Edited version of private advice

Authorisation Number: 1052260854866

Date of advice: 12 June 2024

Ruling

Subject: GST - short-term lease of residential premises

Question

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 multiple houses located at: <specified locations> (the Houses)?

Answer

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

This ruling applies for the following periods:

<date> to <date>

The scheme commenced on:

<date>

Relevant facts and circumstances

You are not registered for GST.

You have leased residential houses (the Houses) from their respective owners. You have lease agreements with the owners granting you the ability to sublet the houses for short stay accommodation.

You advertise the Houses using online marketplaces such as Airbnb and Stayz. You also advertise the accommodation on your website.

The houses are located at:

•         <address 1>

•         <address 2>

•         <address 3>

You may potentially add more properties to your leasing enterprise in future years dependant on economic climate at the time.

The Houses contain the following physical characteristics:

•         <address 1> four bedrooms, two bathrooms, study (can be used as bedroom), kitchen, laundry and powder room.

•         <address 2> three bedrooms, two bathrooms, laundry and kitchen.

•         <address 3> four bedrooms, three living spaces (one can be used as bedroom), two bathrooms, laundry and kitchen.

You supply the Houses to short-term occupants fully furnished.

You provide the Houses to guests staying for an average occupancy period of 2 - 4 nights.

Only one guest/group can book and occupy each House at any one time.

Each House permits occupancy for multiple related 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 such as coffee, tea, etc. shampoo, conditioner, body wash, towels coffee pods for coffee machine, dishwashing liquid, toilet paper in each House.

You provide Internet with Netflix, Binge and Kayo access provided in each House.

You do not meet your guests on site with the guests accessing the Houses by using a key secured in a lockbox.

A cleaning fee is charged for each occupancy period.

The Houses are cleaned and serviced in between guests. You do no offer cleaning services during occupancy periods. You are the contact for guests and attend to any issues or concerns that arise.

Payments are received from the booking platforms, or directly to your bank account.

You collect a <$ amount> bond in some instances.

You spend 5-6 hours per week dealing with the provision of the accommodation.

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 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 section 195-1

Reasons for decision

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

Section 9-5 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 for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

The relevant issue in this case is whether your supplies of accommodation in the Houses to short-term occupants are input taxed.

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 (footnotes omitted):

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 Houses 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 Houses satisfy as 'residential premises to be used predominantly for residential accommodation'.

The next issue to consider is whether the premises (Houses) fall within the definition of 'commercial residential premises'.

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 5^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.

One of the main characteristics or features of 'commercial residential premises' is the concept of multiple occupancy. That is, the premises have the capacity to provide accommodation to multiple, unrelated guests or residents at once in separate rooms, units, apartments, etc.

Paragraphs 156 - 158 of GSTR 2012/6 discuss 'multiple occupancy' with reference to a number of judicial decisions stating (footnotes omitted):

156. Hotels have the capacity to supply accommodation for multiple occupancies. In South Steyne Hotel Pty Ltd v. Federal Commissioner of Taxation (South Steyne), Stone J considered whether a supply of an apartment in a complex was a supply of 'anything similar to' a hotel, motel, inn, hostel or boarding house under paragraph (f) of the definition. Her Honour commented:

The definitions of motels, inns, hostels and boarding houses indicate that, in common with hotels, they provide accommodation, although of varying types. In addition to providing accommodation, they also have in common that, large or small, they provide for multiple occupancies. The terms are not used where only one apartment, room or other space is provided.

157. On appeal to the Full Federal Court, Emmett J noted in South Steyne Hotel Pty Ltd v. Federal Commissioner of Taxation (South Steyne FFC):

28.... The term hotel or motel would not be used, as a matter of ordinary English, where a single apartment, room or other space is supplied.

29. The fact that the use and occupation by guests of an apartment in the Sebel Hotel may be similar to the use and occupation by guests of a room in a hotel or motel does not make an individual apartment similar to a hotel or motel. It might be appropriate to describe an individual apartment as being similar to part of a hotel, namely a hotel room. It is not an ordinary use of English to describe a single or individual apartment as being similar to a hotel or motel.

158. Edmonds J also indicated agreement with Stone J's conclusion on the relevant issue 'generally for the reasons she has given'. His Honour referred to and did not cast any doubt over Stone J's comments regarding the commonality between hotels, motels, inns, hostels and boarding houses being to provide for 'multiple occupancies'.

In this case, your supplies of each of the Houses are limited to a single guest or group at any one time and as such each House does not exhibit the characteristic of multiple occupancy.

In line with the discussion in paragraphs 156 - 158 of GSTR 2012/6 above, we consider that your supplies of the Houses to short-term occupants are not 'commercial residential premises'. Following on, your supplies of accommodation to short-term occupants are not supplies of accommodation in commercial residential premises.

Therefore, your supplies of rental accommodation in the Houses are input taxed supplies pursuant to section 40-35. That is, your supplies are not taxable supplies under section 9-5 and GST is not payable on the supplies.