Edited version of private advice

Authorisation Number: 1052126319066

Date of advice: 5 June 2023

Ruling

Subject: GST - residential premises

Question

Are you required to be registered for GST under section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) in relation to your supply of 'bed and breakfast' accommodation provided from two studios located on your premises?

Answer

No, you are not required to be registered for your supply of bed and breakfast accommodation as your supply of the accommodation will be an input taxed supply under section 40-35 of the GST Act.

The scheme commences on:

The date this Notice of decision is issued.

Relevant facts and circumstances

You have a current Australian Business Number but are not currently registered for goods and services tax (GST).

You offer short-term accommodation in two separate studios located on your property.

You live in a separate house on the same property.

The studios are booked through online platforms including Booking.com, Airbnb and other booking agents. You also maintain a personal website for advertising the studios and providing a booking portal. You state that "99% or more" of the studio bookings come through third-party booking services.

You clean the studios at the end of each occupancy. You provide linen and towels for guest use during their stay.

You do not clean the studios or change the linens during the guest occupancy.

You do not provide a concierge, front desk, linen service, laundry services, or any other services to guests during their stay.

Guests are permitted to bring pets during their stay.

You provide on-site car parking for guests.

You do not provide meals or meal services to the guests.

You provide complementary tea, coffee, milk, soft drink beverages and breakfast provisions of bread, condiments, muesli and fresh fruit.

The studios also have kitchen facilities and appliances for guest preparation of meals including a fridge, oven, cooktop, kettle, toaster, microwave, coffee machine, pots, pans, crockery, utensils and cutlery.

You engage the services tradespersons to undertake maintenance and repairs to the units on an ad hoc basis as required.

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 section 23-5

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

A New Tax System (Goods and Services tax) Act 1999 section 188-15

A New Tax System (Goods and Services tax) Act 1999 section 188-20

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

Reasons for decision

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.

Carrying on an enterprise

You are carrying on an enterprise of providing bed and breakfast accommodation in the studios located on your premises. Section 9-20(c) states that an enterprise includes 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.

Registration threshold

Under section 23-15, the current GST registration turnover threshold (other than for non-profit bodies) is $75,000 pursuant to Regulation 23-15.01 of the A New Tax System (Goods and Services Tax) Regulations 2019.

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 included when calculating your current and projected turnovers respectively.

In your case, it is relevant to determine whether your supply of the studios for residential accommodation is a supply of residential premises which is input taxed and therefore excluded from the calculation of your current and projected GST turnover.

Residential premises

Paragraph 40-35(1)(a) provides a supply of residential premises by way of 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 an entity that owns or controls the commercial residential premises).

However, under paragraph 40-35(2)(a) the supply will only be 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).

Guidance on whether premises are considered residential premises is provided in Goods and Services Tax Ruling 2012/5 Goods and Services Tax: residential premises (GSTR 2012/5). Paragraphs 9, 10 and 15 of GSTR 2012/5 highlight a single test that looks to the physical characteristics of the property to determine the premises suitability and capability for residential accommodation.

Paragraph 9 of GSTR 2012/5 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 15 to 16 of GSTR 2012/5 state that 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.

Your studios accommodation has physical characteristics relevant to providing basic living facilities such as a bedroom, living area, kitchen, bathroom and toilet. This means the studios are suitable and capable of being occupied for residential accommodation. Accordingly, we consider you are making supplies of residential premises to be used predominantly for residential accommodation as paragraph 40-35(2)(a) is satisfied and paragraph 40-35(1)(a) is partly satisfied.

To fully satisfy paragraph 40-35(1)(a) the supply of the premises must not be characterised as commercial residential premises. Accordingly, we must consider whether the premises from which you supply accommodation are commercial residential premises.

Commercial residential premises

Section 195-1 defines commercial residential premises as:

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

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

Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises (GSTR 2012/6) provides the Commissioner's view on 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. GSTR 2012/6 lists the ordinary meanings of the terms from several dictionaries interpreting paragraph (a) of the definition. The following meanings are sourced from Macquarie Dictionary 7^th edition:

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.

Paragraphs 10 and 11 of GSTR 2012/6 explain that the objective factors relevant to characterising premises under paragraph (a) or (f) of the definition include the overall physical character of the premises and how the premises are operated. The test to apply for paragraph (a) of the definition is whether the premises are a hotel, motel, inn, hostel or boarding house and the test for applying paragraph (f) is whether the premises are similar to these, in the sense that they have sufficient likeness or resemblance to any of those types of establishments.

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

• 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 status as guests.

Paragraphs 49 and 50 of GSTR 2012/6 specifically considers where a bed and breakfast will have the characteristics of commercial residential premises. The example of a bed and breakfast in the ruling does not provide self-contained accommodation, the rooms are cleaned daily including replacing towels and making beds, and guests are provided breakfast in a communal dining room.

Based on the facts of this case, we do not consider that the accommodation you are providing in the studios located at your property constitute commercial residential premises. While the accommodation you provide features many characteristics of commercial residential premises, the lack of guest services means it does 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.

Therefore, the accommodation you supply 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.

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.

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