Edited version of private ruling

Authorisation Number: 1011805470767

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Ruling

Subject: GST and supply of accommodation

Question

Are your supplies of accommodation in your serviced apartments taxable supplies?

Answer

No, your supplies of accommodation in your serviced apartments are input taxed.

Relevant facts and circumstances

You are registered for GST.

On ddmmyyyy, you purchased property as tenants in common with entity B.

The property contained multiple furnished dwellings.

For a specified period, you used the units to provide both long-term and short-term accommodation, which you have treated as input taxed supplies. Turnover for the period was about $xx.

You subsequently decided to expand your accommodation business and, in yyyy, additional apartments were constructed on the same block of land. The new apartments were available for rent from ddmmyyyy.

All apartments can be sold as residential premises.

The apartments are located on one lot.

The apartments are fully self-contained with full kitchen, bathroom and laundry facilities, dining and lounge areas and a private balcony or courtyard. They are rented fully furnished.

You pay for electricity, gas and water. You provide basic cleaning equipment such as a broom and dustpan. The units are cleaned and linen changed weekly. You do not provide any other services.

You and Entity B manage the units yourselves. There is no agent or third party involved.

There is no reception or owner on site as you live off site. Guests enjoy complete privacy and rarely meet the owners. They obtain entry via a keypad and security code which is issued upon payment of the rent.

Reasons for decision

Are your supplies of accommodation in your serviced apartments taxable supplies?

Subsection 40-35(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides, in part, that a supply of premises by way of lease, hire or licence is input taxed if:

· · the supply is of residential premises (other than commercial residential premises), or

· · the supply is of commercial accommodation and Division 87 of the GST Act (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 of the GST Act.

Residential premises is defined in section 195-1 of the GST Act as follows:

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.

(terms marked * are defined in section 195-1 of the GST Act)

Goods and Services Tax Ruling GSTR 2000/20 provides the Tax Office view on residential and commercial residential premises. Some of the characteristics of residential premises are that it is capable of providing the occupants with sleeping accommodation and at least some basic facilities for day to day living.

The property that you have described provides the occupants with sleeping accommodation and other facilities for day to day living (such as a kitchen and laundry). Thus it has the characteristics of residential premises.

However, it is necessary to consider whether your premises have the characteristics of commercial residential premises. This is because paragraph 40-35(1)(a) of the GST Act provides that a supply is not input taxed where the supply of the residential premises are commercial residential premises.

The term 'commercial residential premises' is defined in section 195-1 of the GST Act to include amongst other things:

a. a hotel, motel, inn, hostel or boarding house; or

b. ……

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

For your premises to be commercial residential premises, they must be one of the types of establishments listed in paragraph (a), or, under paragraph (f), must possess the characteristics that are common to the premises listed in paragraph (a) to a degree that would place them in that class rather than with premises of another kind.

You have not contended and the facts provided do not indicate that your premises are a hotel, motel, inn or hostel, under paragraph (a) of the definition of commercial residential premises. Therefore we will consider whether your premises are anything similar.

Paragraph 83 of GSTR 2000/20 lists the following as the main characteristics of commercial residential premises:

(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

(viii) status of guests.

Your property has some of the characteristics of commercial residential premises, such as: multiple occupancy, commercial intention, holding out to the public, accommodation is the main purpose, central management.

GSTR 2000/20 provides that in some cases it may be a question of degree as to whether the premises exhibit all of the above characteristics. However, when viewed as a whole, the establishment may be commercial residential premises.

GSTR 2000/20 discusses the application of the above characteristics to common types of accommodation. You have stated that your premises are serviced apartments and not a hotel. Paragraphs 118 to 121 of GSTR 2000/20 discuss the application of the characteristics to serviced apartments.

The set-up and management of serviced apartments are strong indicators of whether they are commercial residential premises. Some serviced apartments have minimal services and the management may be represented by nothing more on-site than a security desk. Something more than this is necessary for the apartments to be commercial residential premises. An on-site presence, providing some level of service on demand, would indicate that the premises are commercial.

Paragraph 121 of GSTR 2000/20 provides the following example of a serviced apartment.

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 the 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.

According to that example, even where an apartment has some characteristics of premises similar to a hotel, motel and an inn, overall, they may not be commercial residential premises.

In your situation, you provide multiple occupancy (in some instances); commercial intention; holding out to the public and accommodation as the main purpose. You do not provide on-site management. In addition, you do not provide any additional services.

Therefore, the apartments do not constitute commercial residential premises. As such, you are making supplies of accommodation in residential premises, which are input taxed.

Where a supply is input taxed, no GST is payable on the supply and there is no entitlement to an input tax credit for acquisitions made in relation to the supply.