entertainment or transport in the ordinary course of a *business of providing ships for entertainment or transport; or

(da) a marina at which one or more of the berths are occupied, or are to be occupied, by *ships used as

residences; or

(e)  a caravan park or a camping ground; 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.

The relevant paragraphs to consider for the arrangements we are reviewing are paragraphs (a) and (f).

While paragraph (f) extends the scope of the definition, its operation is limited to premises that have some or all of the characteristics of both residential premises and one of the classes of premises listed in paragraphs (a) to (e) of the definition.

The ATO's view on the meaning of commercial residential premises is set out in Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises (GSTR 2012/6). The terms hotel, motel, inn, hostel or boarding house in paragraph (a) of the definition are not defined in the GST Act and take their ordinary meanings in context.

GSTR 2012/6 sets out some common characteristics of hotels, motels, inns, hostels, boarding houses or similar premises. These are:

•           commercial intention - properties are operated on a commercial basis or in a business-like manner even if they are operated by a non-profit body.

•           multiple occupancy - premises have capacity to provide accommodation to multiple, unrelated guests or residents at once in separate rooms, or in a dormitory.

•           holding out to the public - offer accommodation to the public or a segment of the public.

•           accommodation is the main purpose of the premises.

•           central management to accept reservations, allocate rooms, receive payments and perform or arrange services. This can be provided through facilities on-site or off-site.

•           management offers accommodation in its own right rather than as agent.

•           provision of, or arrangement for services and facilities.

•           occupants have status as guests - occupants do not usually enjoy an exclusive right to occupy any particular part of the premises in the same way as a tenant.

How this applies to the facts in your case

The apartments that you rent satisfy the definition of residential premises as each apartment provides shelter and basic living facilities; including at least one bathroom/toilet, bedroom, kitchen, living area and laundry.

Regarding the question of whether the apartments are commercial residential premises, we note that while the apartments display some characteristics of commercial residential premises, they do not display sufficient features of a hotel, motel, inn, hostel or boarding house in the way that they are used to be characterised as commercial premises.

The accommodation that you provide has the following characteristics in common with hotels, motels, inns, hostels and boarding houses:

•         Commercial intention - you operate the business with commercial intention. You also keep business records.

•         Holding out to the public - you offer accommodation to the public (with the apartments marketed to the public via a number of different platforms).

•         Accommodation is the main purpose - providing accommodation is the main purpose of you renting the apartments even though the nightly charge also covers some other services and/or facilities.

•         Management offers accommodation in its own right - you rent the apartments to your clients in your own right rather than as an agent for someone else.

•         Occupants have status of guests - many of the people who occupy the apartments are people whose main place of residence is elsewhere. It is, however, noted that guests, similar to residential tenants, are able to enjoy and occupy an apartment with little or no disruption during the period of their stay.

However, the accommodation that you provide fails to have the following characteristics in common with hotels, motels, inns, hostels and boarding houses:

•         Multiple occupancy - although you have on offer more than one apartment in each of the residential apartment complexes, the buildings themselves are entirely separate from one another. Also, where an apartment has more than one bedroom it is only ever rented out as a single booking, and at the one time is only ever occupied by a single individual or single group of people who are all known to each other.

•         Central management - there is no on-site central management for the apartments and none of the residential building complexes has a reception desk/area or concierge services. Although you have employees who are responsible for the furnishing, letting and management of the apartments, they generally only attend the premises for an initial 'meet and greet'. Most queries from guests (which are rare) are handled over the phone, with afterhours calls being limited to emergencies.

•         Provision of, or arrangement for services - although there is a pool and/or gym in some of the residential building complexes in which the apartments are located, these facilities are managed and maintained by the strata corporation for the particular building complex and its building manager. The services that you provide and/or arrange are limited.

Further, the accommodation that you rent to guests is not similar to the dictionary definitions for a hotel, motel, inn, hostel and boarding house above, for the following reasons:

•         You do not provide food, alcoholic drinks and other services like a hotel - you only provide accommodation plus a limited range of other services.

•         You do not provide roadside accommodation primarily for motorists like a motel - your guests are mostly employees of corporations, who are travelling for work purposes, and who generally arrive by plane.

•         You do not provide lodging and food, etc. for travellers and others like an inn (small hotel) - you do not provide food, you only provide accommodation.

•         As part of the tariff, hotels, motels and inns usually provide linen and towels, plus clean and service the rooms on a daily basis - although the flat nightly rate that you charge includes a limited range of services, the apartments are not cleaned or serviced on a daily basis.

•         You do not provide a supervised place of accommodation that supplies board and lodging at comparatively low cost - you only supply accommodation, not meals, and you only meet and greet guests on arrival. Also, according to the websites on which you advertise the apartments, your nightly rate is not low.

•         You do not provide a dwelling in which lodging is provided to paying residents who share common facilities such as a kitchen, laundry, living room, etc. like that provided by a boarding house - at any one time, each of your apartments is occupied by a single individual or a single group of people who are known to each other. All occupants have the use of an entire apartment (which includes a kitchen, laundry and living room, etc.) and are responsible for their own meals.

In addition to all of the above, as per paragraph 95 of GSTR 2012/6, to be commercial residential premises, in addition to living accommodation areas, the premises need to include commercial infrastructure to support the commercial operation of the premises. None of the separate buildings in which the apartments are located has a reception area, dining/bar area, meeting/function area, commercial kitchen/laundry facilities in addition to storage areas and car parks, etc.

Premises described in paragraph (a) and similar premises under paragraph (f) of the definition of 'commercial residential premises' are ones that contain some or all of the abovementioned types of infrastructure areas to some degree. The buildings that your apartments are located in lack most of these.

Conclusion

As stated above, determining whether premises are commercial residential premises is a matter of overall impression and degree involving weighing up all relevant factors.

Taking all of the above into consideration, we have concluded that the accommodation that you provide when renting the apartments in the residential building complexes lacks sufficient commercial infrastructure and thus is not the supply of commercial residential premises. Such supplies are thus input taxed supplies of residential premises; they are not taxable supplies and are not included in the calculation of GST turnover for registration purposes.

As such, since the rental income from supplying accommodation in the apartments is the only income that you have, you are not required to be registered for GST.

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