Edited version of private advice

Authorisation Number: 1052337353963

Date of advice: 4 December 2024

Ruling

Subject: GST - residential premises

Question 1

Will you, <Entity A>, be making taxable supplies pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when you supply short or medium term residential accommodation under a sub-lease arrangement?

Answer

No, you are not making taxable supplies in accordance with section 9-5 of the GST Act when you provide the Premises for short to medium 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 for the operational and startup expenses relating to your supplies of accommodation in the Premises?

Answer

No, you are not entitled to input tax credits for the operational and startup expenses relating to your supply of accommodation in the Premises, as your acquisitions relate to making input taxed supplies of residential accommodation and are therefore not creditable acquisitions.

Question 3

Are you required to be registered for GST in accordance with section 23-5 of the GST Act, in relation to your supply of residential accommodation in the Premises?

Answer

No. You are not required to be registered for GST under section 23-5 of the GST Act as input taxed supplies are excluded from the calculation of the GST turnover threshold.

This ruling applies for the followingperiods:

DDMMYYYY to DDMMYYYY

The scheme commences on:

The date of issue of ruling

Relevant facts and circumstances

You, <Entity A>, operate an enterprise in the form of providing short to medium term accommodation under a sub-lease arrangement.

Your Directors and Shareholders are <Individual A> and <Individual B>.

You are currently not registered for GST, however, you were previously registered for GST from <date> to <date>.

The short to medium-term accommodation is provided in rooms within residential premises (collectively, the Premises).

You do not own the Premises. Your Directors lease the Premises from their respective proprietors and you subsequently use the Premises to provide short to medium-term accommodation. You indicated that due to the bond and tenancy laws established, real estate agents prefer to have the initial leases under a natural persons' name, hence the lease agreements for the Premises are under the name of your Directors. You subsequently enter into a sub agreement, permitting you to supply, facilitate and manage the accommodation.

You fully furnished the Premises and made the following minor improvements prior to sub-leasing them:

•         Painting and decorating;

•         Replacing doors and locks where needed;

•         Installing replacing appliances; and

•         Minor miscellaneous additions.

The Premises are advertised for lease on several online platforms.

The number of occupants permitted in each room is <number> person.

The occupants are eligible to stay in the Premises for <number> days and up to <number> months.

The average occupancy of the Premises is <number> months.

Occupants are required to enter into a formal written agreement (the Agreement) that sets out the occupancy terms and conditions as well as the shared accommodation.

The amounts paid by the occupants of the Premises for their stay are determined based on the current market rates and demand. The amount includes utilities, Wi-Fi, weekly communal cleaning, on-call maintenance and the use of all shared facilities, furniture and equipment provided in the properties.

The amounts are paid in advance, on a fortnightly basis and directly to you via bank transfer or through online exchange software.

You charge a holding deposit for bookings.

Any amount owing before moving into the Premises must be paid on or before the first day of entering into the Agreement. If an occupant does not pay, the Agreement may be cancelled, and the occupant may lose the holding deposit.

You do not include GST in the charges.

The common areas of the Premises are cleaned on a weekly basis and is included in the room charges.

The cleaning of the private rooms is not included in the room charges, however, this can be arranged for an additional fee.

You direct the occupants to clean where the need is identified.

You engage the services of a cleaning/maintenance company to undertake regular weekly cleaning, monthly intensive cleans, garden maintenance and non-routine additional maintenance at the Premises.

You do not provide fresh linen or any consumables to the occupants.

The occupants have free access to the laundry appliances provided in the Premises however they are required to supply their own detergent.

You are contacted directly by the occupants for any repair work, and conduct repairs, where possible, yourself.

Each occupant has their own key for the duration of their stay. The keys must be returned to you at the end of their stay.

Upon vacating a room, the occupants agree to return their rooms to its original condition and must either book a room clean with a cleaning contractor or to undertake cleaning as per the conditions included in the Agreement.

The occupants are provided with free access to the internet with unrestricted use. No additional subscriptions are provided.

You do not provide communal facilities i.e., access to swimming pool, barbecue, guest lounge or onsite restaurants.

No other amenities or services are provided to the occupants.

You inspect the shared areas every fortnight, and the bedrooms are inspected in between occupant change over.

Overall, you spend approximately <number> hours per week on activities associated with the provision of the accommodation in the Premises.

You trade out of an office in <location>.

You engage your directors to perform the activities associated with providing the accommodation in the Premises. The directors may either work from home, or on-site at any of the Premises where required.

Your only source of income is derived from sub-leasing the Premises.

As part of providing accommodation in the Premises, you incur the following operational expenses:

•         Rent on commercial office;

•         Office electricity;

•         Office set up;

•         Stationery; and

•         Advertising.

In addition to the operational expenses, you also incurred the following startup expenses:

•         White goods/appliances;

•         Furniture;

•         Electricity;

•         Gas;

•         Air conditioning/heating;

•         Phone;

•         Wi-Fi;

•         TV; and

•         Radio.

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 11-20

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

A New Tax System (Goods and Services Tax) Act 1999 section 23-10

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 188-15

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

Question 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 that 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 (Australia); 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 to determine whether your supplies of short to medium-term accommodation in the Premises are input taxed.

Residential premises

Of relevance, section 40-35 provides for 'residential rent'.

Paragraph 40-35(1)(a) provides that a supply of premises by way of 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 under 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) and includes a floating home.

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. 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 the above paragraphs, paragraph 77 of GSTR 2012/5 states the following:

77. 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 Premises satisfy the definition of residential premises as they have the physical characteristics that make them suitable and capable of providing residential accommodation in that they each provide shelter and basic living facilities such as kitchen, laundry, bedrooms, bathrooms and toilet facilities.

The next issue to consider is whether the Premises 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 factor 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.

Paragraph 13 to 40 of GSTR 2012/6 discuss features typically exhibited in hotels, motels, inns, hostels and boarding houses. However, ultimately, in determining whether premises are commercial residential premises is a matter of overall impression involving weighing up of all relevant factors (paragraph 41 of GSTR 2012/6).

The features in paragraph 12 of GSTR 2012/6 must be displayed by a particular/single building or an entire accommodation establishment at a particular location/address.

Paragraph 95 of GSTR 2012/6 provides that, in addition to living accommodation, 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.

Paragraphs 51 and 52 of GSTR 2012/6 provides an example in which the supply of accommodation in two fully furnished bedrooms of a house is not characterised as being sufficiently similar to a hotel, motel, hostel or boarding house due to the manner in which the premises are operated and the premises' lack of commercial infrastructure. The example is reproduced below:

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 the accommodation that you provide has the following characteristics in common with hotels, motels, inns, hostels and boarding houses:

•         The Premises are operated in a commercial/business-like manner with the intention of making a profit.

•         The accommodation is advertised to the general public on a number of different online platforms.

•         Providing accommodation is the main purpose of the Premises even though the amount that you charge also covers the occupants' use of utilities and Wi-Fi in the Premises.

•         The Premises are being centrally managed by the directors offsite on your behalf.

•         You lease the Premises to occupants in your own right.

•         The Premises are capable of multiple occupancy as you provide accommodation in the separate rooms of each of the Premises to unrelated parties.

•         The occupants have the status of guests as they are eligible to stay in the Premises for a short to medium period of at least <number> days and up to <number> months, indicating that the occupants may have a place of residence elsewhere. In addition, the occupants do not have exclusive rights to occupy the Premises in a manner that is similar under a normal tenancy agreement.

However, the accommodation that you provide fails to have the following characteristics in common with hotels, motels, inns, hostels and boarding houses:

•         There is no clear evidence of sufficient commercial infrastructure which is usually found in commercial residential premises such as reception areas, commercial kitchen, bar/restaurant areas, meeting/function areas, gym/pool/spas etc. to support its commercial operation and provide services to guests.

•         You do not provide room service, food/drinks and other services.

•         Although you provide weekly cleaning of the common areas as part of the room charge, this service does not extend to the occupants' rooms. Occupants are required to either book a room clean with a cleaning contractor at their own expense or perform the cleaning themselves as per the cleaning checklist in the Agreement.

•         You do not provide linen, towels or consumables to the occupants.

•         You do not provide a supervised place of accommodation and/or board.

While the Premises displays some characteristics of commercial residential premises, the Premises do not display sufficient features of a hotel, motel, inn, hostel or boarding house in the way that it is operated to be characterised as commercial premises.

As such, your activity of supplying short to medium term accommodation to the occupants is not sufficiently commercial in nature, to warrant the conclusion that the Premises are commercial residential premises within the meaning of paragraph (f) of the definition under section 195-1 as described above. The Premises are therefore not commercial residential premises and therefore you are not making supplies of accommodation in commercial residential premises.

Therefore, your supplies of rental accommodation in the Premises 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.

Question 2

Detailed Reasoning

Section 11-20 provides you are entitled to input tax credits for your creditable acquisitions.

Section 11-5 states:

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.

In accordance with section 11-5, you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise.

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 Premises that are input taxed supplies of residential accommodation. Consequently, any acquisitions you make that relates to your supplies of accommodation in the Premises will not be made for a 'creditable purpose' within the meaning contained in section 11-5. As you are not making creditable acquisitions, you are not entitled to claim input tax credits pursuant to section 11-20 of the GST Act for the operational and startup costs relating to the Premises.

Question 3

Detailed reasoning

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

(a)  you are carrying on an enterprise, and

(b)  your GST turnover meets the registration turnover threshold.

Section 23-10 provides who may be registered for GST. You may be registered if, under the GST Act, you carry on an enterprise (whether or not your turnover is at, above or below the registration turnover threshold).

For the purpose of section 23-15, the current GST registration turnover threshold (other than for non-profit bodies) is $75,000 pursuant to Regulation 23 15.01 of the A New Tax System (Goods and Services Tax) Regulations 2019.

It has been established that you are making input taxed supplies of residential accommodation and are carrying on a leasing enterprise. Therefore, you satisfy the requirement under subsection 23-10(1).

Subsection 188-15(1) states that your current turnover at a time during a particular month is the sum of the values of all the supplies that you have made, or are likely to make, during the 12 months ending at the end of that month, 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 consideration with an enterprise that you carry on.

Your turnover consists of input taxed supplies of residential accommodation which represents 100% of your total income. As a result, you are not required to include this income in the calculation of your GST turnover. Therefore, your turnover will not exceed the registration turnover threshold and you will not be required to register for GST.

Conclusion

Based on the above, you are making input taxed supplies of residential premises, and regardless of the total amount of this particular type of income received, you are not required to be registered for GST.

Although you can voluntarily register for GST, it is to be noted that any acquisitions made in relation to the supply of leasing the residential premises will not be creditable acquisitions, and any GST paid on these acquisitions is unable to be claimed back on activity statements.