Edited version of private advice

Authorisation Number: 1052250154200

Date of advice: 13 May 2024

Ruling

Subject: GST - residential premises

Question 1

Are you making taxable supplies in accordance with section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when you supply residential accommodation by way of sub-lease of residential premises?

Answer

No, you are not making taxable supplies in accordance with section 9-5 of the GST Act as you are making input taxed supplies of residential premises in accordance with section 40-35 of the GST Act.

This ruling applies for the periods:

Year ended 30 June 2024

Year ended 30 June 2025

Year ended 30 June 2026

Year ended 30 June 2027

The scheme commenced on:

The date of issue of this notice of private ruling.

Relevant facts and circumstances

You have an Australian Business Number (ABN) and are registered for GST.

You do not conduct any other enterprise activity in addition to the apartment leasing enterprise.

The leasing enterprise commenced in the 20XX Financial year.

You currently lease multiple residential properties (apartments) under standard residential tenancy agreements.

All apartments are positioned across various levels of the one building that is in a CBD district.

The leased apartments are sublet on Airbnb as short-term rental accommodation for guests travelling to the capital city. Guests stay on average for 5 days, and up to 30 days.

You have fully furnished the apartments. The apartments are completely self-contained. The apartments provide water, electricity, gas and internet.

You do not service the apartments whilst occupied by guests. You clean the apartments between guests.

You do not provide any meals (including breakfast), groceries or other services to your guests. The apartments do not have communal areas, restaurants or dining facilities within the property.

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 11-5

A New Tax System (Goods and Services tax) Act 1999 section 11-15

A New Tax System (Goods and Services tax) Act 1999 section 11-20

A New Tax System (Goods and Services tax) Act 1999 section 23-5

A New Tax System (Goods and Services tax) Act 1999 section 23-15

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

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

A New Tax System (Goods and Services tax) Act 1999 section 40-70

A New Tax System (Goods and Services tax) Act 1999 section 72-5

A New Tax System (Goods and Services tax) Act 1999 section 188-10

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

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

Reasons for decision

Under section 9-5 of the GST Act, an entity makes a taxable supply where the supply:

(i)    Is made for consideration; and

(ii)   Is made in the furtherance of an enterprise being carried on; and

(iii)  Is connected with the indirect tax zone; and

(iv)  Is made by a supplier who is 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.

In your case, the supplies being made are of accommodation, are for consideration and are connected with Australia. You are carrying on a leasing enterprise and are registered for GST.

There are no GST-provisions in the GST Act which operate to make the supply of residential accommodation GST-free. Therefore, we need to determine whether your supply of residential accommodation is an input taxed supply of residential premises.

Residential premises

Subsection 40-35(1) of the GST Act provides that a supply of premises by lease, hire or license is input taxed if the supply is of residential premises (other than a supply of commercial residential premises or accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises).

Subsection 40-35(2) provides that the supply is input taxed only to the extent the premises are to be used predominately for residential accommodation (regardless of the term of occupation).

'Residential premises' for GST purposes is defined in section 195-1 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).

Goods and Services Tax Ruling 2012/5 Goods and services tax: residential premises (GSTR 2012/5) addresses residential premises. Paragraphs 6, 7, 9, 10 and 15 of GSTR 2012/5 state:

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.

9. The requirement in sections 40-35, 40-65 and 40-70 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.

10. 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).

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.

Further to this, paragraph 77 of GSTR 2012/5 states:

The premises may be in any number of forms, including detached buildings, semi-detached buildings, strata title apartments, single rooms or suites of rooms within larger premises. Premises that lack the features of shelter and basic living facilities are not residential premises.

In your case, the apartments you are sub-leasing are within a residential apartment complex. These apartments satisfy the definition of residential premises as they provide shelter and basic living facilities such as bedrooms, bathrooms and toilet facilities.

Commercial Residential Premises

Under section 195-1, the term '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).

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.

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 a number of dictionaries in 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 that are 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.

GSTR 2012/6, at paragraph 193, notes that there is a relationship between residential premises and some commercial residential premises in the GST Act. In some cases, there may be an overlap in that some premises which fit within the definition of residential premises also fit within the definition of commercial residential premises.

However, paragraph 95 of GSTR 2012/6 states:

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.

Paragraphs 49 and 50 of GSTR 2012/6 provides an example of commercial residential premises as follows:

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.

Paragraphs 51 and 52 of GSTR 2012/6 provides an example of input taxed residential premises as follows:

Example 3 - rooms in a house available for accommodation

51. Harrison lives in a house that has the physical character of residential premises to be used predominantly for residential accommodation. The house contains two furnished bedrooms which Harrison advertises as being available for accommodation. Harrison provides linen but does not supply meals or other services to occupants.

52. The accommodation does not display sufficient features of a hotel, motel, inn, hostel or boarding house to be characterised as accommodation in commercial residential premises. In particular, Harrison's activities are not of a sufficiently commercial nature when considered in the context of supplying accommodation in two rooms within the house to be characterised as being similar to a hotel, motel, inn, hostel or boarding house. Harrison's supply of accommodation in his house is an input taxed supply of residential premises to be used predominantly for residential accommodation under paragraph 40-35(1)(a).

In your case, you are suppling rental accommodation in completely self-contained apartments that do not provide services such as a restaurant, meals, room service and on-site reception. Your guests are responsible for their own cooking and laundry. Accordingly, we consider your supplies of rental accommodation in the apartments are not supplies of accommodation in commercial residential premises.

Your supply of rental accommodation in the apartments will be an input taxed supply of residential premises pursuant to section 40-35 of the GST Act.

Further issues for you to consider

GST registration

Section 23-5 provides that you are required to be registered under the GST Act if:

• you are carrying on an enterprise, and
• your GST turnover meets the registration turnover threshold.

Subsection 23-15(1) of the GST Act provides that your registration turnover threshold is $75,000.

Subsection 188-10(1) of the GST Act provides that you have a GST turnover that meets a particular turnover threshold if:

• your current GST turnover is at or above the turnover threshold, and the Commissioner is not satisfied that your projected GST turnover is below the turnover threshold; or
• your projected GST turnover is at or above the turnover threshold.

Subsection 188-15(1) of the GST Act provides that your current GST turnover is the value of all the supplies made by you during the current month and previous eleven months and your projected GST turnover is the value of all the supplies made or likely to be made by you in the current month and the next eleven months, other than:

a)    Supplies that are input taxed; or

b)    Supplies that are not for consideration (and are not taxable supplies under section 72-5); or

c)    Supplies that are not made in connection with an enterprise that you carry on.

You are registered for GST but not required to be registered for GST. Your leasing enterprise turnover consists solely of rental income from input taxed supplies of residential accommodation which represents 100% of the total supplies you make within this business activity. As a result of making input taxed supplies, your GST turnover does not meet the registration turnover threshold and therefore you are not required to be registered for GST.

Claiming input tax credits

Under section 11-20 of the GST Act, you are entitled to an input tax credit for any creditable acquisition that you make.

Section 11-5 of the GST Act provides that you make a creditable acquisition if:

(a)  you acquire anything solely or partly for a creditable purpose,

(b)  the supply of the thing to you is a taxable supply,

(c)   you provide, or are liable to provide, consideration for the supply, and

(d)  you are registered or required to be registered for GST.

Under subsection 11-15(1) of the GST Act, you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise.

However, under subsection 11-15(2) of the GST Act, you do not acquire the thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed or the acquisition is of a private or domestic nature.

As you provide input taxed supplies (residential accommodation), you are unable to claim input tax credits as the acquisitions are not for a creditable purpose.