Edited version of your written advice

Authorisation Number: 1051328953170

Date of advice: 23 January 2018

Ruling

Subject: GST and residential premises

Question

Is your supply of accommodation at the specified address a taxable supply under section 9-5 of the A New Tax System (Goods and Services tax) Act 1999 (GST Act)?

Answer

No, your supply of accommodation at specified address is not a taxable supply under section 9-5 of the GST Act.

Relevant facts and circumstances

You (the specified entity) are registered for GST.

You recently bought a fully tenanted single dwelling property. The property’s address is specified address.

There are a specified number of bedrooms, bathrooms and a specified number of kitchens on the property. You lease the premises out to the occupants in your own right and do not use the services of an agent. You have a permit to operate the premises as a rooming house.

The property is leased to a specified number of residents who are unrelated. The occupants use the property as their primary place of residence. Of the specified number of residents, a specified number have been there for more than a specified number of years. A number of the occupants have been there for between X number years to X number years. The other occupants have been there for just under X number of years.

The communal facilities comprise of the kitchen, bathrooms and car parks. There is one communal clothes washing machine. It is available for free to the occupants. The occupants have to wash their own clothes.

You provide beds and mattresses to the occupants. The occupants provide their own bedding, sheets, toiletries and the like. The occupants are not allowed to keep pets in the premises. You do not provide meals to the occupants. The occupants make their own meals at the premises in the community kitchen.

Central management is not located on the premises. The director of the trustee company deals directly with the occupants. The director manages the property. There is no full time on site manager. You attend the property once a week to clean the bathroom and toilets. You also ensure that the house rules are being followed. You carry out room and safety inspections that are required as part of the consumer affairs compliance process. According to the house rules the occupants have to clean the oven, hot plate and fridge. The occupants also put out the rubbish.

You verbally agree on the rent to be paid at the commencement of the stay. Any rent increases in the future will be communicated formally via a tenancy rental increase form. The rent varies between X –X per week depending on room size.

Occupants found in breach of any of the rules will be counselled and warned. A Notice to Vacate as supplied by specified entity will be served on occupants, who after being warned, breach the rules continually.

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 Paragraph 9-5(a)

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 9-5(d)

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

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

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

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

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

Reasons for decision

GST is payable on a taxable supply.

Section 9-5 of the GST Act provides:

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 the indirect tax zone (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 supply accommodation in the rooming house for consideration (being the rental payments); you make the supply in the course of your leasing enterprise; the supply is connected with Australia; and you are registered for GST. All the requirements in paragraphs 9-5 (a) to 9-5(d) of the GST Act are satisfied. Therefore, your supply of accommodation in the rooming house is a taxable supply unless it is GST-free or input taxed.

There is no provision in the GST Act under which your supply of accommodation in the rooming house would be GST-free. What remains to be determined is whether the supply is input taxed.

Input taxed

Under paragraph 40-35(1)(a) of the GST Act, a supply of premises that is by way of lease, hire or licence (including renewal or extension of a 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 the entity that owns or controls the commercial residential premises).

‘Residential premises’ is defined in section 195-1 of the GST Act 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) and includes a floating home.

Paragraphs 9 and 10 of Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) explain that the requirement in sections 40-35, 40-65 and 40-70 that premises be 'residential premises to be used predominantly for residential accommodation (regardless of the term of occupation)' is to be interpreted as a single test that looks to the physical characteristics of the property to determine the premises' suitability and capability for residential accommodation. The test does not require an examination of the subjective intention of, or use by, any particular person. Premises that display physical characteristics evidencing their suitability and capability to provide residential accommodation are residential premises even if they are used for a purpose other than to provide residential accommodation (for example, where the premises are used as a business office).

To satisfy the definition of residential premises, premises must provide shelter and basic living facilities. Your property contains a kitchen, bathrooms and bedrooms. Therefore, it has the elements of shelter and basic living facilities required to be residential premises.

However, we also need to consider whether the supply of the premises is a supply by way of lease or license of accommodation in commercial residential premises as this would exclude the supply from the input taxed treatment provided by paragraph 40-35(1)(a).

The term ‘commercial residential premises’ is defined in section 195-1 to include a hotel, motel, inn, hostel or boarding house, or anything similar.

Guidance on whether premises are characterised as commercial residential premises is provided in Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises (GSTR 2012/6).

Paragraph 11 of GSTR 2012/6 explains that:

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.

It is considered that your premises do not meet the description of hotel, motel or inn as set out in GSTR 2012/6. We will therefore consider the characteristics of your premises and compare it to the features of hostels and boarding houses as set out in paragraphs 26 to 40 of GSTR 2012/6.

Paragraphs 26 to 40 of GSTR 2012/6 state:

Features of hostels

26. The term 'hostel' includes premises that can be described as a hostel, a hotel or inn. The features of hotels and inns identified at paragraphs 13 to 25 of this Ruling are relevant to these types of premises.

27. The term 'hostel' also includes a supervised place of accommodation usually supplying board and lodging provided at a comparatively low cost.

28. The physical characteristics of a hostel, or premises similar to a hostel, reflect that the premises are designed to supply accommodation at a comparatively low cost to the occupants. Physical characteristics may include a commercial kitchen where meals are prepared, a communal area suitable for a dining area for occupants, and a communal laundry.

29. Hostels are typically centrally managed by an on-site manager who manages the accommodation and arranges or provides services. The feature that a hostel, or premises similar to a hostel, be a supervised place of accommodation can be evident where occupants can raise queries and concerns pertaining to the management of the premises with an on-site manager.

30. Hostels provide accommodation for a commercial purpose. Non-profit entities can also operate commercial residential premises. For example, various non-profit organisations operate hostels in a business-like manner.

31. Hostels have the capacity to supply accommodation for multiple occupancies.

32. Accommodation in hostels may be provided either in a dormitory environment or in separate bedrooms.

33. Accommodation may be supplied within a hostel to occupants as the occupant's principal place of residence. It is not necessary for accommodation in the premises to be limited to guests who need or desire accommodation while away for business or pleasure.

34. The operator of the hostel supplies the accommodation in its own right and not in the capacity of agent for a third party. The arrangement between the parties will reveal whether there is an agent-principal relationship.

35. Occupants of a hostel may be provided meals by the operator of the premises. However, the provision of meals is not an essential feature of a hostel.

Features of boarding houses

36. A boarding house is a dwelling at which board and lodging are provided to guests or residents.

37. A boarding house provides accommodation for a commercial purpose. Non-profit entities can also operate commercial residential premises. For example, various non-profit organisations operate boarding houses in a business-like manner.

38. A boarding house has the capacity to supply accommodation for multiple occupancies.

39. While the term 'boarding house' indicates that the premises ordinarily consist of a single dwelling, premises are not precluded from being a boarding house where the premises consists of a building with an additional stand alone structure in which board (meals), or lodging, or both, is provided. However, premises are not a boarding house where the premises consist of a central building used as a communal dining/meeting area with a number of independent living units.

40. A boarding house may provide accommodation to occupants as the occupant's principal place of residence. It is not necessary for accommodation in the premises to be limited to guests who need or desire accommodation while away for business or pleasure.

In this case, there are a number of similarities between your property and the description of boarding houses and hostels. However, there is no on-site supervision nor the provision of meals.

On the balance, we consider it is not possible to characterise the premises as being a hostel/boarding house or something similar to a hostel/boarding house. Thus it does not satisfy the definition of commercial residential premises.

Therefore, your supply of accommodation in the rooming house is an input taxed supply in accordance with section 40-35 of the GST Act. Accordingly, the supply is not a taxable supply.