Edited version of your written advice

Authorisation Number: 1051225669495

Date of advice: 22 May 2017

Ruling

Subject: GST and residential premises

Question 1

Are you required to be registered for GST under section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999?

Answer

No, you are making input taxed supplies of accommodation in residential premises pursuant to section 40-35 of the GST Act. As input taxed supplies are not included in calculating your GST turnover threshold and this is your only enterprise, you do not satisfy paragraph 23-5(b) of the GST Act. Therefore, you are not required to be registered for GST.

Relevant facts and circumstances

You lease houses and apartments from property owners and then sub-let them to tenants for short to medium term stays.

You are not registered for GST and do not carry on any other enterprise.

You enter into a lease agreement with the property owners and pay a fixed monthly amount.

Houses are usually rented from developers who are holding the properties while they await rezoning, development approval, etc.

Prior to sub-letting, you will prepare the property ready to be occupied. This includes any minor repairs, cleaning and furnishing required.

You enter into tenancy agreements with your tenants for a minimum period of three months and then subsequently on a month by month tenancy.

All accommodation provided is leased on a fully furnished basis with rent paid monthly via direct bank transfer. Monthly rental prices may vary depending on seasonal demand.

For the houses, you are responsible for maintaining the gardening, organising minor repairs and maintenance services subject to the lease agreements with the property owner.

Each apartment was designed, constructed and sold as individual fully self-contained residential premises. Each apartment includes a bedroom, bathroom and kitchenette.

You currently operate your business from home and anticipate you will have an office when it is viable.

Apartment tenants are predominantly students. You attract tenants by advertising on websites, open houses and word of mouth.

Some apartment leases include electricity, water and internet in the rent. Where these utilities are included, you are the entity being billed by the service provider. You provide a monthly cap and costs beyond this cap are reimbursed by the tenant.

Where electricity, water and internet are not included, they are the tenant's responsibility to organise.

No other services are provided to tenants such as room service, restaurant, swimming pool or concierge services for any premises.

You only attend the premises to manage the keys, any maintenance issues and inspections.

Rent inspections require 24 hours' notice at any time.

You currently manage X houses and X apartments.

● X apartments located in a single building. These are leased from the same owner

● X apartments located in a single building. These are leased from the same owner

● X apartments in separate buildings from different owners.

You anticipate that you will eventually manage X houses or apartments, with the assistance of a manager.

You do not have an agreement with the Body Corporate with any of the properties. Property owners are responsible for dealing with the Body Corporate.

In relation to residential tenancy bonds, you take a non-refundable “deposit” equal to two weeks rent.

Tenants are required to provide 28 days' notice of their intention to vacate the premises. The deposit is applied to the final two weeks of their stay. During this period, you inspect the premises for any damages and repairs. Where repairs are required, you organise this and seek reimbursement from the tenants. A final inspection is performed by you on vacation when the keys are returned.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) 1999 section 23-5

A New Tax System (Goods and Services Tax) 1999 Division 188

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

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

Reasons for decision

Note: In this reasoning, unless otherwise stated,

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

● reference material(s) referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au

Section 23-5 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.

Your activities of supplying accommodation to tenants constitute an enterprise which meets the requirement in paragraph 23-5(a) of the GST Act.

Section 188-10 provides that you have a GST turnover that meets a particular turnover threshold if:

(a) your current GST turnover is at or over the turnover threshold, and the Commissioner is not satisfied that your projected GST turnover is below the turnover threshold; or

(b) your projected GST turnover is at or above the turnover threshold.

In determining your current and projected GST turnover, supplies that are input taxed are not included as per paragraphs 188-15(1)(a) and 188-20(1)(a).

The issue in this case is whether your supply of accommodation is an input taxed supply under section 40-35. Input taxed means that GST is not payable on the supply and there is no entitlement to an input tax credit for anything acquired to make the supply.

Input taxed supply

Subsection 40-35(1) provides that a supply of premises by lease, hire or license is input taxed if the supply is of residential premises (other than a supply of commercial residential premises or accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises).

Subsection 40-35(2) 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).

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

Paragraphs 9 and 15 of Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises explain that a single test looking at the physical characteristics of the property will determine the premises suitability and capability for residential premises. To satisfy the definition of residential premises, the premises must provide shelter and basic living facilities.

We consider the houses and apartments from which you supply accommodation to tenants satisfy the definition of residential premises as they provide shelter and basic living facilities.

Commercial Residential Premises

Therefore, if your supply of accommodation is a supply of accommodation in 'commercial residential premises', provided to an individual by an entity that owns or controls the 'commercial residential premises' the supply will be a taxable supply provided that all of the requirements of section 9-5 of the GST Act are met.

Commercial residential premises are defined, in part, in section 195-1 as:

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

(b) …

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

The definition of 'commercial residential premises' encompasses similar establishments or establishments that exhibit characteristics that place them on a similar footing to hotels, motels, inns, hostels and boarding houses.

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

Paragraph 10 of GSTR 2012/6 provides 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.

Of relevance is whether the houses and X apartments in X buildings are a hotel motel or inn or similar to a hotel motel or inn. The terms hotel, motel, and inn are not defined in the GST Act and therefore take their ordinary or common meanings, subject to context.

The accommodation that you supply is not from a single building or establishment as the accommodation is situated in X separate buildings. Relevantly, paragraphs 95 and 96 of GSTR 2012/6 provides guidance in respect of separately titled apartments that are not located within the same building.

In respect to separately titled apartments, paragraphs 95 and 96 GSTR 2012/6 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 operation of the premises. Whether they are extensive or minimal is reflective of the amount of services you provide. Although the premises from which you provide accommodation may have a level of infrastructure to support the commercial operation of premises, you only 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.

As you do not have sufficient infrastructure, these premises cannot be characterised as a hotel motel or inn or sufficiently similar to a hotel, motel or inn. Consequently, the premises does not meet the definition of commercial residential premises under paragraph (a) or (f) of section 195-1. Further, you do not provide any of the services listed in paragraph 95 of GSTR 2012/6.

Accordingly, you are making input taxed supplies of accommodation in residential premises pursuant to section 40-35.

As input taxed supplies are not included in calculating your GST turnover threshold and this is your only enterprise, you do not satisfy subsection 23-5(b). Consequently, you are not required to be registered for GST.