Edited version of private ruling

Authorisation Number: 1011758605996

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Ruling

Subject: GST and registration

Question 1

Are you required to be registered for GST?

Answer: No

Relevant facts and circumstances

You have been registered for GST since 1 July 2000.

You partly own a holiday unit complex which comprises nine self contained holiday units. You previously owned all of the units but you have sold some of these units.

Eight of the units are used for short term holiday rental. There are four two bedroom units and four one bedroom units. The remaining three bedroom unit is the manager's unit. The units have separate bedrooms, bathrooms and open plan kitchen/living areas. The kitchens are fully equipped with stoves, microwaves and fridges. The units are self contained, so food or beverages are not supplied. There are no telephones in the units.

The complex includes shared facilities comprising a swimming pool, BBQ area with gardens and car parking.

The units are advertised through a website which provides information and photos. There is no reception and guests are directed to the on site manager's unit, where there is an intercom to announce the arrival of the guest. Upon arrival, the guests make the payment and collect the keys. The manager cleans the unit when the guests depart and leaves clean bed linen and towels for the next guest's use. The units are not cleaned or serviced on a daily basis. No other services are provided to guests.

Your sole enterprise is the leasing of the units for short term holiday rental.

The holiday unit complex was changed from freehold to strata title and at the same time you sold the management rights to another entity. A body corporate was formed which employed an entity as manager to operate the business on behalf of the owners of the individual units.

The management agreement provides for the manager to manage and control the holiday letting of the unit on behalf of the landlord. The manager is entitled to a fee for holiday letting, advertising, cleaning and maintenance. The owners have the option of occupying their units subject to certain conditions being met. The manager is responsible for collecting the proceeds of the sales and holding it in a trust account. The manager then deducts all expenses before forwarding the balance to the owners.

Reasons for decision

GST turnover threshold

Section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that an entity is required to be registered for GST if:

· it is carrying on an enterprise, and

· its GST turnover meets the registration turnover threshold.

From 1 July 2007 the GST registration turnover threshold is $75,000.

As you are carrying on an enterprise of supplying property by way of a lease, it is necessary to consider whether your GST turnover meets the registration turnover threshold.

Subsection 188-10(2) of the GST Act provides that you have a GST turnover that does not meet a particular turnover threshold if:

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

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

Section 188-15 of the GST Act explains that your current GST turnover is the total value of all the supplies that you have made, or are likely to make, during the 12 months ending at the end of that month. Section 188-20 of the GST Act defines your projected GST turnover. Projected GST turnover is determined at a time during a particular month and it is calculated as the total value of all supplies during that month and the next 11 months.

However, sections 188-15 and 188-20 of the GST Act provide that input taxed supplies are not included in calculating your current and projected GST turnover.

Therefore it is necessary to consider whether the supplies from your leasing enterprise are input taxed supplies or taxable supplies.

Input taxes supplies of residential premises or taxable supplies of commercial residential premises

Under section 40-35 of the GST Act, a supply of premises by way of lease, hire or licence is input taxed if it is a supply of residential premises (other than commercial residential premises). Input taxed means that there is no GST payable on the supply and there is no entitlement to an input tax credit for anything acquired to make the supply. In contrast, supplies of commercial residential premises are generally taxable supplies.

The term, residential premises is defined in the GST Act as 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.

This is regardless of the term of occupation or intended occupation and includes a floating home.

Goods and Services Tax Ruling GSTR 2000/20: commercial residential premises (GSTR 2000/20) explains the Commissioner's view on commercial residential premises and provides guidance on the meaning of residential premises.

Paragraph 19 of GSTR 2000/20 states:

19. Further, the requirement in paragraph 40-35(2)(a) and subsection 40-65 (1) that input taxing only applies to the extent that premises are 'to be used predominantly for residential accommodation' indicates that premises that are residential premises are capable of use for purposes other than residential accommodation. It is their physical characteristics that mark them out as a residence. In turn, these characteristics determine when the use or proposed use is for residential accommodation.

Paragraph 26 explains that residential premises must provide the occupants with sleeping accommodation and some basic facilities for day to day living.

Your holiday units are residential premises. It remains to be considered whether these strata titled units possess the characteristics that align with commercial residential premises.

The term commercial residential premises is defined in section 195-1 of the GST Act to include amongst other things, a hotel, motel, inn, hostel or boarding house, or anything similar to these establishments. In order to establish whether the establishment is similar to a hotel, motel or inn, we look at certain characteristics.

GSTR 2000/20 deals with the treatment of strata and other separately titled premises in paragraphs 51 to 61.

Paragraphs 56, 59 and 61 state:

56. Strata, or other separately titled premises used as holiday accommodation are not usually commercial residential premises. This is also discussed in paragraphs 116 to 117. The majority of the casual letting in such premises is carried on by agents, on behalf of unit owners. The agents may either be real estate agents, operating from separate premises or on-site agents, who may also act as the managers of the complex.

59. Owners who supply their units for accommodation through agents are supplying residential premises. An individual unit of accommodation, such as a room, suite, apartment, cabin or villa does not possess the characteristics that are shown by a hotel, motel, inn, hostel or boarding house.

61. Where an owner holds several strata units within one complex and lets them through an agent under letting, or similar agreements, these supplies are usually also of residential premises.

Paragraph 61 of GSTR 2000/20 explains that an owner holding several units is usually supplying residential premises. The question of whether your supply of units is a supply of commercial residential premises requires consideration.

Paragraph 83 of GSTR 2000/20 sets out the main characteristics of commercial residential premises as:

(i) commercial intention

(ii) multiple occupancy

(iii) holding out to the public

(iv) accommodation is the main purpose

(v) central management

(vi) management offers accommodation in its own right

(vii) services offered, and

(viii) status of guests.

To be considered commercial residential premises, the units collectively must satisfy these main characteristics. In the case of your supply of units, characteristics (i) to (iv), (vi) and (viii) are satisfied to some degree. However, in our view, characteristics (v) and (vii) are not satisfied.

Whilst there is control over the premises, it is considered that a sufficient level of central management does not exist. The management services provided by the on site manager who acts as on your behalf is limited to the provision of keys, collection of payments, cleaning and maintenance.

In addition, limited services are provided to guests. The units are cleaned after the departure of the guest and fresh linen is provided in the unit in readiness for the next guest. The absence of other services such as food and beverage or restaurant facilities and room service supports the conclusion that you are not supplying commercial residential premises.

After considering the facts provided against the eight indicators of commercial residential premises, we consider that these premises do not display, to a sufficient degree, all of the characteristics of commercial residential accommodation, particularly, in relation to central management and services offered.

Your circumstances are similar to example 4 in GSTR 2000/20 which states:

Example 4

Chi Square apartments are a collection of apartments, advertised and let by the management, located off-premises. A guard staffs a security desk and provides keys to incoming guests. No other services are provided during occupants' stays, though cleaning is conducted by management, after each departure. The apartments are equipped with kitchens for self catering and direct dial telephones. There is no restaurant or room service.

Chi Square exhibits some of the characteristics of premises similar to hotels, motels and inns but on these facts, the apartments are not commercial residential premises.

Your supplies of accommodation are supplies of residential premises and not commercial residential premises. Consequently, you are only making input taxed supplies from the enterprise of leasing residential premises and these supplies are excluded from the calculation of GST turnover.

Sales of strata titled units and the GST turnover threshold

In accordance with subsection 40-65(1) of the GST Act, sales of residential premises are input taxed supplies unless the premises are commercial residential premises or new residential premises. We have determined that your strata titled units are not commercial residential premises. In addition, the units are not new residential premises under section 40-75 of the GST Act because these units have been rented out for more than 5 years. Therefore your sales of strata titled units in the 2008 financial year are input taxed supplies.

As both your current GST turnover and projected GST turnover is comprised solely of input taxed supplies, which are not included in the GST turnover threshold, you are not required to be registered for GST.