Edited version of private advice

Authorisation Number: 1052251216945

Date of advice: 14 May 2024

Ruling

Subject: GST - short-term lease of 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 short term residential accommodation of the Apartments?

Answer

No, you are not making taxable supplies in accordance with section 9-5 of the GST Act when you supply the Apartments for short term accommodation. You are making input taxed supplies of residential premises in accordance with section 40-35 of the GST Act.

This is because the Commissioner considers each of the Apartments is to be used predominantly for residential accommodation and the Apartments do not satisfy as commercial residential premises.

Question 2

Are you entitled to input tax credits pursuant to section 11-20 of the GST Act for acquisitions you make in relation to your supplies of accommodation in the Apartments?

Answer

No, you are not entitled to input tax credits for your acquisitions, as your acquisitions relate to making input taxed supplies of residential accommodation.

This ruling applies for the following period(s)

1 July 20XX - 30 June 20XX

The scheme commenced on

1 July 20XX

Relevant facts and circumstances

You are registered for GST from ddmmyyyy.

You have leased X residential apartments (the Apartments) from their respective owners. You have an agreement with each owner to sublet the units for short stay accommodation using the Airbnb platform. The apartments are located in the indirect tax zone.

You may add more properties to your leasing enterprise in future years.

Each apartment has X bedrooms, C bathrooms, kitchen, laundry and is allocated one car space.

You have furnished and equipped the Apartments.

You supply the Apartments to guests staying for an average occupancy period of x nights. Only one guest/group can book and occupy each apartment at any one time.

Each apartment permits occupancy for x guests.

There are no communal facilities or reception area available to your guests.

You do not provide any meals to the guests as part of the stay. You provide basic amenities like coffee, tea, sugar, oil, shampoo, razors, conditioner, shower gel and milk.

You provide Internet and paid television services in each apartment.

You either meet your guests on site, or they enter the Apartments by using a key in a lockbox.

The Apartments are serviced in between guests. A cleaning fee is charged for each occupancy period. You sometimes add a fee for extra cleaning services if the condition of apartment requires additional cleaning or requested by the guests.

You are the contact for guests and attend to any issues or concerns that arise.

You have been charging GST on your supply of short-term accommodation in the Apartments and claiming input tax credits on acquisitions made in relation to the Apartments.

Your annual turnover from this enterprise of supplying short-term accommodation in the Apartments is approximately $X. You do not have any other income apart from this enterprise.

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 9-40

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 40-35

A New Tax System (Goods and Services tax) Act 1999 paragraph 40-35(1)(a)

A New Tax System (Goods and Services tax) Act 1999 paragraph 40-35(2)(a)

A New Tax System (Goods and Services tax) Act 1999 Division 142

A New Tax System (Goods and Services tax) Act 1999 section 142-10

Reasons for decision

In this ruling, unless otherwise stated,

•      all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

•      all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act

•      all reference materials published by the Australian Taxation Office (ATO) that are referred to are available on the ATO website www.ato.gov.au

Section 9-40 provides that you must pay the GST payable on any taxable supply that you make.

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

(a) is made for consideration; and

(b) is made in the course or furtherance of an enterprise being carried on by the entity; and

(c) is connected with the indirect tax zone; and

(d) is made by the entity 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 short-term accommodation, are for consideration and are connected with Australia. You are carrying on a short-term accommodation leasing enterprise and you are registered for GST. Accordingly, the requirements in paragraphs 9-5(a) to (d) are met and the supply will be taxable unless it is GST-free or input taxed.

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

Residential premises

Of relevance of consideration is section 40-35 which provides for 'residential rent'.

Paragraph 40-35(1)(a) 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).

However, paragraph 40-35(2)(a) provides that the supply is input taxed only to the extent the premises are to be used predominantly 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. The following paragraphs in GSTR 2012/5 state:

6. Premises¹, 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 accommodation².

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 supplying to your guests are x-bedroom apartments. The Apartments satisfy the definition of residential premises as they have the physical characteristics that are suitable and capable of providing residential accommodation in that they each provide shelter and basic living facilities such as a kitchen, laundry, bedrooms, bathrooms and toilet facilities. Accordingly, the Apartments satisfy as 'residential premises to be used predominantly for residential accommodation'. This is unless the Apartments satisfy as 'commercial residential premises' for GST purposes.

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.

Paragraphs 12 and 149 of GSTR 2012/6 list 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:

• being run with a commercial intention,
• having multiple occupancy,
• holding out to the public,
• accommodation is the main purpose,
• having 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,⁸ 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.

In your case, you are suppling accommodation to guests in self-contained apartments with no infrastructure or services such as a restaurant, meals, room service and on-site reception. Accordingly, we consider your supplies of rental accommodation in the Apartments are not supplies of accommodation in commercial residential premises. Therefore, the Apartments will be residential premises to be used predominantly for residential accommodation as determined earlier in this ruling.

Therefore, your supply of rental accommodation in the Apartments is an input taxed supply of residential premises pursuant to section 40-35. That is, your supply is not a taxable supply under section 9-5 and GST is not payable on the supply.

Question 2

Section 11-20 provides that you are entitled to an input tax credit for any creditable acquisition that you make. Section 11-5 provides the meaning of a creditable acquisition, and the first requirement is that the acquisition is acquired solely or partly for a creditable purpose. The term creditable purpose is defined in section 11-15 which states:

1)    You acquire a thing for a creditable purpose to the extent that you acquire it in *carrying on your *enterprise.

2)    However, you do not acquire the 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.

In this case, you are making supplies of accommodation in the Apartments that will be input taxed. Consequently, you are not making acquisitions for a creditable purpose and no input tax credits entitlement will arise under section 11-20.

You advise that you have been claiming input tax credits on acquisitions made in relation to the Apartments. As you are not entitled to the input tax credits, you will need to amend the relevant lodged returns for the overclaimed input tax credits.

The following guidelines are included for your information:

Where excess GST arises as a result of an error made (for example, where a supplier incorrectly treats a GST-free or an input taxed supply as a taxable supply), this error will generally flow through to the sale price paid by the recipient of the supply and may point towards a finding that excess GST has been passed on by the supplier to their recipient.

For more information, refer to Goods and Services Tax Ruling GSTR 2015/1: the meaning of the terms 'passed on' and 'reimburse' for the purposes of Division 142 of the A New Tax System (Goods and Services Tax) Act 1999 (GSTR 2015/1).

Division 142 provides that if excess GST has been passed on by an entity on to another entity (for example by a supplier to their recipient), then the excess GST is taken to have always been:

(a)       payable; and

(b)       payable on a taxable supply;

until the entity reimburses the other entity for the passed - on GST. (for example, until the supplier reimburses their recipient) (reference: paragraph 17 of GSTR 2015/1).