Edited version of private ruling

Authorisation Number: 1011635455763

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Ruling

Subject: Supply of short term holiday accommodation

Question 1

Are you making a taxable supply of commercial residential premises when you supply by way of lease, hire or licence a specified number of furnished strata titled apartments on a short term holiday rental basis?

Advice/Answers

Yes, you are making a taxable supply of commercial residential premises when you supply by way of lease, hire or licence a specified number of furnished strata titled apartments on a short term holiday rental basis.

Relevant facts

You were established to carry on a business of owning and operating the letting of a specified number of fully furnished strata units (apartments) as a commercial business facility for short term holiday residential accommodation.

You are registered for goods and services tax (GST) in respect of this accommodation business.

The facility is located in a newly constructed building of a larger number of strata residential apartments and commercial areas in an Australian state.

You have purchased a specified number of the residential apartments during a specified period. One of the apartments was acquired to be used as the manager's residence and you have advised that it is not part of your ruling request as you understand that the supply of this apartment to an employee will be input taxed. All of the above mentioned strata titled apartments vest in your name.

All the apartments purchased by you were new residential apartments and were purchased from the developer. The supply to you was not part of a GST-free supply of a going concern and the margin scheme was not adopted. You also advise that the contracts specifically state 'taxable supply'.

You believe that the current zoning is residential tourism. The zoning of the individual strata apartments is restricted to short term holiday rental and requires that at least a stated percentage of the residential part of the building must be used for tourism (holiday letting, short term accommodation). Your current holding of a specified percentage of the total residential strata entitlement based on the size of each apartment exceeds that requirement.

You commenced your letting operation at a specified date adding other apartments as they were purchased and furnished by you.

Your supply of accommodation to guests will be for periods up to, but not more than, 27 days.

You have engaged (as a contractor) to reside on the premises (in a specified apartment) to carry out the management, maintenance and other services on your behalf in respect of the facility.

You oversee the complete daily operations of the business and issue all instructions to contractors. You assess all enquiries for letting and communicate with all clients to arrange for lettings. You do not use an agent or third party to carry out this service. You currently advertise the availability of your short term holiday rental accommodation on an internet accommodation website.

You are entitled to all the income generated from the letting of the apartments and bear 100% of the financial risk.

Services offered to guests include, full time reception 24 hours per day, cleaning and maintenance of the apartments. Guests can obtain meals from the restaurant and coffee shop located in the commercial section of the building and operated by third parties. Guests are met on arrival by you or the on-site manager and given introduction to facilities. This includes the mobile telephone number of the on-site manager and their physical location on-site. No telephone facility is included in the apartments.

The guests can request additional towels, toiletries, extra coffee and teas, additional blankets and additional bed linen if so required via the on-site manager. Included in the apartment are brochures that provide information as to restaurants, tours etcetera in your area. Special requests are catered for such as champagne and flowers on arrival.

There is currently no external signage on the building pertaining to the letting of apartments. Although, you plan to have signage at some time following on-going negotiations through the body corporate.

You consider that walk-ins would be minimal as with 99% of holiday lets the majority is carried out via the internet.

You have commissioned for a website to be developed in addition to that of internet accommodation website. The first draft is currently being reviewed. You also intend to prepare a brochure for distribution to relevant organisations, for example, travel agents.

Of the other apartments in the building some are used as residences by individuals, some are on the market, and the balance are let by their owners for holiday and/or short term rentals.

Further information

The internet accommodation website pages provide the following information (amongst other things):

· Number of apartments

· Number of bedrooms

· Cooking facilities

· Bedding (linen)

· Large range of white and brown goods

Your contentions

You contend that the specified number of individual residential strata apartments that you have acquired take on the character of commercial residential premises as they have been acquired as an aggregated group to be run by you and let by you in a manner similar to a hotel, motel, inn or hostel.

Reasons for decision

You have purchased a specified number of individual residential strata apartments in a new development of a larger number of residential apartments. You intend to let out a specified number of the apartments on a short term holiday accommodation basis and retain one unit for use as accommodation for a live-in manager. You are seeking advice regarding whether you are liable for GST when you let out the apartments.

You are liable for GST on any taxable supply that you make. Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) 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 Australia; and

(d) you are registered, or required to be registered.

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

There are no provisions under Division 38 of the GST Act that would enable your supply of renting out holiday accommodation to be treated by you as a GST-free supply.

Therefore, we must consider to what extent, if any, the supplies of holiday accommodation that you make are input taxed.

Subsection 40-35(1) of the GST Act provides that 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.

The terms 'residential premises' and 'commercial residential premises' are defined in section 195-1 of the GST Act.

'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 GSTR 2000/20 which is about commercial residential premises (GSTR 2000/20) provides at paragraph 20;

… To be residential premises as defined, a place need only provide sleeping accommodation and the basic facilities for daily living, even for a short term…

Based on the facts provided and the information obtained via the internet the apartments you supply for holiday accommodation meet the definition of residential premises as they are newly constructed premises that provide shelter and basic living facilities and their form and fit-out indicates that they have been designed and built for residential purposes. Therefore, you are making an input taxed supply of residential premises under paragraph 40-35(1)(a) unless, to the extent that, you are making a supply of commercial residential premises or a supply of accommodation in commercial residential premises that you provide to an individual in commercial residential premises that you own or control.

'Commercial residential premises' is defined to mean, among other things:

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

 ...

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

Paragraph 75 of GSTR 2000/20 explains that the terms 'hotel, motel, inn, hostel and boarding house' are not defined in the GST Act and take their ordinary or common meaning subject to context. Your apartments do not constitute a hotel, motel, inn, hostel or a boarding house under the ordinary or common meanings of those terms.

As such, it is necessary to determine whether your apartments meet paragraph (f) of the definition and are similar to residential premises in paragraph (a).

The characteristics of commercial residential premises set out in paragraph 83 of GSTR 2000/20 are characteristics that have been identified as common to a hotel and the like so that premises similar to these establishments are recognised as such.

Paragraph 81 of GSTR 2000/20 provides that in identifying establishments similar to a hotel, motel, inn, hostel or boarding house, the test is one of fact and degree. Therefore, if the establishment you operate exhibits the characteristics set out below, it is commercial residential premises.

The main characteristics referred to in paragraph 81 of GSTR 2000/20, are listed in paragraph 83 of GSTR 2000/20. These characteristics are:

· Commercial intention

· Multiple occupancy

· Holding out to the public

· Accommodation is the main purpose

· Central management

· Management offers accommodation in its own right

· Services offered

· Status of guests.

All characteristics must be satisfied to an acceptable degree. In applying the above eight characteristics of commercial residential premises, specified in paragraph 83 of GSTR 2000/20 to your situation, we find;

(i) Commercial intention

You have set up your accommodation business in the one site, engaged an on-site manager to enable your guests to receive prompt attention and you have the prospect of profit from the activity, amongst other things. As such the activity has a significant commercial purpose.

We accept that you are operating the accommodation business with a commercial intention.

(ii) Multiple occupancy

Paragraphs 51 to 55 of GSTR 2000/20 provide guidance on strata and other separately titled premises and explain that one of the fundamental characteristics of commercial residential premises is 'multiple occupancy'.

This characteristic emphasises the difference between a single room or suite for hire, and a hotel or boarding house, and clarifies that a strata titled unit or suite cannot, by itself, exhibit the characteristics of commercial residential premises. It further explains that an individual unit only takes on the character of commercial residential premises when it is aggregated with others and run by an entity who has acquired the interests necessary to let the rooms in its own right, rather than on behalf of the owners, in the same manner as a hotel, motel, inn or hostel.

There is a specified number of residential strata apartments that you own and let out in your own right within the same complex. You have appointed an on-site manager to assist you. All of the apartments are available to be let to the public via your membership of an internet accommodation website.

Based on the facts provided this characteristic is met.

(iii) Hiring out to the public

It is accepted that this requirement is met as you advertise the availability of the accommodation on a public accommodation website on the internet. You also advise that you are developing your own website and a video presentation for that website. No external signage is in place at present but is being considered.

(iv) Accommodation is the main purpose

The current zoning for the building is said to be limited to providing holiday type accommodation.

It is accepted that this requirement is met as your predominant purpose is to provide short term holiday accommodation.

(v) Central management

It is part of the essence of these types of establishments that accommodation is hired together with certain services and facilities.

Central management is usually present to accept reservations, allocate rooms, receive payments and arrange for services to be provided.

In your case, you advise that there is an on-site manager to perform all the functions listed above on your behalf. This manager is contracted by you to provide these services and is available on site 24 hours per day to provide services to guests as required. You also oversee the whole operation on a daily basis. (The bookings through the public internet accommodation website go directly to you for acceptance and processing).

This requirement is therefore satisfied.

(vi) Management offers accommodation in their own right

The management must have control of the premises as a whole, whether they own the property or not.

You advise that you are the entity that is supplying the accommodation directly to the guests. All of the apartments vest in your name. The on-site manager is merely contracted by you to conduct the day to day operation so that your obligations with respect to your guests are fulfilled. 

You retain control of the bookings via the internet accommodation website and the overall operation by overseeing the manager's duties. It is your right that is conferred to the guest when you let an apartment.

As such, you are considered to be the 'management' and it is accepted that you have sufficient control and are offering the accommodation in your own right.

(vii) Services offered

Services offered to guests include, full time reception facility on-site 24 hours per day, cleaning and maintenance of the apartments, provision of linen and numerous in-house facilities such as pool, gym, pay TV.

Guests are met on arrival by you or the on-site manager and given introduction to facilities. This includes the mobile telephone number of the on-site manager and their physical location. No telephone facility is included in the apartments.

The guests can request additional towels, toiletries, extra coffee and teas, additional blankets and additional bed linen if so required via the on-site manager.

Included in the apartment are brochures that provide information as to restaurants, tours etcetera in your local area. Special requests are catered for such as champagne and flowers on arrival.

You have also negotiated with the operator of the restaurant within the building to have their menus placed in your apartments to facilitate the provision of meals in both the restaurant and coffee shop if required by the guests.

We consider that although limited services are provided by you, this requirement is met to a suitable degree. 

(viii) Status of guests

Accommodation is to be provided to guests who have rights to privacy but not to the same extent as a tenant. 

You provide reception facilities on a 24 hour per day basis.

The occupants of the short term accommodation will have the status of guests. As such management retains certain rights over the apartment, such as the right to entry.

We consider that this requirement is also met.

We consider that the establishment you operate exhibits, to an acceptable degree, the eight characteristics set out above and as such satisfies paragraph (f) of the definition of commercial residential premises as defined and are commercial residential premises. Consequently, you are making a supply of accommodation in commercial residential premises from a specified number of residential apartments that you let out.

As you are registered for GST and the other requirements in section 9-5 of the GST Act are met, the supplies of accommodation by you of those residential apartments will be taxable supplies of accommodation in commercial residential premises.

As the supply of commercial residential accommodation to your guests will be short term (less than 28 days), your GST liability is 1/11th of the price that you charge for the accommodation. You will also be entitled to claim GST credits on any acquisitions you make to the extent that those acquisitions relate to making a supply of commercial residential accommodation.  

We acknowledge that you have indicated that the supply to the on-site manager of an apartment for their own accommodation will be an input taxed supply of residential premises and agree you will not be liable for GST on that supply, nor will you be entitled to claim input tax credits for acquisitions you make in relation to that supply.

Further information

If you sell the apartments at some time in the future you may have to make an increasing adjustment under Division 129 of the GST Act. This would eventuate where you sold the apartments separately as residential premises (input taxed).

Division 129 of the GST Act deals with changes in the extent of creditable purpose. Where use of the premises changes from that of making a taxable supply of commercial residential premises to an input taxed supply of residential premises you may no longer be entitled to some of the GST credits previously claimed. The extent that you may have to repay GST credits is dependent on the number of adjustment periods applying to your creditable acquisitions.