Edited version of private advice

Authorisation Number: 1051548020272

Date of advice: 24 July 2019

Ruling

Subject: GST and residential rent

Question

Is the rental income received by you for renting properties through a service provider subject to GST?

Answer

No

This ruling applies on and from the date of issue

Relevant facts and circumstances

You are not presently registered for goods and services tax (GST).

You rent X properties and market them exclusively through a service provider offering accommodation for one night or multiple night stays.

The properties are situated within a complex of X buildings. The common facilities that can be used by guests include a swimming pool, gym, sauna, BBQ area, rock climbing, library and cinema. You do not maintain these facilities.

The properties provide sleeping, cooking and bathroom facilities and have been fully furnished by you. The properties have a carpark which is available for guests to use during their stay. The carpark is not charged for separately.

There is no daily housekeeping service provided for guests and cleaning of the property is done only at the end of the stay.

You are the contact for guests, ensuring the properties are available as booked and arranging cleaning, necessary repairs etc.,

There are no other services or facilities provided or arranged for guests other than those detailed.

Relevant legislative provisions

All references below are to the A New Tax System (Goods and Services Tax) Act 1999

Section 9-5

Section 9-40

Section 23-5

Subsection 40-35(1)

Paragraph 40-35(2)(a)

Division 188

Section 188-10

Paragraph 188-15(1)(a)

Paragraph 188-20(1)(a)

Section 195-1

Reasons for decision

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

The tax laws which apply to activities conducted in a conventional manner apply in the same way to activities conducted in the sharing economy (such as Airbnb).

Section 9-5 states:

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; 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.

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

Of relevance is whether you are firstly, carrying on an enterprise and whether the rental of the properties is in the course or furtherance of an enterprise that you carry on. If so, we will need to determine whether you are required to be registered for GST which will include a discussion of whether your supply of the properties by sublease is an input taxed supply.

Enterprise

Section 9-20 provides that for GST purposes, the term 'enterprise' includes, among other things, an activity or series of activities done on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property.

In this case, you rent properties through a service provider to guests for short term stays of one night or multiple nights.

The rental of the properties will constitute an 'enterprise' with the leasing regarded as being made in the course of furtherance of your enterprise.

GST registration

Section 23-5 provides that you are required to be registered for GST if you are carrying on an enterprise and your GST turnover meets the registration turnover threshold (currently $75,000).

As discussed above, it is considered that the renting of the properties constitutes an 'enterprise' for GST purposes.

The meaning of GST turnover is contained in Division 188. Section 188-10 provides that your GST turnover will meet the registration turnover threshold if:

a)    your current GST turnover is at or above the threshold ($75,000) and the Commissioner is not satisfied that your projected GST turnover is below $75,000, or

b)    your projected GST turnover is at or above $75,000.

Your 'current GST turnover' is the sum of your turnover for the current month and the previous 11 months. Your 'projected GST turnover' is the sum of your turnover for the current month and the next 11 months.

Paragraph 188-15(1)(a) and paragraph 188-20(1)(a) provide that input taxed supplies are not taken into account when calculating your current and projected turnovers respectively.

The projected turnover from renting the properties will exceed $75,000 each year. However, to determine whether your supplies of renting the properties are input taxed, the relevant provision to consider is section 40-35.

Residential or commercial premises

In particular, subsection 40-35(1) states:

A supply of premises that is by way of lease, hire or licence (including a renewal or extension of a 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); ...

However, paragraph 40-35(2)(a) states: 'the supply is input taxed only to the extent that the premises are to be used predominantly 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 to be occupied, and is capable of being occupied as a residence or for residential accommodation (regardless of the term of occupation or intended occupation).

Goods and Services Tax Ruling 2012/5 Goods and services tax: residential premises (GSTR 2012/5 at paragraph 9 explains that the requirement in section 40-35 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.

Further, paragraph 10 of GSTR 2012/5 provides that the requirement for residential premises to be used predominantly for residential accommodation 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).

Paragraphs 14 and 15 of GSTR 2012/5 state:

14. 'Residential premises' are not limited to premises suited to extended or permanent occupation. Residential premises provide 'living accommodation', which does not require any degree of permanence. It includes lodging, sleeping or overnight accommodation.

15. To satisfy the definition of residential premises, premises must provide shelter and basic living facilities. Premises that do not have the physical characteristics to provide these are not residential premises to be used predominantly for residential accommodation.

16. A supply of a residential apartment in a building may include a garage, car-parking space, or storage area located within the building complex. The garage, car-parking space, or storage area is ancillary or incidental to the dominant component of the supply being the residential apartment. It can be reasonably concluded that the garage, car-parking space, or storage area are to be used for the better enjoyment of the residential apartment. They do not form a dominant part of the supply. The supply is therefore a composite supply of residential premises to be used predominantly for residential accommodation.

As the properties provide shelter and basic living facilities (including kitchen, toilet, bathroom facilities and sleeping accommodation), and thus display physical characteristics evidencing their suitability and capability to provide residential accommodation, we consider the properties to be 'residential premises'. In addition, where a car parking space is supplied with the rental of an apartment it will also take on the character of residential premises.

However, if you supply the car parking space separately from the rental of an apartment, the supply of the car parking space will be a taxable supply if you receive consideration for that supply and you are registered for GST.

Notwithstanding the above, before it can be concluded that the rental of the properties is input taxed, it is also necessary to determine that the properties are not commercial residential premises.

Section 195-1 defines 'commercial residential premises' as follows:

commercial residential premises means:

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

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

Goods and Services Tax Ruling 2012/6 Goods and services tax: Commercial residential premises (GSTR 2012/6) deals with commercial residential premises that are a hotel, motel, inn, hostel or boarding house or similar premises and paragraphs 9 to 11 of that ruling state:

Hotel, motel, inn, hostel or boarding house or similar premises

Ordinary meanings

9. The terms in paragraph (a) of the definition are not defined within the GST Act and therefore take their ordinary meanings in context.

10. Objective factors that 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.

Characteristics of operating hotels, motels, inns, hostels, boarding houses or similar premises

11. 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.

GSTR 2012/6 discusses the characteristics and features of hotels, motels, inns, hostels, boarding houses or similar premises in more detail in paragraphs 12 to 40.

Based on the facts of this case which were provided by you, we do not consider that the accommodation you are providing in the properties constitutes commercial residential premises.

That is, they do not display sufficient features of a hotel, motel, inn, hostel or boarding house, or anything similar to a hotel, motel, inn, hostel or boarding house, as you supply properties with limited facilities or guest services.

Therefore, the rental of the residential properties is an input taxed supply under section 40-35. Under Division 40, an input taxed supply is not subject to GST and a taxpayer is not entitled to a GST credit for anything acquired or imported to make that supply.

Accordingly, the rental of the properties is not a taxable supply for the purposes of section 9-5 and as such, no GST is payable by you.

Although the supplies made by you exceed $XXX per year, as they are input taxed supplies they are disregarded when calculating your current and projected turnovers under Division 188.

Given the above, you do not satisfy the requirements of section 23-5 of the GST Act and you are not required to be registered for GST.