Edited version of your written advice

Authorisation Number: 1013135231358

Date of advice: 6 December 2016

Ruling

Subject: GST registration

Question

Are you required to be registered for GST?

Answer

No, as the accommodation supplies you make are input taxed pursuant to paragraph 40-35 (1) (a) they are excluded from the calculation of your turnover for the purposes of the registration threshold and therefore you are not required to be registered for GST.

Relevant facts and circumstances

● You are not currently registered for GST.

● You acquired a franchise to operate an accommodation business.

● You carry on an enterprise of supplying accommodation. You provide medium to long term rentals for corporate clients requiring accommodation for relocating staff and staff on projects away from their home office.

● You grant occupants a licence to occupy the accommodation on terms for the period. This agreement does not and is not intended to create a residential tenancy agreement or any rights that attach to such an agreement

● Each apartment has a fully equipped kitchen, separate bedrooms, internal laundry, dining area and balcony with additional dining table and chairs.

● Your annual turnover for the xxxx financial year was $x, which was generated from your accommodation business.

● You offer residential accommodation through xx strata titled apartments, situated within X large apartment complexes at the locations in Australia.

● You have entered into lease agreements with the owners of the individual apartments through letting agents.

● You provide medium to long term accommodation for corporate clients requiring accommodation.

● The average length of stay is X weeks, with many stays being longer than X months and some extended stays of more than a year.

● The only staff is the company directors who work from home.

● You advertise on the internet, via a web page.

● The apartments are only attended to hand over keys or to attend to maintenance issues.

● You can only access the apartments if permission is granted by the occupant.

● There are no services such as restaurant, room service, swimming pool or concierge in any of these buildings, however:

● There is a telephone connected in the apartments however they are call barred and the clients must pay a fee to make calls.

● Unlimited high-speed broadband internet

● Secure building with intercom access, secure basement car parking and lift access

● Service cleans are provided if requested, the price dependent on factors such as length of stay and who the client is.

● A compulsory departure clean is completed at the end of each occupancy period, the cost of the clean is included in the rental charge.

● The cost of car parking is incorporated in the price.

● There is no extra charge for extra beds or Wi-Fi.

● Occupants are responsible for their own cooking and laundry.

● The cost of supplies by utilities is incorporated in the tariff.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 23-5.

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

A New Tax System (Goods and Services Tax) Act 1999 Section 188-10.

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

Reasons for decision

Section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that, you are required to be registered under this Act if:

(a) you are carrying on an enterprise, and

(b) your GST turnover meets the registration turnover threshold.

Enterprise

Your activities of supplying accommodation to business travellers meets the requirement in paragraph 23-5(a) of the GST Act that you are carrying on an enterprise.

GST registration threshold

What we need to determine is whether your turnover meets the registration turnover threshold. When calculating your registration threshold you do not include input taxed supplies.

Input taxed supplies of accommodation

Under paragraph 40-35(1)(a), a supply of residential premises by way of lease, hire or licence is input taxed if 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 an entity that owns or controls the commercial residential premises).

However, subsection 40-35(2) of the GST Act provides that the supply will only be input taxed to the extent that the premises are to be used predominately for residential accommodation (regardless of the term of occupation).

It is common ground that you supply accommodation and that accommodation is in premises that satisfy the definition of residential premises.

The issues to be determined are whether the accommodation you supply is out of commercial residential premises.

Commercial Residential Premises and accommodation

'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.

Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises provides the Australian Tax Office (ATO) view of the characteristics of commercial residential premises.

The terms hotel, motel, inn, hostel and boarding house are not defined in the GST Act and take their ordinary meaning. Paragraphs 140-141 of GSTR 2012/6 list the ordinary meanings of the terms. 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 10 and 11 of GSTR 2012/6 explains that the objective factors that are relevant to characterising premises under paragraph (a) or (f) of the definition include the overall physical character of the premises and how the premises are operated. The test to apply for paragraph (a) of the definition is whether the premises are a hotel, motel, inn, hostel or boarding house and the test for applying paragraph (f) is whether the premises are similar to these, in the sense that they have sufficient likeness or resemblance to any of those types of establishments.

Paragraph 12 of GSTR 2012/6 lists the characteristics that are considered to be common to operating hotels, motels, inns, hostels and boarding houses that are relevant to characterising premises as commercial residential premises:

a) commercial intention

b) multiple occupancy

c) holding out to the public

d) accommodation is the main purpose

e) central management

f) management offers accommodation in its own right

g) provision of, or arrangement for, services, and

h) occupants have the status of guests.

Your business has similar characteristics of a hotel as set out in (a) to (h) above in that you:

● Have a commercial intention,

● Can supply multiple occupancy

● Hold out to the public through your website and other means

● Have central management in your directors home office

● Offer accommodation in your own right and

● Although your services are limited you do provide within the tariff, weekly cleaning, Wi-Fi, free parking, fully furnished units including TV, HI Fi linen and crockery to enable you to be self-sufficient free use of utilities except for the phone which attracts additional charges.

● In addition your clients meet the criteria of having the status of guests.

The accommodation that you supply is not from a single building or establishment as the accommodation is situated in separate buildings. In addition you have leases in place with only a small number of tenants in each of the buildings.

Relevantly, paragraphs 95 and 96 of GSTR 2012/6 provide guidance in respect of separately titled apartments that are not located within the same building.

Paragraphs 95 and 96 state:

95. In addition to living accommodation areas, 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.

96. Separately titled rooms, apartments, or adjacent cottages or villas located on adjoining or abutting land can be combined with sufficient commercial infrastructure (as discussed in paragraph 95 of this Ruling) so that, as a whole, it can be operated similarly to a hotel, motel, inn, or hostel. Supplies of accommodation in premises operated in this way are supplies of accommodation in commercial residential premises.

Commercial infrastructure is the infrastructure used to support the commercial operation of the premises. Whether they are extensive or minimal is reflective of the amount of services you can provide. What is clear is that you do not have control of those areas.

Although the accommodation you provide may have a level of infrastructure to support the commercial operation of premises, you have a leasehold interest in a small number of apartments in each building. In each building you do not have control over the common areas to be able to supply the necessary infrastructure. You only can confer the rights that you hold as a lessee, which is the right to access and use the common areas.

You supply accommodation from only a small number of units in each of the separate buildings that are not co-located and you service your business from your directors' home office.

As you do not control the buildings or all the facilities used to supply the accommodation and the infrastructure to provide services is not located within a single building or from buildings that are situated on adjoining or abutting land, these premises including your home office cannot be characterised as a hotel motel or inn or sufficiently similar to a hotel, motel or inn. Accordingly, the premises from which you supply the accommodation satisfies the criteria set out in section 40-35 and is not excluded by paragraph 40-35 (1) (a) as you do not own or control the commercial premises.

Conclusion

This means that even though there are similarities between the style of accommodation you supply to supplies of accommodation in commercial residential premises. You do not own or control the premises from which you supply the accommodation. Consequently your supplies are input taxed supply of residential premises pursuant to section 40-35 and excluded from the calculation or the GST registration threshold. As these are your only supplies you are not required to be registered for GST.