Edited version of private advice

Authorisation Number: 1052177194635

Date of advice: 5 October 2023

Ruling

Subject: GST - residential premises

Question 1

Whether or not your residential properties listed below and are rented out via digital platforms such as Airbnb are considered 'commercial residential properties' under section 195-1 of A New Tax (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No, your residential rental properties listed on digital platforms are not commercial residential properties as the accommodation you are providing via the digital platforms do not constitute commercial residential premises.

Question 2

If the properties are considered commercial residential properties, whether or not GST will be applicable on any subsequent disposal, notwithstanding that taken in isolation (ignoring the commercial residential property question) the disposal would be considered a disposal of an existing residential property and not subject to GST?

Answer

GST is not payable on the disposal of the properties you are renting out via the digital platforms as they are residential premises which are input taxed supplies.

Question 3

If GST applies to the disposal, would it still apply if the properties reverted back to traditional residential rentals, leased under a residential tenancy agreement, before sale?

Answer

GST is not payable on the disposal of the properties given at the time of sale the properties meet the definition of residential premise and you are making input taxed supplied.

This ruling applies for the following period:

Year ending 30 June 2024

The scheme commenced on:

1 July 2023

Relevant facts and circumstances

XXX (You) has an active Australian Business Number since XXX but are not currently registered for goods and services tax (GST).

You are carrying on an enterprise in providing accommodation through online platforms.

You have three residential properties listed and marketed on various platforms such as XXX (digital platforms).

The residential properties have traditionally been rented out to tenants under residential tenancy agreements.

The digital platforms, for example XXX, has necessitated the furnishing of the properties and provision of power and internet paid by you. Otherwise, they retain the same physical characteristics as when leased through residential tenancy agreements.

You explained that if the properties turn out to be non-viable on the digital platform, you intend revert to leasing the properties under a standard residential tenancy agreement.

The properties are managed by XXX (the manager). There is no onsite personnel or front desk. Any issues from the renters are dealt with over the phone. The key roles and responsibilities of XXX are collecting fees for the accommodation, arrange the cleaning after the renters leave, a point of contact with the renters, and remits the net amount to you after deducting her fees.

The manager does not act as an agent, though her authority is limited to listing decision (deciding on which sites to list on, the ability to set rates based upon other comparable accommodation in the area). The properties are listed under your name and not that of the manager.

The management fees of the manager are based upon a percentage of accommodation fees.

There is not a sub-lease arrangement in place, the manager just facilitates the collection of accommodation fees and forwards on the balance less management and cleaning costs to you.

There is no formal agency or service contract between you and the manager, just a verbal agreement.

The bookings for properties are taken via digital platform, such as XXX. The renters collect and return the keys at a lockbox onsite. The payment is collected from the renters through the booking platform.

The properties are fully furnished with self-contained bedrooms, kitchen, bathroom, and laundry facilities. Linen and internet are also provided. The cutlery and crockery are included.

The properties are cleaned at the end of the renter's stay and there is a separate feed charged for cleaning. The linen is changed at the end of the renter's stay.

There are no communal areas, restaurant, or dining room on the respective properties. The properties do not provide meals or groceries, and no restaurant nor dining room on site.

You do not arrange tours for the renters of the property nor provider any other services nor facilities.

The rent is charged per length of the stay. The provision of water, electricity, gas, and internet are included in the price charged to renters.

The renters stay at the properties from days up to a couple of weeks.

The renters are not allowed to bring their pets during their stay nor make minor alternations to the properties.

The manager of the properties is responsible for minor repairs and maintenance of the properties.

The properties are usually occupied by one group or family, and it is advertised as short-term accommodation.

Relevant legislative provisions

A New Tax (Goods and Services Tax) Act 1999 (GST Act) section 40-65

A New Tax (Goods and Services Tax) Act 1999 (GST Act) section 40-75

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

Reasons for decision

Question 1

Section 195-1 of the GST Act defines 'residential premises' as 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.

(terms defined within the GST Act.)

Goods and Services Tax Ruling 2012/5 Goods and Services Tax: residential premises (GSTR 2012/5) provides the Commissioner's view on the meaning and supplies of residential premises. 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 sections 40-35, 40-65 and 40-70 of the GST Act 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.

The properties you are renting out via digital platforms have the physical characteristics relevant to providing basic living facilities such as bedrooms, kitchen, bathroom, and laundry facilities. This means that the short-term rental properties are suitable and capable of being occupied for residential accommodation. Therefore, we consider the three properties satisfy the meaning of 'residential premises' under section 195-1 of the GST Act.

We have below also considered whether the properties you supply as short-term accommodation are commercial residential premises.

Commercial residential premises

Section 195-1 of the GST Act defines 'commercial residential premises' as:

(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 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. Paragraph 141 of the 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 13 to 25 of GSTR 2012/6 explains the features of hotels, motels and inns.

Features of hotels, motels and inns

13. 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 those qualifications, the following features of hotels are equally relevant to motels and inns.

14. Hotels provide accommodation for a commercial purpose. Non-profit entities can also operate commercial residential premises. For example, various non-profit organisations operate hotels in a business-like manner.

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

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

17. The guest rooms in a hotel are invariably furnished, and always include a bed, and some living area, and usually an adjoining bathroom. In some cases, hotel rooms may also have a kitchenette for self-catering.

18. 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.

19. Predominantly, the guests of hotels are travellers who ordinarily have their principal place of residence elsewhere, and who need or desire accommodation while away for business or pleasure. However, this feature may not be evident in hotels, sometimes referred to as residential or private hotels, that provide accommodation to long-term residents for whom the premises are a permanent place of residence.

20. 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 to whom a house or apartment is let. Nor does a guest of a hotel usually let a room for a term. The guest is usually charged at a daily rate multiplied by the number of days of occupancy. However, it is not essential that all guests in a hotel stay for a short period. This feature may not be evident in hotels that provide accommodation to long-term residents.

21. Hotels usually have a reception desk to handle the requirements of both management and guests, particularly when guests check in or check out of the establishment. Hotels may also offer concierge services either at the reception desk or at a separate concierge's desk.

22. 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.

23. 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.

24. Accommodation in a hotel is supplied by the operator of the hotel in its own right and not in the capacity of agent for a third party. The arrangement between the parties will reveal whether there is an agent-principal relationship.

25. 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.

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.

The example of rooms in a house available for accommodation 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. The example is provided below:

Example 2 - bed and breakfast accommodation

49. Bob operates a bed and breakfast accommodation business from his premises. The premises contain three bedrooms, communal dining and lounge areas and sealed car parking spaces for guests. The premises contain a room used as an office/reception as well as a kitchen that is suitable to prepare meals for guests. Bob lives on site. He advertises the accommodation in a tourist magazine. The rooms are not self-contained and are cleaned daily during stays and after each stay. The daily cleaning includes replacing towels and making beds. Breakfast is provided in the dining room.

50. Bob operates the premises which are aimed at providing accommodation to travellers (guests). The premises provide accommodation on a multiple occupancy basis. The guests do not have overall control over their rooms. Bob provides central management and services. The accommodation is supplied by Bob in his own right. Bob's bed and breakfast accommodation has the characteristics of commercial residential premises. The premises have sufficient features to be characterised as being similar to a hotel, motel, or inn. Alternatively, the premises may be characterised as sufficiently similar to a boarding house. Bob's supplies of accommodation are taxable supplies of accommodation in commercial residential premises.

Based on the facts of this case, we do not consider that the short-term accommodations you are providing at your properties 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, even though you provide multiple properties available for rent on digital platforms, the standalone residential premises are not commercial residential premises as defined in the GST Act.

Question 2

Subsection 40-65(1) of the GST Act provides that the sale of residential premises is an input taxed supply.

However, subsection 40-65(2) of the GST Act excludes the supply of new residential premises from being an input taxed supply to the extent that the residential premises are:

•                     commercial residential premises; or

•                     new residential premises other than those used for residential accommodation before 2 December 1998.

In your case, the premises are not considered to be commercial residential premises.

Subsection 40-75(1) of the GST Act defines residential premises as new residential premises where they have not previously been sold as residential premises or have been created through substantial renovations of the building.

Therefore, the sale of your properties is input taxed supplies of residential premises given that they do not meet the definition of new residential premises nor are they considered to be commercial residential premises at the time of sale.

Question 3

As explained under Question 1, your premises in question are not considered to be commercial residential premises. Therefore, if you revert the properties back to standard tenancy lease agreements, you will be making input taxed supplies of residential premises at the time of sale under section 40-65 of the GST Act given the property do not meet the definition of new residential premises as defined under section 40-75 of the GST Act.