Edited version of private advice

Authorisation Number: 1052252136953

Date of advice: 17 May 2024

Ruling

Subject: GST - commercial residential premises

Question

Is the Trustee for the MMM Trust (Trust) making supplies of commercial residential premises as defined under section 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) under the two described arrangements where they:

(a) lease the said properties from their respective owners and then sub-leases those properties out short term via AirBnB (First arrangement),

(b) own the said property and rent it out short-term via AirBnB (Second arrangement).

Answer

No. Under both the First arrangement and Second arrangement, the Trust is not making supplies of commercial residential premises as defined under section 195-1 of the GST Act.

This ruling applies for the following period:

XX May 20XX to XX May 20XX

Relevant facts and circumstances

xxxx (Trust), operates a XXX business.

The Trust is registered for GST.

Since xxxx at varying time frames, the Trust has also engaged in the leasing out and management of short term stay properties under two different types of arrangements as follows:

First arrangement:

The Trust leases XXX properties from their respective owners. For each of these three properties the Trust has a lease agreement which permits the Trust to sub-lease the properties out including for short term accommodation via AirBnB.

The owners of these XXX properties have engaged a property management business to facilitate the lease of these properties to the Trust.

Second arrangement:

The Trust owns a property which it leases out via AirBnB.

The XXX properties above are hereafter collectively referred to as 'the Properties'.

In both of the above arrangements, the Trust receives rent on a short-term basis. It also incurs expenses of furnishing, maintaining and servicing the properties (consumables, cleaning, repairs, etc.).

The Properties are all zoned residential and display the characteristics of residential premises.

The following was also provided in relation to the nature of the Trust's operational activities with the Properties under the two arrangements:

•         The Trust's supplies are operated on a commercial basis or in a business-like manner.

•         The guests rent the whole house/unit and do not stay with unrelated guests.

•         Accommodation is offered to the public or a segment of the public via AirBnB.

•         The main purpose of the two arrangements that the Trust have in place, is to provide accommodation.

•         There is no physical reception like in a hotel and no physical presence of the Trust at the Properties.

•         Reservations and other communications are managed online via AirBnB.

•         The Properties do not have communal dining, laundry, bar or restaurant areas, meeting or function areas, nor communal gym or pools or spas.

•         The Trust provides and arranges services and facilities for guests by way of purchasing and providing amenities (e.g., coffee pods, shampoo).

•         The guests of the Properties are all using them for short-term accommodation.

•         There are no daily cleaning services and cleaning is only provided on departure of the guests. The Trust engages contractors to do the cleaning on departure.

•         There is no room service provided by the Trust to the guests throughout their stay. Prior to guest arrival, the Trust does provide and set up some alcoholic and non-alcoholic drinks and food items at the accommodation, by way of minor amenities and pantry basics placed in the kitchen. However, this is not topped up throughout the guests stay and is not available on demand, by way of room service throughout their stay.

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 40-35

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

Reasons for decision

Section 9-40 of the GST Act provides that you are liable for GST on any taxable supplies that you make.

You make a taxable supply where you satisfy the requirements of section 9-5, which provides:

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 the indirect tax zone; 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.

Division 38 and 40 of the GST Act provide for certain supplies to be GST-free and input taxed respectively. The circumstances in this case do not support the application of Division 38 to the Trust's supplies in question. Therefore, such supplies of the Trust are not considered GST-free.

Input taxed means that GST is not payable on a supply and there is no entitlement to an input tax credit for anything acquired to make input taxed supplies.

Division 40 of the GST Act considers input taxed supplies and section 40-35 (which deals with residential rent) relevantly states as follows:

(a)  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:

(b)  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 the entity that owns or controls the commercial residential premises); or

(c)   ......

(1A) ...

(2) However:

(a) The supply is input taxed only to the extent that the premises are to be used predominantly for residential accommodation (regardless of the term of occupation); and

(b) ...

(* denotes a defined term in section 195-1 of the GST Act)

Therefore, whether the supplies of the premises of the Properties by way of lease are input taxed is dependent on whether the Properties are residential premises for GST purposes, and relevantly, whether the Properties are commercial residential premises for GST purposes.

A supply by way of lease, hire or licence of commercial residential premises would not be input taxed by virtue of paragraph 40-35(1)(a) and would generally be a taxable supply where the requirements of section 9-5 are satisfied.

Residential premises

Section 195-1 states that 'residential premises' means 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.

Goods and Services Tax Ruling 2012/5 Goods and services tax: residential premises (GSTR 2012/5), relevantly explains what is meant by 'residential premises'. Paragraphs 6 & 7 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.

Further to this, paragraphs 14 & 15 of GSTR 2012/5 state:

Living accommodation provided by shelter and basic living facilities

14. 'Residential premises' are not limited to premises suited to extended or permanent occupation. Residential premises provide 'living accommodation', which does not require any degree of permanence. It includes lodging, sleeping or overnight accommodation.

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.

In this case, it is not in dispute that the Properties in question are residential premises for GST purposes.

Commercial residential premises

The term 'commercial residential premises' is defined under section 195-1 to mean:

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

(b) premises used to provide accommodation in connection with a * school; or

(c) a * ship that is mainly let out on hire in the ordinary course of a * business of letting ships out on hire; or

(d) a ship that is mainly used for * entertainment or transport in the ordinary course of a * business of providing ships for entertainment or transport; or

(da) a marina at which one or more of the berths are occupied, or are to be occupied, by * ships used as residences; or

(e) a caravan park or a camping ground; 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 2012/6 Goods and services tax: commercial residential premises (GSTR 2012/6) explains the factors that determine when accommodation is provided as commercial residential premises.

Relevantly, paragraphs 10 and 142 of GSTR 2012/6 provide that objective factors that are relevant to characterising premises as falling within either paragraph (a) or (f) of the definition of commercial residential premises include the overall physical character of the premises and how the premises are operated. Where these objective factors do not give a clear characterisation, the following may also be considered:

•         contractual documentation that provides evidence of current or future use, and

•         government zoning and planning permissions.

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 (paragraphs 11 and 147 of GSTR 2012/6).

Paragraphs 11 and 12 of GSTR 2012/6 state:

Characteristics of operating hotels, motels, inns, hostels, boarding houses or similar premises

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.

12. 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.

Paragraph 41 of GSTR 2012/6 provides that ultimately, whether premises are commercial residential premises is a matter of overall impression involving the weighing up of all relevant factors. A non-exhaustive list of factors that may indicate that premises are not a hotel, motel, inn, hostel, boarding house or similar premises is included at paragraph 41 and which are not reproduced here.

Paragraph 86 & 87 of GSTR 2012/6 states:

Characterising premises that are not operating

86. Premises may be characterised under paragraphs (a) or (f) of the definition of commercial residential premises when they are not operating. Premises that are not being operated at the time of supply may be classified by their overall physical character, considered with other objective characteristics.

87. Evidence that may objectively indicate whether premises are 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.

Paragraphs 95, 96 and 98 of GSTR 2012/6, which discuss separately titled rooms, apartments, cottages or villas, relevantly provide as follows:

Separately titled rooms, apartments, cottages or villas

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.

96. Separately titled rooms, apartments, or adjacent cottages or villas located on adjoining or abutting land can be combined with sufficient commercial infrastructure (as discussed in paragraph 95 of this Ruling) so that, as a whole, it can be operated similarly to a hotel, motel, inn, or hostel. Supplies of accommodation in premises operated in this way are supplies of accommodation in commercial residential premises.

98. A supply by sale or lease of real property consisting of part of a building cannot be characterised by reference to another supply. For example, a hotel may be strata titled so that each hotel room and the commercial infrastructure are separate strata units. Where the strata units are individually supplied under multiple sale contracts or leases, each individual supply of a strata unit must be characterised without reference to other supplies of strata units. A supply by sale or lease of strata titled rooms, apartments, cottages or villas without sufficient commercial infrastructure referred to paragraph 95 of this Ruling is an input taxed supply of residential premises to be used predominantly for residential accommodation regardless of whether the building complex, or any part of it, is being, or will be, operated as commercial residential premises.

Although the abovementioned paragraphs from GSTR 2012/6 concentrate on separately titled rooms and cottages, etc., what is made clear in those paragraphs is that commercial residential premises must include sufficient commercial infrastructure before the supply of those premises can be that of commercial residential premises.

Although some of the characteristics of commercial residential premises are exhibited by the Trust's premises, there is an absence of commercial infrastructure. When viewed as a whole, the Trust's premises would not be similar to a hotel, motel, inn, hostel or boarding house. Therefore, the Properties are not considered to be commercial residential premises.

Due to the factors that have been outlined, particularly the lack of commercial infrastructure, the council zoning and physical characteristics of the premises' involved, the Properties are not considered commercial residential premises under section 195-1 and therefore the lease of the Properties are not supplied by way of the leasing of commercial residential premises.