Edited version of your written advice

Authorisation Number: 1012669795755

Ruling

Subject: GST and supply of residential premises

Question 1

Is the lease of your property a taxable supply of commercial residential premises?

Answer

No.

Relevant facts and circumstances

You are registered for GST.

You intend to purchase, a strata titled unit in Australia (the property) that is presently under construction.

The premises will consist of 2 or 3 bedrooms and 1 bathroom.

The premises are zoned R3 medium density residential - uses within this zone include boarding houses, hostels and multi-dwelling housing.

You intend to let rooms to guests, use of a room, the guests are not exclusively entitled to any particular room. The guests will be subject to a residential licence agreement and do not have tenancy style rights. You have provided a copy of the agreement.

The guests will not be able to alter the premises in any way.

You will be advertising to the general public; flyers will be given to surrounding businesses; rooms will be targeted to those looking for short term low cost accommodation.

You will provide electricity, internet, telephone, garbage collection, lawn mowing and maintenance of common property areas, including driveways, vegetation, visitor car parks etc.

Rooms and living areas will be fully furnished including linen and appliances.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5.

A New Tax System (Goods and Services Tax) Act 1999 Subsection 40-35(1).

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1.

Reasons for decision

You are liable for goods and services tax (GST) on any taxable supply that you make.

Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) you make a taxable supply if:

• you make the supply for consideration,

• the supply is made in the course or furtherance of an enterprise you carry on,

• the supply is connected with Australia, and

• you are registered, or required to be registered for GST.

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

You will be carrying on a leasing enterprise of a property in Australia for consideration. Furthermore, you are registered for GST. There are no provisions in the GST Act under which the supplies would be GST-free.

However, we need to determine if the lease of the property is an input taxed supply.

Input taxed supplies of accommodation in residential premises

A supply of premises by way of lease, hire or license is input taxed under subsection 40-35(1) of the GST Act 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.

Residential premises are defined in section 195-1 of 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;

(regardless of the term of the occupation or intended occupation) and includes a floating home.

Goods and Services Tax Ruling GSTR 2012/5 Goods and Services Tax: residential premises (GSTR2012/5) provides the Tax Office view on residential premises.

To satisfy the definition of residential premises, premises must provide shelter and basic living facilities. Paragraph 14 of GSTR 2012/5 states that 'residential premises' are not limited to premises suited to extended or permanent occupation. Residential premises provide 'living accommodation', which does not require any degree of permanence. It includes lodging, sleeping or overnight accommodation.

Some of the characteristics of residential premises are that they are capable of providing the occupants with sleeping accommodation and at least some basic facilities for day-to-day living.

You intend to purchase a unit containing 2 or 3 bedrooms, and facilities for day-to-day living such as living area, bathroom, kitchen and laundry. It is therefore considered that the unit will possess the physical characteristics to satisfy the definition of residential premises.

Next, it is necessary to determine whether the unit will have the characteristics of commercial residential premises.

Commercial residential premises

Goods and Services Tax Ruling 2012/6 'Goods and services tax: commercial residential premises' (GSTR 2012/6) provides the Commissioner's view about how Subdivision 40-B, 40-C and section 9-5 apply to supplies of commercial residential premises and accommodation in commercial residential premises.

'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

…

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

However, it does not include premises to the extent that they are used to provide accommodation to students in connection with an *education institution that is not a *school.

The terms hotel, motel, inn, hostel and boarding house are not defined in the GST Act and take their ordinary meaning. The Macquarie Dictionary (Macquarie) provides the following definitions:

Hotel a building in which accommodation and food, and alcoholic drinks are available

Motel a roadside hotel which provides accommodation for travellers in self-contained, serviced units, with parking for their vehicles.

Inn a small hotel that provides lodging, food etc., for travellers and others

Hostel a supervised place of accommodation, usually supplying board and lodging provided at a comparatively low cost, as one for students, nurses, etc..

Boarding house a dwelling in which lodging is provided to paying residents who share common facilities such as a kitchen, laundry, living room,etc.

Paragraph 51 of GSTR 2012/6 gives an example of rooms being let in premises that have the characteristics of residential premises to be used predominantly for residential accommodation. In this example linens are provided, but not meals or other services. As such the accommodation does not have sufficient features to be characterised as commercial residential premises.

You will be leasing rooms in a property which will consist of bedrooms, living areas, kitchens, bathrooms and laundry. On the facts provided, there is no other infrastructure such as a reception desk, restaurant, conference facilities, pool or gym.

Based on the information provided, it is considered that your property will not fall within one of the premises under paragraph (a) of the definition of commercial residential premises, nor is it similar to a hotel, motel, inn, hostel or boarding house under paragraph (f) of the 'Commercial residential premises' definition.

Therefore, your supply of rooms in the property does not constitute a supply of commercial residential premises. The lease of the individual rooms will be input taxed under section 40-35 of the GST Act. When you make an input taxed supply, you do not include GST in the price, nor are you entitled to claim GST credits for purchases made in providing the input taxed supply.