Edited version of private advice

Authorisation Number: 1051956358258

Date of advice: 1 March 2022

Ruling

Subject: GST - commercial residential premises

Question

Are the premises commercial residential premises within the definition contained in section 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No, the premises do not meet the definition of commercial residential premises.

Relevant facts and circumstances

You are not currently registered for GST.

You currently own the property located at [address] which you purchased in [date].

The premises consists of 3 cottages and 1 studio (collectively, the premises).

Accommodation at the premises is offered to members of the public.

You intend to live off the profits from supplying accommodation at the premises.

The cabins and studio can each be rented out to separate unrelated guests.

The premises can also be rented to one party for the entire accommodation.

You advertise via Airbnb and bookings and stay agreements are made through Airbnb.

You currently do not live on site but intend to live on site in whichever cottage/studio is unoccupied.

If all of the premises are occupied you intend to live in the boatshed.

You will greet guests and provide them with the key to the premises. The guests will largely look after themselves but you will be on site to provide assistance if required.

You have a caretaker who camps on site and in return performs six hours of maintenance work a day and works full time.

Parking spaces are provided to guests on the site and the Longhouse has a carport.

Linen and towels are provided at the beginning of the stay but not changed daily.

The cabins are not cleaned daily.

There is no room service facility provided.

There are basic kitchen facilities provided in each cabin.

There are no meals (food and drink) provided. Guests provide their own food and cook their own meals in the kitchen facilities provided.

Upon request, home cooked meals such as quiches and lasagne can be prepared by an onsite manager using home-made ingredients.

There are outdoor showers provided in the 3 cabins and one cabin has a walk-in in-door shower.

Wi Fi is provided in each cabin.

HDTV is provided in one cabin, there is no TV provided in the other cabins.

Pets are allowed in the cabins subject to manager approval.

There is no common reception area or dining area for the guests.

Bikes, surfboards, firewood and catering are provided to guests for an additional cost.

Rubbish collection is offered at an additional cost, after the first bag.

Wine delivery is offered at an additional cost.

A description of the respective premises has been sourced from the Airbnb as follows:

[listing details removed]

The premises are listed with pictures and floorplans as follows:

[pictures and floor plans removed]

Relevant legislative provisions

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

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

Detailed reasoning

Section 9-5 of the GST Act provides:

You make a taxable supply if:

(a)  you make the supply for consideration

(b)  the supply is made in the course or furtherance of an enterprise that you carry on

(c)   the supply is connected with the indirect tax zone (essentially Australia), and

(d)  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.

None of the GST-free provisions in the GST Act apply in this instance.

In this case, your supply of the cabins is made for consideration, in the course or furtherance of an enterprise that you carry on and is connected with Australia.

You are not currently registered for GST. You are required to be registered for GST if you are carrying on an enterprise and your GST turnover meets the registration turnover threshold. You have a GST turnover that meets the registration turnover threshold if your current GST turnover or projected GST turnover is at or above $75,000.

However, if your only supplies are input taxed supplies of residential premises, you would not be required to be registered for GST, as income generated from such supplies is excluded from current and projected GST turnover calculations.

It is therefore necessary to determine whether the supplies of accommodation in the cabins are input taxed supplies.

Division 40 of the GST Act deals with input taxed supplies and section 40-35 of the GST Act (which deals with residential rent) relevantly provides as follows:

(1)  A supply of premises 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); or

(b)  the supply is of *commercial accommodation and Division 87 (which is about long-term accommodation in commercial premises) would apply to the supply but for a choice made by the supplier under section 87-25.

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

As seen from section 40-35 of the GST Act, it is necessary to determine whether or not you are supplying residential premises, and if so, whether what you are supplying are also commercial residential premises or accommodation in commercial residential premises provided to an individual where you either own or control the commercial residential premises.

If you are supplying residential premises to be used predominantly for residential accommodation, which are not commercial residential premises, then your supplies will be input taxed. However, a supply by way of lease, hire or licence of commercial residential premises would generally be a taxable supply.

Residential premises

Section 195-1 of the GST Act provides that 'residential premises' means land or a building that:

(a)  is occupied as a residence or for residential accommodation; or

(b)  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.

Goods and Services Tax Ruling 2012/5 Goods and services tax: residential premises (GSTR 2012/5), relevantly explains what is meant by 'residential premises' at paragraphs 6-7:

6. Premises, comprising land or a building, are residential premises under paragraph (a) of the definition of residential premises in section 195-1 where the premises are occupied as a residence or for residential accommodation, regardless of the term of occupation. The actual use of the premises as a residence or for residential accommodation is relevant to satisfying this limb of the definition.

7. Premises, comprising land or a building, are also residential premises under paragraph (b) of the definition of residential premises if the premises are intended to be occupied, and are capable of being occupied, as a residence or for residential accommodation, regardless of the term of the intended occupation. This limb of the definition refers to premises that are designed, built or modified so as to be suitable to be occupied, and capable of being occupied, as a residence or for residential accommodation. This is demonstrated through the physical characteristics of the premises.

We accept that based on these definitions the premises for you offer accommodation are classified as residential premises.

Commercial residential premises

Commercial residential premises are defined in section 195-1 of the GST Act as:

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

(b) premises used to provide accommodation in connection with a *school; or

(c) a *ship that is mainly let out on hire in the ordinary course of a *business of letting ships out on hire; or

(d) a ship that is mainly used for *entertainment or transport in the ordinary course of a * business of providing ships for entertainment or transport; or

(da) a marina at which one or more of the berths are occupied, or are to be occupied, by * ships used as residences; or

(e) a caravan park or a camping ground; 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.

The relevant paragraphs to consider for the arrangements we are reviewing are paragraphs (a) and (f).

While paragraph (f) extends the scope of the definition, its operation is limited to premises that have some or all of the characteristics of both residential premises and one of the classes of premises listed in paragraphs (a) to (e) of the definition (refer to paragraph 143 of Goods and Services Tax Ruling 2012/6 Goods and services tax: commercial residential premises (GSTR 2012/6).

In ECC Southbank Pty Ltd as Trustee for Nest Southbank Unit Trust v Commissioner of Taxation [2012] FCA 795 (ECC) Nicholas J was required to determine whether premises designed to provide low-cost student accommodation were commercial residential premises. In determining this, Nicholas J relevantly considered:

50. The test to be applied for the purpose of determining whether the Urbanest premises are commercial residential premises involves asking whether the Urbanest premises is a hotel, motel, inn, hostel or boarding house or whether it is similar to - in the sense that it has a likeness or resemblance to - any of those types of establishment. The application of this test necessarily raises questions of fact involving matters of impression and degree.

The ATO's view on the meaning of commercial residential premises is set out in GSTR 2012/6. The terms hotel, motel, inn, hostel or boarding house in paragraph (a) of the definition are not defined in the GST Act and take their ordinary meanings in context.

GSTR 2012/6 sets out at paragraph 12 some common characteristics of hotels, motels, inns, hostels, boarding houses or similar premises. These are:

•         commercial intention - properties are operated on a commercial basis or in a business-like manner even if they are operated by a non-profit body.

•         multiple occupancy - premises have capacity to provide accommodation to multiple, unrelated guests or residents at once in separate rooms, or in a dormitory

•         holding out to the public - offer accommodation to the public or a segment of the public

•         accommodation is the main purpose of the premises

•         central management to accept reservations, allocate rooms, receive payments and perform or arrange services. This can be provided through facilities on-site or off-site.

•         management offers accommodation in its own right rather than as agent.

•         provision of, or arrangement for services and facilities.

•         occupants have status as guests - occupants do not usually enjoy an exclusive right to occupy any particular part of the premises in the same way as a tenant.

Paragraphs 13 to 25 of GSTR 2012/6 discuss the features of hotels, motels and inns. Some of the comments made in these paragraphs include the following:

•         A motel is a particular type of hotel that primarily caters to the needs of motorists seeking roadside accommodation. An inn is a small hotel at which board (meals) and lodging are provided to travellers. Subject to these qualifications, the features below are equally relevant to motels and inns

•         Hotels provide accommodation for a commercial purpose. Non-profit entities can also operate commercial residential premises....

•         Hotels have the capacity to supply accommodation for multiple occupancies.

•         Hotels usually offer meals to guests and they usually have a kitchen where meals are prepared... The premises usually include a restaurant or dining room... A motel does not necessarily have a dining room, but guests of the motel may still be provided meals.

•         The guest rooms in a hotel are invariably furnished... In some cases, hotel rooms may also have a kitchenette for self-catering.

•         Linen and towels are usually supplied. The rooms are usually cleaned and serviced by staff on a daily basis, with the costs of these services being included in the tariff.

•         Predominantly, the guests of hotels are travellers who ordinarily have their principal place of residence elsewhere,... However, this feature may not be evident in hotels... that provide accommodation to long-term residents for whom the premises are a permanent place of residence.

•         Guests of hotels do not usually enjoy an exclusive right to occupy any particular part of the premises in the same way as a tenant...The guest is usually charged at a daily rate...

•         Hotels usually have a reception desk to handle the requirements of both management and guests,... Hotels may also offer concierge services...

•         Hotels do not normally provide shared accommodation to guests in the sense of having a number of unrelated guests sharing a kitchen and living facilities.

•         A hotel is centrally managed by the operator, typically having at least one person present, or offsite but readily accessible, to manage the accommodation and arrange or provide services.

•         Accommodation in a hotel is supplied by the operator of the hotel in its own right...

•         When determining whether premises are, or are similar to, a hotel, motel or inn, it is necessary to consider the premises in its entirety. It is not sufficient to only consider the features of part of the premises, such as an individual room, in which accommodation is provided.

Based on the definitions in paragraph 141 of GSTR 2012/6, a hotel, motel or inn is a building or establishment from which accommodation and other services or facilities are supplied. Broadly, accommodation falling into this category would have multiple occupancies such as a block of apartments, central management of the properties, and provision of services to the guests beyond the accommodation such as breakfast or room servicing.

Paragraph 41 of GSTR 2012/6 provides that ultimately, whether premises are commercial residential premises is a matter of overall impression involving the weighing up of all relevant factors. Factors that may indicate that premises are not a hotel, motel, inn, hostel, boarding house or similar premises include:

(a) the operator and occupant agree for accommodation to be supplied for a periodic term (which may be for a period of months or years at a time), such as in a residential lease;

(b) the operator and occupant document the condition of the premises under a written contract before the accommodation is initially supplied and when the occupant ceases to occupy premises;

(c) the operator has the right to impose a cleaning fee on the occupant when the occupant ceases to occupy the premises;

(d) the occupant is permitted, subject to the terms of the lease or licence, to alter the part of the premises occupied by the occupant, such as by attaching hanging devices on a wall;

(e) the occupant is permitted, subject to the terms of the lease or licence, to keep pets in the premises;

(f) the occupant must separately arrange and pay for the connection of a telephone, electricity, or gas service;

(g) the occupant is responsible for the cleaning and minor maintenance of the premises, such as changing light bulbs in their room;

(h) the premises are unfurnished; and

(i) the right to occupy the residential premises is supplied to the occupant in exchange for the occupant loaning an amount to the operator together with other fees.

Paragraph 42 of GSTR 2012/6 notes the presence of some of these factors does not necessarily mean that the premises are not commercial residential premises and ultimately the definition involves matters of impression and degree.

Paragraphs 95, 96 and 98 of GSTR 2012/6, which discuss separately titled rooms, apartments, cottages or villas, relevantly provide as follows:

Separately titled rooms, apartments, cottages or villas

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.

98. ... A supply by sale or lease of strata titled rooms, apartments, cottages or villas without sufficient commercial infrastructure referred to at paragraph 95 of this Ruling is an input taxed supply of residential premises to be used predominantly for residential accommodation regardless of whether the building complex, or any part of it, is being, or will be, operated as commercial residential premises...."

Although the abovementioned paragraphs from GSTR 2012/6 concentrate on separately titled rooms and cottages, etc., those paragraphs emphasize the significance of premises having sufficient commercial infrastructure in determining whether they are commercial residential premises.

How this applies to the facts in your case

Each of the 4 cabins (3 cottages and 1 studio) satisfy the definition of residential premises as each provides shelter and basic living facilities; including a bathroom and toilet, bedrooms and a combined lounge/kitchen area.

Regarding the question of whether the cabins are commercial residential premises, we note that while the cabins display some characteristics of commercial residential premises, the cabins do not display sufficient features of a hotel, motel, inn, hostel or boarding house in the way that they are used to be characterised as commercial premises.

The characteristics and proposed operation of the premises have the following in common with hotels, motels, inns, hostels and boarding houses:

•         The property is run on a commercial basis in order to make a profit which you then intend to support yourself.

•         The premises have capacity to provide accommodation to multiple occupants at once in separate rooms. They do not have to be occupied by one client.

•         The premises will be available for accommodation to the public.

•         You intend to live on site and are available to greet guests, provide the key, as well as "assistance" if matters should arise.

•         The management offers accommodation in its own right and not as agent.

•         Accommodation is the main purpose - providing accommodation is the main purpose of you renting the cottages and studio.

•         Management provides residents with some services or facilities or arranges for third parties to provide them (occupants receive internet, electricity, water, linen and towels, cleaning at the end of their stay, options available for laundering services, hire of bikes and surfboards and purchasing firewood at an extra cost)

•         Occupants have status of guests - the guests that you rent to are people whose main place of residence is elsewhere. Guests have full use of the accommodation provided and can expect reasonable amount of privacy from management during the period they have booked the accommodation for.

However, the accommodation in the cottages and studio do not have the following characteristics in common with hotels, motels, inns, hostels and boarding houses:

•         There is no clear evidence of sufficient commercial infrastructure which is usually found in commercial residential premises to support its commercial operation. 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. Commercial residential premises that are hotels, motels, inns, hostels and boarding houses (or similar premises) contain some or all of these areas to some degree. We do accept that there are car spaces provided to the guests however other indicators of infrastructure are not evident.

•         Multiple occupancy -Although two of the cabins have multiple bedrooms, the guests in each cabin are part of the same group. A cabin is not shared by multiple totally 'unrelated' guests.

•         You do not provide food, alcoholic drinks and other services like a hotel - you only provide accommodation. Catering services are offered in limited services upon request (such as cooking quiches and pasta from home-made ingredients).

•         You do not provide roadside accommodation primarily for motorists like a motel - your customers are mostly tourists, including some families, who come to stay in a detached cabin located in a rural setting.

•         You do not provide lodging and food, etc. for travellers and others like an inn (small hotel) - you only provide accommodation.

•         You do not provide a supervised place of accommodation like a hostel - you only provide accommodation.

•         You do not provide common reception or dining areas for your guests.

•         As part of the tariff, hotels, motels and inns usually provide linen and towels, plus clean and service the rooms on a daily basis. You do not clean and service the cabins on a daily basis (you only provide fresh linen at the start of a stay).

•         You allow guests to bring pets into the accommodation subject to your approval.

•         As an onsite manager you have no fixed place of residence at the premises, you intend to stay at whichever premise is unoccupied and if they are all occupied, the boatshed (which you will still offer if requested).

•         The occupants are ultimately responsible for cleaning their own cabins during their stay.

•         You do not provide a dwelling in which lodging is provided to paying residents who share common facilities such as a kitchen, laundry, living room, etc. like provided by a boarding house - you propose to rent each cabin to the one group of either family members or friends, etc. who will have use of the entire cabin and who will prepare their own meals. You do not, for example, rent the different bedrooms in the one cabin to unrelated guests who would then share the kitchen and living areas, etc.

As stated above, determining whether premises are commercial residential premises is a matter of overall impression and degree involving weighing up all relevant factors.

Taking all of the above into consideration, we have concluded that the accommodation that you provide when renting the premises is not the supply of commercial residential premises. Such supplies are thus input taxed supplies of residential premises and not taxable supplies.

Other matters for consideration

As you are solely making input taxed supplies when renting your premises, then regardless of the total amount of rent received, you would not be required to be registered for GST.

Please note that, even if you voluntarily register for GST, you will not be entitled to claim input tax credits for the GST included in costs to the extent that they relate to making supplies that would be input taxed supplies of residential premises.