Edited version of private advice

Authorisation Number: 1012653866050

Ruling

Subject: GST and supply of accommodation

Question 1

Are you making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when you supply fully serviced accommodation from your premises located at a specified address in Australia (the Property)?

Advice/answer

Yes. You are making a taxable supply under section 9-5 of the GST Act when you supply fully serviced accommodation from your premises. GST is payable on the supply. That is, you are required to include GST in the price of your room rate.

Question 2

Are you entitled to input tax credits under section 11-20 of the GST Act when you make acquisitions in relation to construction and operation of the Property?

Advice/Answer

Yes. You are entitled to input tax credits under section 11-20 of the GST Act when you make creditable acquisitions in relation to construction and operation of the premises. Your entitlement to the input tax credits will be reduced if you acquire anything partly for a creditable purpose.

Your entitlement to input tax credits for creditable acquisitions cease unless they are included in your assessed net amounts within a limited period (generally 4 years).

Relevant facts and circumstances

You, (name inserted) are an individual and you are registered for GST from ddmmyyyy.

You own a property located at the specified address (the Premises).

You are constructing a luxury house on the Property which you intend to rent. You anticipate the Property will be available for rent in a few months' time.

You will operate the supply and management of the accommodation. You will employ staff primarily involved in the operation of the business such as housekeeping, maintenance of the Property and a manager who will look after the Property.

Your company, (name of company inserted), will only provide management services such as human resources, sales and marketing and bookkeeping services for a flat fee.

Documents available include:

• Your Business Plan dated ddmmyyyy

• Development approval plan

• Building class/code approved for development

• Architectural design plans and drawings

• Shire amended planning permit

• Certificate of title

• Loan documentation

The Property is approximately n square meters (sqm) of bushland with ocean views to the south and rural bushland to the north. The house measures close to x sqm and comprises:

• a specified number of bedrooms (all with ensuite. Each room will be numbered and named and will be available to rent on a nightly, 3 nightly and weekly rate)

• cinema (seats a specified number of people)

• bar and wine cellar (the onsite butler can put together any cocktail from an extensive array of exclusive cognacs and whiskeys. The functioning of the cellar will be controlled by a touch key pad. Guests will be given the password after agreeing to terms and conditions that summarise all wine is charged by consumption and priced on the printed list).

• indoor pool, gym, yoga room, sauna

• X car garage

• indoor kitchen (can accommodate for up to a specified number of adults. The kitchen can easily convert to a cooking class room for a specified number of people)

• outdoor kitchen (the outdoor kitchen consists of a charcoal grill and rotisserie, bread oven, fridges and work spaces. This kitchen has the capacity to host larger numbers, up to a specified number of people).

The outdoor "living spaces" include a large oriental bath and a filtered billabong that can be used as a swimming hole for children.

You will treat all aspects of the room offering as if it were a miniature hotel. You will market the Property as luxury boutique accommodation targeting the high end bespoke traveller with a large family or multiple families wanting all the amenities of a luxury hotels experience. The house is also home to an extensive collection.

The resident house-manager shall prepare a group arrival form and separate door keys for each booked guest. Prior to guest arrival the keys shall be tested to ensure that they operate the main gate, the front door and that they only provide internal access to the reserved guest room.

Guests will always be met and escorted by a member of staff to the main living/dining area where they will be offered a welcome drink and greeted by the duty chef. The guests are also escorted to their pre-assigned rooms and demonstrated the facilities and asked if anything is required. Guests will always be seen off by a member of staff.

Your sales analysis has revealed that you can expect that the Property will be rented, on average, for a minimum of a specified number of nights for the first year, a specified number of nights for year 2 and a specified number of nights for year 3. Sales will spike in the spring and summer, then decline in the autumn and winter months.

Your proposed room rates for next year have been set at:

Weekend - $ per night

Weekday - $ per night

Special events - $ per night

The rates for the rooms will be at a nightly, 3 nightly or weekly rates. The rate includes:

• the use of a butler and chef who will prepare and cook breakfast, lunch and dinner.

• cleaning service once a day

• pillow menu

• non-alcoholic beverages

• snacks

• a limited number of outdoor activities such as mountain biking, surfing and bush hikes. Back packs will be organized filled with an appropriate picnic hamper.

A concierge service will include access to experienced Yoga teachers, spa treatments, fitness trainers, surf coaches and cooking lessons. All of these services are charged as extras.

You intend for the house to be the best bed and breakfast operation in the country. You have to consider that the level of bed and breakfast competition is relatively high but that most residences do not offer anywhere near the same level of service as your premises.

You intend to start marketing with publication of editorial in certain specified magazines. A specified person has been commissioned to take a comprehensive array of photographs and video to display on the web site and to send to the media. The web site will have 3 formats - Ipad, PC and phone adaptations as well as the ability to make bookings directly.

Relevant legislative provisions

The A New Tax System (Goods and Services Tax) Act 1999 Division 38

The A New Tax System (Goods and Services Tax) Act 1999 Division 40

The A New Tax System (Goods and Services Tax) Act 1999 section 9-5

The A New Tax System (Goods and Services Tax) Act 1999 section 11-5

The A New Tax System (Goods and Services Tax) Act 1999 section 11-15

The A New Tax System (Goods and Services Tax) Act 1999 section 11-20

The A New Tax System (Goods and Services Tax) Act 1999 section 11-25

The A New Tax System (Goods and Services Tax) Act 1999 section 11-30

The A New Tax System (Goods and Services Tax) Act 1999 section 40-35

The A New Tax System (Goods and Services Tax) Act 1999 section 195-1

The A New Tax System (Goods and Services Tax) Act 1999 Subdivision 40-B

Reasons for decision

Note: In this ruling, unless otherwise stated,

• all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

• all reference materials referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au

• all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act

Question 1

Are you making a taxable supply under section 9-5 when you supply fully serviced accommodation from your premises?

Section 9-5 states that you make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(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.

You intend to let rooms in your property to guests. In applying section 9-5 to your situation, we have taken the following into account:

(a) You will be letting the rooms on a nightly, 3 nightly or weekly rate. This indicates that you will be making the supply of accommodation for consideration.

(b) You will be letting the rooms in the course of your enterprise of providing accommodation.

(c) The Property from which you supply the accommodation is located in Australia. That is, your supply is connected with Australia.

(d) You are registered for GST.

Accordingly, when you supply the accommodation, we consider the requirements specified in paragraphs 9-5(a) to (d) will be satisfied and your supply will be a taxable supply. This is provided your supply is not GST-free or input taxed. Accordingly, it is relevant to examine the GST-free and input taxed provisions under Division 38 and 40 respectively.

Division 38 provides for certain supplies to be GST-free. Where a supply is GST-free, GST does not apply to the supply. We consider Division 38 will not apply to your supply of the accommodation to make your supply GST-free.

Division 40 provides for certain supplies to be input taxed. Where a supply is input taxed, GST does not apply to the supply. Of relevance to your situation is Subdivision 40-B which discusses residential rent.

Section 40-35 states:

(1) A supply of premises that is 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); ...

...

'Residential premises' as defined in section 195-1 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.

Residential premises are discussed in Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5). The ruling states that premises displaying physical characteristics that evidence their suitability and capability to provide residential accommodation are residential premises. Paragraph 15 also states that to satisfy the definition of residential premises, premises must provide shelter and basic living facilities.

The house from which you provide accommodation includes bedrooms, laundry, shower, toilet and kitchen.

Accordingly, under the guidelines in GSTR 2012/5, your house displays the physical characteristics suitable and capable for providing residential accommodation as they provide shelter and basic living facilities. Therefore, we consider the house satisfies the definition of residential premises under section 195-1, and under paragraph 40-35(1)(a), the supply of the property by way of lease, hire or licence will be an input taxed supply. This is the case, unless the exception in parentheses in paragraph 40-35(1)(a) applies.

The exception applies if the supply of residential premises is 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. Where the exception applies, the supply will not be an input taxed supply. Accordingly, it is necessary to determine whether your premises are commercial residential premises.

The definition of 'commercial residential premises' in section 195-1 includes the following:

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

...

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

...

Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises (GSTR 2012/6) includes explanations on the characteristics of hotels, motels, inns, hostels and boarding houses or similar premises. Paragraphs 11 and 12 state:

11. The tests to be applied are whether the premises are a hotel, motel, inn, hostel or boarding house for the purposes of paragraph (a), or whether the premises are similar to these types of premises, in the sense that they have a sufficient likeness or resemblance to any of these types of establishments for the purposes of paragraph (f). These tests necessarily raise questions of fact involving matters of impression and degree.

12. Common characteristics of operating hotels, motels, inns, hostels and boarding houses that are relevant, though not necessarily determinative, to characterising premises as commercial residential premises are:

• Commercial intention

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

• Multiple occupancy

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

• Holding out to the public

The premises offer accommodation to the public or a segment of the public.

• Accommodation is the main purpose

Providing accommodation is the main purpose of the premises.³

• Central management

The premises have 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.

The entity operating the premises supplies accommodation in its own right rather than as an agent.

• Provision of, or arrangement for, services

Management provides guests and residents with some services and facilities, or arranges for third parties to provide them.

• Occupants have status as guests

Predominantly, the occupants are travellers who have their principal place of residence elsewhere. The occupants do not usually enjoy an exclusive right to occupy any particular part of the premises in the same way as a tenant.

GSTR 2012/6 further explains:

95. In addition to living accommodation areas,⁸ premises that are commercial residential premises include commercial infrastructure to support the commercial operation of the premises. This infrastructure may include (but is not limited to) reception areas, dining and bar areas, meeting/function areas, kitchens, laundry facilities, storage areas and car parks. This infrastructure is used to provide services to occupants. Premises described in paragraph (a) and similar premises under paragraph (f) of the definition contain some or all of these areas to some degree.

In characterising your premises, we have taken into account the following:

• Commercial intention

You have a business plan which documents your operation of the house. Your business plan also includes an annual profit budget.

We consider your house will be operated on a commercial basis.

• Multiple occupancy

Your house measures x sqm and contains a specified number of bedrooms all with ensuite. Each room will be numbered and named. The indoor kitchen can accommodate a specified number of adults and the outdoor kitchen has capacity for a specified number of people.

We consider your premises have the capacity to provide accommodation to multiple, unrelated guests or residents at once in separate rooms.

• Holding out to the public

You intend to market the Property to high end bespoke traveller with a large family or multiple families wanting all the amenities of a luxury hotel experience. You will have a website set up for people to make bookings.

We consider your premises offer accommodation to the public or a segment of the public.

• Accommodation is the main purpose

You provide rooms at your property to guests for accommodation. We consider the main purpose of the operation of your property is the provision of accommodation.

• Central management

The resident house-manager shall prepare a group arrival form and separate door keys for each booked guest. Prior to guest arrival the keys shall be tested to ensure that they operate the main gate, the front door and that they only provide internal access to the reserved guest room.

Guests will always be met and escorted by a member of staff to the main living/dining area where they will be offered a welcome drink and greeted by the duty chef. The guests are also escorted to their pre-assigned rooms and staff will demonstrate the facilities and ask if anything is required. Guests will always be seen off by a member of staff.

• Management offers accommodation in its own right.

You own the Property from which you will provide accommodation to guests.

You will operate the supply and management of the accommodation. You will employ staff primarily involved in the operation of the business such as housekeeping, maintenance of the Property and manager who will look after the Property.

Your company, (name of company inserted), will only be providing management services such as human resources, sales and marketing, book keeping services for a flat fee.

On the facts, we consider you will be offering accommodation to guests in your own right.

• Provision of, or arrangement for, services

Services and facilities provided will include:

• the use of a butler and chef who will prepare and cook breakfast, lunch and dinner.

• cleaning service once a day.

• pillow menu.

• non-alcoholic beverages.

• snacks.

• a limited number of outdoor activities such as mountain biking, surfing and bush hikes. Back packs will be organized and filled with an appropriate picnic hamper.

• bar and wine cellar where the onsite butler can put together any cocktail and guests will be given password for access.

• an in house cinema with a specified number of seating capacity.

• an indoor pool, gym, yoga and sauna.

• Occupants have status as guests

We consider the guests at your property will be travellers who have their principal place of residence elsewhere, and do not have an exclusive right to occupy any particular part of the premises in the same way as a tenant.

Based on the above analysis, we consider your premises have sufficient features to be characterised as being similar to a hotel, motel or inn under paragraph (f) of the definition of commercial residential premises in section 195-1.

The operation of your property is also similar to the character of the bed and breakfast operation in example 2 in GSTR 2012/6, extracted below:

49. Bob operates a bed and breakfast accommodation business from his premises. The premises contain three bedrooms, communal dining and lounge areas and sealed car parking spaces for guests. The premises contain a room used as an office / reception as well as a kitchen that is suitable to prepare meals for guests. Bob lives on site. He advertises the accommodation in a tourist magazine. The rooms are not self-contained and are cleaned daily during stays and after each stay. The daily cleaning includes replacing towels and making beds. Breakfast is provided in the dining room.

50. Bob operates the premises which are aimed at providing accommodation to travellers (guests). The premises provide accommodation on a multiple occupancy basis. The guests do not have overall control over their rooms. Bob provides central management and services. The accommodation is supplied by Bob in his own right. Bob's bed and breakfast accommodation has the characteristics of commercial residential premises. The premises have sufficient features to be characterised as being similar to a hotel, motel, or inn. Alternatively, the premises may be characterised as sufficiently similar to a boarding house. Bob's supplies of accommodation are taxable supplies of accommodation in commercial residential premises.

Accordingly, we determine that your premises satisfy the definition of commercial residential premises and the exception to the input taxed supply provision in paragraph 40-35(1)(a) will apply. This means your supply of the rooms will not be an input taxed supply. Your supply will be a taxable supply under section 9-5 and GST is payable on the supply of the rooms at your premises.

Question 2

Are you entitled to input tax credits under section 11-20 of the GST Act when you make acquisitions in relation to construction and operation of the Property?

Section 11-20 provides that you are entitled to the input tax credit for any creditable acquisition that you make.

Section 11-5 states that you make a creditable acquisition if:

(a) you acquire anything solely or partly for a *creditable purpose; and

(b) the supply of the thing to you is a *taxable supply; and

(c) you provide, or are liable to provide, *consideration for the supply; and

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

We consider in supplying the accommodation you will satisfy paragraphs 11-5(a) and (d). If the supply of the thing to you is a taxable supply made by the supplier and you provide or are liable to provide consideration for the supply, then paragraphs 11-5(b) and (c) will also be satisfied, which means that you are making a creditable acquisition. Although section 11-20 provides that you are entitled to the input tax credit for any creditable acquisition that you make, section 11-25 includes a provision that the amount of the input tax credit is reduced if the acquisition is only partly creditable.

The term 'partly creditable' is defined in section 195-1 to include a reference to the meaning given by section 11-30. Paragraph 11-30(1)(a) states that an acquisition that you make is partly creditable if it is a creditable acquisition to which you make the acquisition only partly for a creditable purpose.

Section 11-15 provides the meaning of 'creditable purpose':

(1) You acquire a thing for a creditable purpose to the extent that you acquire it in *carrying on your *enterprise.

(2) However, you do not acquire the thing for a creditable purpose to the extent that:

(a) the acquisition relates to making supplies that would be *input taxed; or

(b) the acquisition is of a private or domestic nature.

You have constructed the property with the intention of operating the enterprise of providing accommodation. Accordingly, the acquisitions you make in relation to the construction of the premises and operation of the accommodation enterprise are for a creditable purpose. However, this is provided subsection 11-15(2) does not apply.

Paragraph 11-15(2)(a) specifies that you do not acquire the thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed. On the facts provided, we have determined earlier in this ruling your supply of accommodation will not be input taxed. Therefore, paragraph 11-15(2)(a) does not apply to your situation.

Paragraph 11-15(2)(b) specifies that you do not acquire the thing for a creditable purpose to the extent that the acquisition is of a private or domestic nature.

We have determined earlier in this ruling that you are supplying accommodation in commercial residential premises to your guest. Therefore, your supply will not generally be of a private or domestic nature. However, it is relevant to consider the industry norm in which such accommodation may be provided to guests (for example, family and friends) under an arrangement that is of a private or domestic nature, particularly during the quiet seasons. To the extent that this is the case in your situation, the relevant acquisitions will not be for a creditable purpose, and the amount of the input tax credit will be reduced under section 11-25.

Further information on determining the extent of creditable purpose is available in Goods and Services Tax Ruling GSTR 2006/4, Goods and services tax: determining the extent of creditable purpose for claiming input tax credits and for making adjustments for changes in extent of creditable purpose (GSTR 2006/4). This ruling provides guidance on how to determine the extent of your creditable purpose in making acquisitions and importations to enable you to claim the correct amount of input tax credits.

Accordingly, we determine that you are entitled to input tax credits under section 11-20 when you make creditable acquisitions in relation to construction and operation of the premises. Your entitlement to the input tax credits will be reduced if you acquire anything partly for a creditable purpose.

Additionally, your entitlement to input tax credits for creditable acquisitions cease unless they are included in your assessed net amounts within a limited period (generally 4 years).