Edited version of your written advice

Authorisation Number: 1012998874012

Date of advice: 27 May 2016

Ruling

Subject: GST and supply of accommodation

Question

Are the supplies that you make to your tenants input taxed, with the consequence that you are not liable for goods and services tax (GST) on these supplies?

Answer

Yes, the supplies that you make to your tenants, being the right to use and occupy accommodation in the premises, are input taxed and as such, you are not liable for GST on these supplies.

Relevant facts and circumstances

You are owner of a property and you carried on an enterprise of providing accommodation to tenants.

The property consists of premises with XX furnished rooms and access to shared facilities. You provide cleaning, maintenance, electricity, gas and internet to the tenants but you do not provide food or meals.

Your tenants are long-term tenants who stay for a period greater than 28 days.

You do not charge GST on your supplies of accommodation to the tenants. Copies of the receipts that you issued to the tenants show no GST was charged.

You confirmed that you made a choice as provided in section 87-25 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) to treat your supply of the long-term accommodation as an input taxed supply.

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 9-10(1)

A New Tax System (Goods and Services Tax) Act 1999 section 9-15

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

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

A New Tax System (Goods and Services Tax) Act 1999 Division 87

A New Tax System (Goods and Services Tax) Act 1999 section 87-20

A New Tax System (Goods and Services Tax) Act 1999 section 87-25

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

Reasons for decision

Summary

The supplies that you make to your tenants, being the right to use and occupy accommodation in the premises are input taxed under paragraph 40-35(1)(b) of the GST Act and as such, you are not liable for GST on these supplies.

Detailed reasoning

Section 9-40 of the GST Act provides that you must pay GST on any taxable supply that you make.

Under section 9-5 of the 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 that you carry on

• the supply is connected with the indirect tax zone (which is basically Australia), and

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

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

The first requirement to be satisfied is that there is a supply for consideration.

Under subsection 9-10(1) of the GST Act, a supply is any form of supply whatsoever and includes:

• a grant, assignment or surrender of real property, and

• a creation, grant, transfer, assignment or surrender of any right.

The term 'real property' is defined in section 195-1 of the GST Act to include:

• any interest in or right over land

• a personal right to call for or be granted any interest in or right over land, or

• a licence to occupy land or any other contractual right exercisable over or in relation to land.

In this case, you are the legal owner of the property and by allowing the tenants to use and occupy accommodation in the premises, you are supplying a right to use and occupy real property. This supply of a right over real property is a supply for GST purposes.

The term 'consideration' is defined in section 9-15 of the GST Act to include any payment, or any act or forbearance, in connection with a supply of anything.

It is considered that the payments received from the tenants are payments made in connection with your supply of accommodation. A receipt was also issued to the tenants after receiving payment. Therefore, for the purposes of section 9-5 of the GST Act, you are making a supply for consideration.

In addition, it is considered that the other requirements of section 9-5 of the GST Act are also met and therefore, your supply of the right to use and occupy accommodation in the premises will be subject to GST unless your supply is GST-free or input taxed.

There is no provision in the GST Act that will make your supply of accommodation GST-free.

However, subsection 40-35(1) of the GST Act states that a supply of premises that is by way of 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); 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.

(* denotes a term defined in section 195-1 of the GST Act)

The term 'residential premises' is defined in section 195-1 of the GST Act to mean '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.

Further to the definition of residential premises above, Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) states at paragraph 6:

Premises, comprising land or a building, are residential premises under paragraph (a) of the definition of residential premises in section 195-1 where the premises are occupied as a residence or for residential accommodation, regardless of the term of the occupation. The actual use of the premises as a residence or for residential accommodation is relevant to satisfying this limb of the definition.

It is accepted that your premises has the attributes of residential premises and that it is occupied, and capable of being occupied, as a residence or for residential accommodation.

Hence, your supply of premises is by way of lease, hire or licence as required by subsection 40-35(1) of the GST Act.

However, a supply of residential premises under paragraph 40-35(1)(a) of the GST Act is only input taxed if it is not a supply of accommodation in commercial residential premises provided to an individual by the owner.

The term 'commercial residential premises' is defined in section 195-1 of the GST Act to include a hotel, motel, inn, hostel or boarding house, or anything similar.

The terms 'hotel, motel, inn, hostel and boarding house' are not defined in the GST Act and take their ordinary meaning.

In addition, paragraph 12 of Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises (GSTR 2012/6) provides that the following list of characteristics are considered to be common to operating hotels, motels, inns, hostels and boarding houses:

• commercial intention

• multiple occupancy

• holding out to the public

• accommodation is the main purpose

• central management

• management offers accommodation in its own right

• provision of, or arrangement for, services and

• the occupants have the status of guests.

Paragraph 41 of GSTR 2012/6 further provides that ultimately, determining whether premises are commercial residential premises is a matter of overall impression involving the weighing up of all relevant factors.

In this case, your property consists of premises that contain xx furnished guest rooms and shared facilities. Cleaning, maintenance, electricity, gas and internet are also provided to the tenants.

Therefore, it is considered that your property constitutes commercial residential premises for GST purposes. Consequently, paragraph 40-35(1)(a) of the GST Act will not apply to your circumstances.

However, while a supply of accommodation in commercial residential premises is generally a taxable supply, paragraph 40-35(1)(b) of the GST Act provides that a supply of commercial accommodation in commercial residential premises to an individual as long-term accommodation under Division 87 of the GST Act can be input taxed if certain requirements are satisfied.

Goods and Services Tax Ruling GSTR 2012/7 Goods and services tax: long-term accommodation in commercial residential premises (GSTR 2012/7) provides guidance on how Division 87 and section 40-35 of the GST Act apply to supplies of long term accommodation in commercial residential premises.

In essence, Division 87 of the GST Act allows for concessionary treatment if you supply commercial accommodation to individuals as either long-term accommodation or predominantly long-term accommodation.

Under section 87-20 of the GST Act, long-term accommodation is provided to an individual if commercial accommodation is provided for a continuous period of 28 days or more in the same premises and accommodation is predominantly for long-term accommodation if at least 70% of the supplies of accommodation in the premises is for a continuous period of 28 days or more.

In your case, you were providing long-term accommodation to individuals as your tenants stay for more than 28 days.

Therefore, Division 87 of the GST Act would apply to your supply of accommodation. However, under section 87-25 of the GST Act an entity can choose not to apply the concessions for supplies of commercial accommodation. If a supplier chooses not to apply the concessions in Division 87 of the GST Act, a supply of commercial accommodation is input taxed under paragraph 40-35(1)(b) of the GST Act if it is also a supply of premises by way of lease, hire or licence.

You confirmed that you made a choice under section 87-25 of the GST Act not to apply Division 87 of the GST Act to your supplies of long-term accommodation. In addition, as previously determined, your supply is a supply of premises by way of lease, hire or licence. As such, the requirements of paragraph 40-35(1)(b) of the GST Act are satisfied.

Accordingly, the supplies of long-term accommodation that you make to your tenants are input taxed and such as, you are not liable for GST on these supplies.