Edited version of private advice

Authorisation Number: 1051959312796

Date of advice: 20 April 2022

Ruling

Subject: GST and the supply of accommodation in commercial and residential premises

Question 1

Is the supply of the following accommodation by you a taxable supply in accordance with section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 ('GST Act')?

(a) Property 1;

(b) Property 2;

(c) Property 3 and Property 4; and

(d) Property 5.

Answer

(a) Yes, your supply of accommodation in Property 1 is a taxable supply of commercial residential premises. You are liable for GST on your supply. However, your GST liability in relation to any long-term commercial accommodation you supply is subject to concessional GST treatment in accordance with sections 87-10 and 87-25 unless you choose not to apply it;

(b) No, your supply of accommodation in Property 2 is an input taxed supply of a residential premises. You are not liable for GST on the supply;

(c) No, your supply of accommodation in Property 3 and Property 4 is an input taxed supply of residential premises. You are not liable for GST on the supply; and

(d) No, your supply of accommodation in Property 5 is an input taxed supply of a residential premises. You are not liable for GST on the supply.

Question 2

Are you entitled to input tax credits under section 11-20 for the GST included in expenses incurred, where those expenses relate to the following properties?

(a) Property 1;

(b) Property 2;

(c) Property 3 and Property 4; and

(d) Property 5.

Answer

(a) Yes, you are entitled to claim input tax credits for the GST included in the expenses incurred for Property 1. However, if you choose not to apply the concessional treatment under Division 87 for your supply of long-term accommodation, and you make both taxable supplies (short-term accommodation) and input taxed supplies (long-term accommodation), you cannot claim input tax credits for your expenses that solely relate to input taxed supplies. Furthermore, where an acquisition relates to making both taxable and input taxed supplies, you will be required to determine the extent of creditable purpose to calculate the portion of input tax credits you can claim.

(b) No, you are not entitled to claim input tax credits for the GST included in the expenses incurred for Property 2;

(c) No, you are not entitled to claim input tax credits for the GST included in the expenses incurred for Property 3 and Property 4;

(d) No, you are not entitled to claim input tax credits for the GST included in the expenses incurred for Property 5.

This ruling applies from:

4 February 20XX

Relevant facts and circumstances

You are registered for GST.

You supply accommodation in Property 1 to guests.

You supply accommodation in Property 2, Property 3, Property 4 and Property 5 to occupants.

Relevant legislative provisions

A New Taxation System (Goods and Service Tax) Act 1999 section 9-5

A New Taxation System (Goods and Service Tax) Act 1999 section 9-40

A New Taxation System (Goods and Service Tax) Act 1999 section 9-70

A New Taxation System (Goods and Service Tax) Act 1999 section 9-75

A New Taxation System (Goods and Service Tax) Act 1999 section 11-5

A New Taxation System (Goods and Service Tax) Act 1999 section 11-15

A New Taxation System (Goods and Service Tax) Act 1999 section 11-20

A New Taxation System (Goods and Service Tax) Act 1999 section 40-35

A New Taxation System (Goods and Service Tax) Act 1999 section 87-5

A New Taxation System (Goods and Service Tax) Act 1999 section 87-10

A New Taxation System (Goods and Service Tax) Act 1999 section 87-15

A New Taxation System (Goods and Service Tax) Act 1999 section 87-20

A New Taxation System (Goods and Service Tax) Act 1999 section 87-25

A New Taxation System (Goods and Service Tax) Act 1999 section 195-1 (definition of 'residential premises', 'commercial residential premises')

Reasons for decision

Question 1

Taxable Supply

Section 9-5 provides that 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 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.

Residential Premises

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

'Residential premises' is defined by section 195-1 to mean 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;

Goods and Services Tax Ruling 2012/5 Goods and services tax: residential premises ('GSTR 2012/5') outlines the characteristics of residential premises.

Paragraph 9 of GSTR 2012/5 explains that the requirement that 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 10 of GSTR 2012/5 provides:

10. 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).

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.

The physical characteristics common to 'residential premises' is that they provide the occupants with sleeping accommodation and at least some of the basic facilities for day to day living. These characteristics will be inherent in the design and fabrication of the premises, which typically include areas for sleeping, eating, and bathing. However, these things do not need to be arranged in a manner that is similar to a conventional house or apartment.

Therefore, where a property satisfies the definition of 'residential premises', it will be input taxed unless the premises satisfy the definition of 'commercial residential premises'.

Commercial Residential Premises

The term 'commercial residential premises' is defined in section 195-1, in part, as:

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

...

(e) a caravan park or a camping ground; 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') consider how the GST Act applies to supplies of commercial residential premises.

Paragraph 8 of GSTR 2012/6 states:

8. A supply by way of sale or lease of commercial residential premises is a taxable supply. A supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises is also a taxable supply.

A hotel, motel, inn, hostel or boarding house

Paragraphs 10 and 11 of GSTR 2012/6 states:

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 ...

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.

Paragraph 12 of GSTR 2012/6 provides that the 'common characteristics of operating hotels, motels, inns, hostels and boarding houses that are relevant, though not necessarily determinative, to characterising premises as commercial residential premises are':

•         Commercial intention

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

•         Multiple occupancy

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

•         Holding out to the public

•         The premises offer accommodation to the public or a segment of the public.

•         Accommodation is the main purpose

•         Providing accommodation is the main purpose of the premises.

•         Central management

•         The premises have 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.

•         The entity operating the premises supplies accommodation in its own right rather than as an agent.

•         Provision of, or arrangement for, services

•         Management provides guests and residents with some services and facilities, or arranges for third parties to provide them.

•         Occupants have status as guests

•         Predominantly, the occupants are travellers who have their principal place of residence elsewhere. The occupants do not usually enjoy an exclusive right to occupy any particular part of the premises in the same way as a tenant.

Many of these characteristics are relevant to operating premises. Premises may be characterised under paragraph (a) to (f) of the definition of commercial residential premises when they are not operating. Premises that are not being operated at the time of supply, for example where premises are newly constructed and not yet operating, may be classified by their overall physical character, considered with other objective characteristics.

Paragraph 87 of GSTR 2012/6 identifies evidence that may objectively indicate whether premises that are not operating are, or are similar to, a hotel, motel, inn, hostel or boarding house includes:

•         the premises physical characteristics;

•         architectural plans and drawings;

•         contractual documentation that provides evidence of how the premises will be used in the future; or

•         council or other government planning and zoning restrictions and approvals and permissions.

Where these factors indicate that premises have not be designed specifically as a hotel, motel, inn, hostel, boarding house or similar premises, the non-operating premises are not commercial residential premises.

Caravan Parks

Paragraphs 109 to 110A of GSTR 2012/6 explain the ATO view in relation to what constitutes a caravan park and state as follows:

109. The terms 'caravan park' and 'camping ground' are not defined in the GST Act and take their ordinary meanings in context.

110. Occupants of a caravan park or camping ground may stay in a caravan, a moveable home, a permanent cabin or villa, or a tent provided by the operator on site. Alternatively, guests may park their own caravan, motor home, camper trailer or the like on a site or pitch their own tent on a site. Sites may be powered or un-powered. Accommodation in a caravan park or camping ground is held out to the public as accommodation for travellers although long-term accommodation may also be provided to occupants. Caravan parks and camping grounds are operated on a commercial basis or in a business-like manner.

110A. 'Home parks' in which sites for moveable homes are rented and the homes themselves either rented or occupied by their owners are commercial residential premises under paragraph (f) of the definition, as they are similar to caravan parks.

GST liability for the supply of commercial accommodation in Property 1

GST is payable on all taxable supplies at 1/11^th of the price of the supply. However, Division 87 contains special rules for entities that supply commercial accommodation that is provided to an individual as long-term accommodation by either:

•         modifying the value of the taxable supply, thereby reducing the amount of GST payable; or

•         allowing the taxpayer to choose not to apply Division 87 in which case the supply is an input taxed supply under section 40-35.

Goods and Services Tax Ruling GSTR 2012/7 Goods and services tax: long-term accommodation in commercial residential premises ('GSTR 2012/7') considers how Division 87 and section 40-35 applies to supplies of long-term commercial accommodation in commercial residential premises.

GST Bulletin GSTB 2001/2 Accommodation in caravan parks and camping grounds ('GSTB 2001/2') provides a further explanation of the GST liability in relation to short-term, long-term, or predominantly long-term commercial accommodation in caravan parks and camping grounds.

The GST liability for your taxable supply of commercial accommodation in the Tourist Park will depend on whether you provide short-term, long-term, or predominantly long-term commercial accommodation.

Section 87-15 provides that 'commercial accommodation' means the right to occupy the whole or any part of commercial residential premises and includes (if provided as part of the right to occupy) the supply of cleaning and maintenance, electricity, gas, air-conditioning or heating, as well as telephone, television, radio or similar things.

Short-term accommodation

In relation to short-term accommodation, GSTB 2001/2 states:

...short-term stays are those that are for periods of 27 days or less. Every short-term stay you provide is taxed at the normal GST rate of 10% of its value. It does not matter how many of your stays fall into this category.

Therefore, you are liable for GST of 1/11^th of the price you charge for all your supplies of short-term commercial accommodation in Property 1.

Long-term accommodation

In relation to long-term accommodation, GSTB 2001/2 states:

Long term stays ... are those that are for 28 days or more.

Section 87-20 defines long-term accommodation as commercial accommodation ... provided to an individual for a continuous period of 28 days or more, in the same premises to:

(a)that individual alone; or

(b)that individual, together with one or more other individuals who:

                                                    (i)        are also provided with that commercial accommodation; and

                                                   (ii)        are not provided with it at their own expense (whether incurred directly or indirectly).

Section 87-10 allows you to charge GST for your supply of long-term commercial accommodation as follows:

•         the full value of the supply for the first 27 days of continuous accommodation of long-term stays, plus;

•         a reduced value (that is, 50% of the GST-inclusive price of the accommodation) from the 28^th day of the stay onwards.

Predominantly long-term accommodation

Subsection 87-20(3) provides that commercial residential premises are 'predominately for long-term accommodation' if at least 70% of the individuals who are provided with commercial accommodation in the premises are provided with commercial accommodation as long-term accommodation.

Paragraph 54 of GSTR 2012/7 provides that:

... any fair and reasonable method may be used to determine whether the 70% requirement is satisfied. The Commissioner accepts that one of the following methods or a combination of both can be used:

(a) the actual occupancy of the premises for the twelve months preceding the month for which the booking is made; or

(b) the projected occupancy for the twelve months following the month in which the booking is made.

Paragraph 56 of GSTR 2012/7 clarifies that when looking at actual or projected occupancy, it is the number of supplies of accommodation or the number of bookings that should be used in the calculation, rather than the number of people for each booking.

Section 87-5 allows you to charge GST for your supply of predominantly long-term commercial accommodation as follows:

•         a reduced value (that is, 50% of the GST-inclusive price of the accommodation) for the entire stay.

This concession will apply to all long-term accommodation you provide.

However, any supplies of accommodation of 27 days or less are not subject to the Division 87 concession.

Alternative treatment of long-term accommodation

Section 87-25 provides that you may choose not to apply the special rules for reducing the value on which GST is calculated on your supplies of long-commercial accommodation.

GSTB 2001/2 states:

If you choose not to apply the reduced value to your eligible long-term stays, these supplies of long-term stays must be input taxed. This means you do not charge GST, but you cannot claim back any GST included in your business inputs that relate to these supplies. However, you may still claim GST included in your business inputs that are for short-term stays.

If you choose to input tax your supplies of long-term stays:

(a) your choice of treatment applies to all these stays. You cannot change your choice for 12 months;

(b) you must apportion your business input tax credits between those supplies and other taxable supplies you make which could include taxable short-term stays. Goods and Services Tax Ruling GSTR 2000/15 provides details of apportionment methods that may be used;

(c) you will have to review your claim for input tax credits if the actual usage of your business inputs with a value of more than $1000 varies from the estimated usage you have worked out using your apportionment basis (see Division 129 and Goods and Services Tax Ruling GSTR 2000/24).

Where you choose not to apply the concessional treatment to calculate the value of your supplies under section 87-10, all supplies of commercial accommodation for 28 or more days will be input taxed pursuant to paragraph 40-35(1)(b).

Any supplies of accommodation of 27 days or less are not subject to the Division 87 concession, and therefore, are not input taxed and are treated as taxable supplies under the basic rules.

Question 2

Input Tax Credits

Section 11-20 provides that an entity is entitled to the input tax credit for any creditable acquisition that it makes.

Section 11-5 lists the requirements that must be satisfied for an entity to make a creditable acquisition. Section 11-5 provides that an entity makes a creditable acquisition if:

(a) it acquires anything solely or partly for a creditable purpose;

(b) the supply to it is a taxable supply;

(c) it provides, or is liable to provide, consideration for the supply; and

(d) it is registered or required to be registered for GST.

All the above requirements (a) to (d) under section 11-5 must be met for the acquisition to be a creditable acquisition.

Section 11-15 provides the meaning of creditable purpose. An entity acquires a thing for a creditable purpose to the extent that it acquires it in carrying on its enterprise. However, an entity does not acquire a thing for a creditable purpose to the extent that:

(a) the acquisition relates to making supplies that would be input taxed; or

(b) the acquisition is of a private or domestic nature.