Edited version of private ruling

Authorisation Number: 1011807282043

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Ruling

Subject: Supply of accommodation

Question 1

Is your supply of accommodation subject to GST?

Advice/Answers

No.

Relevant facts

You are a partnership carrying on an enterprise of supplying accommodation to guests.

You have an ABN but you are not registered for GST.

You advertise your accommodation on the internet and elsewhere under its original name. To avoid confusion your partnership trades under another name.

You do not conduct any other enterprise.

You have entered into a lease agreement with the owners of the accommodation. And hire it out to guests in your own right with the intention of making a profit.

Under the terms of the lease agreement you pay a fortnightly rental.

You expect your annual turnover will be more than $75,000.

You have been managing the premises since a specified date from your residence which is nearby. The foyer of your residence is used as form of reception area for handing over keys etc to guests but is not staffed full time.

There are a number of accommodation units. They are self-contained, equipped with cooking facilities, such as a microwave oven, stove and oven, fridge, television. Separate shared laundry facilities are available to the guests.

There are no telephones or central telephone system available to the guests.

Minimum rental period is two days with weekly periods preferred.

You do not provide any services such as room service, linen, cleaning, wakeup calls, taxi service or touring trips.

Towels are not provided as a rule; however they are available at the guests' requests, for an extra charge.

A business sign is posted at the entrance to the property.

The guests do not sign a tenancy agreement with you.

The premises are cleaned at the end of the guests' stay.

Reasons for decision

GST is payable on any taxable supply that you make. The supply of your accommodation by way of lease will be subject to GST if it meets the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Section 9-5 of the 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.

Your supply of the accommodation is made for consideration, in the course or furtherance of your partnership enterprise and the supply is connected with Australia and as a result satisfies the requirements of paragraphs 9-5(a), (b) and (c) of the GST Act.

However, you are not registered for GST. Therefore, the issue we need to determine is whether you are required to be registered for GST.

Are you required to be registered for GST?

Section 23-5 of the GST Act provides that you are required to be registered for GST if:

· you are carrying on an enterprise, and

· your GST turnover meets the registration turnover threshold.

You are carrying on an enterprise of providing accommodation. Therefore, you will be required to be registered for GST if your GST turnover meets the registration turnover threshold which under section 23-15 of the GST Act is currently $75,000 for entities other than non- profit bodies.

Subsection 188-10(1) of the GST Act provides that an entity's GST turnover meets a particular turnover threshold if:

· its current GST turnover is at or above the turnover threshold and the Commissioner is not satisfied that its projected GST turnover is below the turnover threshold, or

· its projected GST turnover is at or above the turnover threshold.

'Turnover threshold' is defined in section 195-1 of the GST Act to include the registration turnover threshold.

An entity's current GST turnover is the sum of the values of all the supplies that the entity has made, or is likely to make, during the current month and the preceding 11 months. An entity's projected GST turnover, at any particular time, is the sum of the values of all the supplies that the entity has made, or is likely to make, during the current month and the next 11 months.

In your case your projected GST turnover is greater than the turnover threshold. However, amongst other things supplies that are input taxed are excluded from the calculation of current and projected GST turnover (section 188-20 of the GST Act).

It is therefore necessary to determine whether your supply of accommodation is input taxed.

GST treatment of the supply of the accommodation to guests

Under subsection 40-35(1) 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 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).

The issue in this case is whether the premises are residential or commercial residential premises. The definitions of both of which are found in section 195-1 of the GST Act.

'Residential premises' means land or a building that is occupied as a residence or for residential accommodation, or 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.

Based on the information that you have provided, the premises are residential premises as they are intended to be occupied, and are capable of being occupied as a residence.

The definition of 'commercial residential premises' includes a hotel, motel, inn, hostel or boarding house. It also includes residential premises that are similar to a hotel, motel, inn, hostel or boarding house. A Caravan park or camping ground is also included in the definition of Commercial residential premises.

Goods and Services Tax Ruling GSTR 2000/20 (GSTR 2000/20) which is about commercial residential premises, states the Commissioner's view on the meaning of the definition of commercial residential premises and also provides guidance on residential premises. (GSTR 2000/20 can be accessed on our website at www.ato.gov.au)

Paragraph 83 of GSTR 2000/20 sets out the characteristics of commercial residential premises which are:

(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

(viii) Services offered

(viii) Status of guests.

In some cases it may be a question of degree as to whether your premises exhibit all of these characteristics. However, when viewed as a whole the establishment may be commercial residential premises. (The indicators of premises possessing each characteristic are discussed in paragraphs 86 to 109 of GSTR 2000/20).

From the information you have provided, the premises exhibit the characteristics of commercial intention, multiple occupancy, holding out to the public, accommodation is the main purpose, management offers accommodation in its own right, and status of guests.

The central management characteristic is present to some degree. However, of particular importance is the 'services' characteristic.

Paragraphs 106 and l07 of GSTR 2000/20 state:

106. The tariff you charge usually includes amounts to cover the cost of cleaning and maintaining guests' rooms during their stay. Often, there is access to meals or the facilities for guests to make and consume their own. Other examples of services include; providing telephones, replacing linen, laundry, and other, minor services, such as wake-up calls, or providing local information.

107. Guests' expectations of service levels vary with the style of accommodation and, to some extent, the tariff charged. An absence of services indicates that the premises may not be commercial residential. Similarly, where guests are required to supply items such as towels or linen or anything else to make the premises fit for accommodation, the premises are less likely to be commercial residential.

You have advised that you do not provide any of the above-mentioned services. You also do not provide any bed linen to your guests, although these will be provided by you upon request from the guests and for an extra charge. In addition, the rooms are not equipped with a centralised telephone system.

Although most of the characteristics of commercial residential premises are exhibited by your premises, there is an absence of services. When viewed as a whole, your premises would not be similar to a hotel, motel, inn, hostel or boarding house. Therefore, your premises are not considered to be commercial residential premises. They are rather, residential premises.

Under subsection 40-35(2) of the GST Act, the supply of premises is input taxed only to the extent that the premises are to be used predominantly for residential accommodation.

It is the physical characteristics of the premises that determine whether or not premises are to be used predominantly for residential accommodation.

You have advised that the premises provide sleeping accommodation and facilities for day to day living. Consequently, your premises qualify as residential premises which are to be used predominantly for residential accommodation.

Therefore, the supply of accommodation in the premises to guests is an input taxed supply. As such, the income received for the supply of these premises is excluded from the calculation of your current and projected GST turnover under section 188-10 of the GST Act.

You have advised that you do not operate any other enterprise. Hence, neither your current GST turnover nor your projected GST turnover meets the registration turnover threshold. As a result, you are not required to be registered for GST.

As you are not required to be registered for GST, you do not satisfy paragraph 9-5(d) of the GST Act. Consequently, since all the requirements of section 9-5 of the GST Act are not satisfied, the supply of the premises to guests is not subject to GST