Edited version of private advice

Authorisation Number: 1052302245770

Date of advice: 17 September 2024

Ruling

Subject: GST and 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 multiple apartments located at:<specified locations> (the Apartments)?

Answer

No, you are not making taxable supplies in accordance with section 9-5 of the GST Act when you provide 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.

Question 2

Are you entitled to input tax credits pursuant to section 11-20 of the GST Act in regard to acquisitions related to your supplies of short-term accommodation in the Apartments?

Answer

No.

This ruling applies for the following periods:

<date> to <date>

The scheme commenced on:

<date>

Relevant facts and circumstances

You are registered for GST.

You lease the following apartments (as lessee) from individuals through their agent:

•         <address 1>

•         <address 2>

•         <address 3>.

The owners of the individual apartments within the Complexes are responsible for paying the property management fees regularly.

You do not own any of the Complexes. You do not have any involvement in the respective property management companies for each Complex or any input into the day-to-day operations of the Complexes as a whole.

You have provided copies of the lease agreements, for the Apartments.

You have leased each of the Apartments for a period of 2 years.

You sub-let the Apartments on a short-term basis and advertise the apartments on Airbnb and other social media platforms.

Premises

All Apartments are sub-let for short term Airbnb stays and have the following amenities provided for the guests:

•         All apartments are furnished and equipped, they all contain a kitchen, bedrooms, bathrooms, and a laundry.

•         No parking facilities

•         Each apartment provides coffee, tea bags, cooking oil, salt, shampoo, conditioner, laundry powder, clean linens, and a hairdryer.

•         Internet is provided.

•         Access to a swimming pool, barbeque area, laundry, guest lounge, provided in each Complex and an onsite restaurant.

•         No meals or food/groceries are provided.

•         Cleaning services are charged separately at $140 per service.

•         Cleaning or fresh linen services are available upon visitor request - Apartments are cleaned, and fresh linen are provided before each visitor's arrival costing $140 per service, covered by the pervious occupant.

•         There is a front desk in each Complex where guests can register for usage of facilities only.

•         All bookings, records of communication and payments are made through Airbnb platform with no formal written agreements made.

•         No GST is included in any charges.

•         Any issues or queries are raised through the Airbnb app before and during the stay.

•         Guests are provided keys to the apartment by organising a time and date for personal handover by a staff member from your company.

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 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

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.

Question 1

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) the entity is 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.

The relevant issue in this case is whether your supplies of accommodation in the Apartments 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.

In your case, 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'.

The next issue to consider is whether the premises (Apartments) fall within the exclusions or negative limbs of paragraph 40-35(1)(a). That is, whether your supply is a supply of 'commercial residential premises or a supply of accommodation provided to an individual in commercial residential premises that you own or control.

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.

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 Apartments are limited to a single guest or group at one time and as such each Apartment 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 Apartments to short-term occupants are not 'commercial residential premises'. Therefore, the first exclusion in paragraph 40-35(1)(a) does not apply.

In respect of the second exclusion in paragraph 40-35(1)(a), you are making a supply of accommodation in a Complex where it is arguable each Complex may, as a whole, fall within the scope of being regarded as 'commercial residential premises as defined for GST purposes.

However, given the facts in this case we consider that you neither own nor control the Complexes. Each Complex is managed by a dedicated property management company of which you have no involvement. Furthermore, you do not have any input into the day-to-day operations of the Complexes. Therefore, the second exclusion in paragraph 40-35(1)(a) will also not apply.

Conclusion

Your supplies of short-term residential rental accommodation in the Apartments are input taxed supplies pursuant to section 40-35. Your supplies are not taxable supplies as defined in section 9-5 and GST is not payable on the supplies.

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 defines the term 'creditable acquisition' as follows:

You make a creditable acquisition if:

(a)  you acquire anything solely or partly for a *creditable purpose; and

(b)  the supply of the thing to you is a *taxable supply; and

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

(d)  you are *registered, or *required to be registered.

Section 11-15 contains the meaning of the phrase 'creditable purpose':

(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.

(3)  ....

As discussed in Question 1 above, your supplies of short-term residential rental accommodation in the Apartments are input taxed supplies pursuant to section 40-35. As such, any acquisitions you make that relate to your supplies of short-term accommodation in the Apartments will not be made for a 'creditable purpose' given the meaning contained in section 11-15.

As the acquisitions will not be made for a creditable purpose, paragraph 11-5(a) is not satisfied, and the acquisitions will not meet the definition of a 'creditable acquisition' as defined in section 11-5.

Therefore, as you are not making a creditable acquisition, you are not entitled to an input tax credit pursuant to section 11-20.