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Edited version of your written advice
Authorisation Number: 1051331896624
Date of advice: 25 January 2018
Ruling
Subject: GST and property
Question
Are you making taxable supplies of accommodation in commercial residential premises pursuant to section 9-5 of the GST Act, when you supply accommodation at the properties specified in the facts?
Answer
No, your supplies of accommodation are input taxed pursuant to section 40-35 of the GST Act.
Relevant facts and circumstances
You (ie the specified entity) are registered for goods and services tax (GST) and are conducting the enterprise of providing residential accommodation.
You supply premises by way of lease, in x different locations in adjoining apartments or townhouses.
Each premise has x bedrooms with a bathrooms and kitchen.
All the properties are self contained, fully furnished and have kitchens. One property has a laundry washing machine but no drier.
There is a television in each room and access to wifi and Netflix. First aid kits and fire extinguishers are also in place. One location has free parking in the car park directly opposite the premises. However, the apartment has no free parking associated with it.
On arrival every occupant receives breakfast goods, fresh milk, juice, tea and coffee. Fresh linen, extra towels, laundry powder, local maps, a current events guide and restaurant menus are also supplied. You provide restaurant suggestions, information on travel times or specific interests, personal travel itinerary on request, pick up and drop off of occupants on request and 24 hour advice by mobile or email.
Specified person is available to enter the properties and address any maintenance issues. The Specified person would welcome clients on arrival. In addition, drops off and picks up the linen.
Specified entity is used as your booking service for the properties.
The terms and conditions for the use of the properties by the occupants are set by specified entity.
Your clients pay at time of booking through specified entity. The specified entity retains the booking amount from the time of booking and remit payment to you on the first night’s stay. Non specified entity bookings are invoiced to the client and you typically require payment in full before the stay commences.
The average stay on your premises lasts for 2 – 3 nights.
The tariffs change according to the accommodation demand at the time. They are all set up through specified entity. A two night minimum stay is required.
You impose a specified amount cleaning fee for each vacated clean. Additional cleans may be carried out for guests staying longer than specified number nights. This being the case, an additional specified amount is charged for each clean conducted.
At one of the locations you also provide long term accommodation. The downstairs apartment in this specified number apartment building is referred to as specified number.
Later this year you intend to provide short term accommodation by way of lease, hire or licence at apartment specified number. The short term accommodation will be provided in circumstances similar to apartment specified number. Such circumstances are as stated above. This ruling also applies to the future supply of short term accommodation in apartment specified number.
Relevant legislative provisions
A New Tax System (Goods and Services Tax Act) 1999
Section 9-5
Section 9-40
Section 40-35
Subsection 40-35(1)
Section 195-1
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 9-40 provides that you are liable for GST on any taxable supplies that you make.
Section 9-5 provides 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, 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.
Your supplies meet the requirements of section 9-5 and are not GST free therefore the primary issue in this case is whether your supply of accommodation is an input taxed supply. 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.
Under subsection 40-35(1), a supply of residential premises by way of lease, hire or licence (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) is input taxed. The supply will only be input taxed to the extent the premises are to be used predominately for residential accommodation (regardless of the term of occupation).
The definition of residential premises in section 195-1 refers to land or a building that is occupied as a residence, or for residential accommodation, or is intended and capable of being occupied as a residence or for residential accommodation (regardless of the term of occupation).
Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises provides the ATO view of the characteristics of residential premises.
Paragraph 9 of GSTR 2012/5 explains that the requirement that the residential premises are to be used predominately for residential accommodation in section 40-35 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. Paragraph 15 of GSTR 2012/5 continues by stating that to satisfy the definition of residential premises, premises must provide shelter and basic living facilities.
In this case all of the properties in question will satisfy the definition of ‘residential premises’ as the premises provide shelter and basic living facilities.
The next step is to consider whether the properties, either in isolation or combined also fall within the scope of being ‘commercial residential premises’. Commercial residential premises are defined in section 195-1 to include, amongst other things:
(a) a hotel, motel, inn, hostel or boarding house, or
(b) …
…
(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 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.
The terms hotel, motel, inn, hostel and boarding house are not defined in the GST Act and take their ordinary meaning. The Macquarie Dictionary 5th Edition 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.
In their ordinary meanings, these terms share the common attribute of providing accommodation to guests. Paragraph (f) of the definition of commercial residential premises extends the scope of the definition to premises that are ‘similar’ to the class of establishments described in paragraphs (a) to (e).
Premises that are ‘similar’ to establishments that are commercial residential premises must have sufficient characteristics in common with the class of premises described. In addition to the physical characteristics of the premises, paragraph 12 of GSTR 2012/6 lists the following eight characteristics that 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
● occupants have the status of guests.
Paragraph 10 of GSTR 2012/6 provides that objective factors are relevant to characterising premises as falling within either paragraph (a) or (f) of the definition include the overall physical character of the premises and how the premises are operated. Where these objective factors do not give a clear characterisation, the following may also be considered:
● contractual documentation that provides evidence of current or future use, and
● government zoning and planning permissions.
Paragraph 25 of GSTR 2012/6 provides that when determining whether premises are, or are similar to, a hotel, motel or inn, it is necessary to consider the premises in its entirety. Paragraph 41 of GSTR 2012/6 states in part that ultimately, whether premises are commercial residential premises is a matter of overall impression involving the weighing up of all relevant factors.
The tests to be applied are whether the premises are a hotel, motel, inn, hostel or boarding house, 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. These tests necessarily raise questions of fact involving matters of impression and degree.
It has been established above that your properties satisfy the definition of residential premises. As such we need to consider whether the properties also fall within the definition of commercial residential premises.
Your properties exhibit the characteristics of commercial residential premises as listed in paragraph 12 of GSTR 2012/6 to some extent.
Paragraph 95 of GSTR 2012/6 discusses that in addition to living accommodation areas, premises that are commercial residential premises include commercial infrastructure to support the commercial operation of the premises. Such infrastructure may include reception areas, dining and bar areas, kitchen, laundry facilities, storage areas and car parks. Such infrastructure is used to provide services to occupants.
Your properties do not contain any infrastructure to support the commercial activities of the premises. Your properties consist solely of specified number self-contained townhouses and apartments.
As such, we do not consider the premises to be commercial residential premises. Therefore your supplies of accommodation are input taxed supplies pursuant to section 40-35.