Edited version of private advice

Authorisation Number: 1052341213289

Date of advice: 9 December 2024

Ruling

Subject: GST - residential premises

Question 1

Are you, <entity name>, 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 in the following apartments (the Apartments)?

•         <List of apartment addresses>

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 required to be registered for GST in accordance with section 23-5 of the GST Act, where the annual turnover exceeds the turnover threshold of $75,000?

Answer

No. You are not required to be registered for GST under section 23-5 of the GST Act as your GST turnover does not meet the registration turnover threshold. Your only income is from making input taxed supplies which are excluded from the calculation of the GST turnover threshold.

This ruling applies for the following period:

<date> to <date>

The scheme commenced on:

<date>

Relevant facts and circumstances

You, <entity name>, are not registered for GST.

Your sole director and shareholder is <individual name>.

Your director is currently employed as an <occupation>.

The Apartments

Your director leases the following apartments from third parties under the standard <State> Residential Tenancy Agreement which you then use to provide short-term accommodation:

•         <List of apartment addresses>

Clause <number> of the standard Residential Tenancy Agreement allows a tenant, with the landlords written permission, to transfer the tenant's tenancy or sub-let the residential premises. You advised that you have the requisite authority from the landlords to sub-let the Apartments and submitted a private ruling application in relation to your supply of short-term accommodation in the above listed premises.

Collectively the above listed properties will be referred to as the Apartments.

Each of the Apartments consists of <number> bedrooms, <number> bathrooms, single living area, kitchen, laundry and is allocated <number> car parking bay.

You furnished the Apartments with basic furniture prior to sub-leasing them.

You advertise the Apartments for lease on various platforms on a Number>-week minimum, no maximum stay basis.

You offer accommodation in either a room or a shared room in an apartment to unrelated occupants and allow a maximum of <number> persons per room.

You do not supply consumables such as coffee/tea, shampoo/conditioner etc. You do not supply meals, linen or cleaning services. Occupants are required to supply their own consumables, linen and clean the Apartments.

The amount paid by the occupants for the Apartments is determined based on comparable current shared accommodation advertised on the various platforms and includes utilities such as gas, electricity, water, wi-fi (to a reasonable use).

Occupants are required to pay a refundable holding deposit on commencement of their occupancy. You retain the deposit in your company account. Occupants pay for the room charge on a weekly basis via bank transfer.

Upon leasing a room, the occupants are required to sign a formal written agreement - 'Tenancy agreement for shared accommodation', which provides the following terms, conditions, and rules of the tenancy:

There were a number of relevant terms, conditions and rules of tenancy contained in the 'Tenancy agreement for shared accommodation' considered.

You provide the occupants with keys to allow them to access the Apartments and the occupants are required to return the keys to you when vacating.

Occupants notify you of any complaints or problems with the Apartments. You undertake repairs and maintenance as required.

Other than the areas which are contained within the Apartments, and which are shared by the occupants ie living room, kitchen and laundry, you do not supply or control communal facilities such as reception area, swimming pool, guest lounge, onsite restaurant etc.

You inspect the Apartments once every <number> months.

The income you generate from sub-leasing the Apartments is your only source of income.

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 9-20

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

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 188-10

A New Tax System (Goods and Services Tax) Act 1999 section 188-15

A New Tax System (Goods and Services Tax) Act 1999 section 188-20

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

A New Tax System (Goods and Services Tax) Regulations 2019

Reasons for decision

Question 1

Detailed reasoning

In this ruling,

•         unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and A New Tax System (Goods and Services Tax) Regulations 2019.

•         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 ato.gov.au

Section 9-40 provides that you are liable for GST on any taxable supply 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 provide for certain supplies to be GST-free and input taxed respectively.

We consider Division 38 has no application to the supply of your premises.

The issue in this case is whether your supply of the premises is input taxed under Division 40.

Where a supply is input taxed GST is not payable on the supply and there is no entitlement to an input tax credit for anything acquired or imported to make the supply.

Division 40 provides for input taxed supplies and section 40-35 (which deals with residential rent) relevantly states as follows:

(1)    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:

(a)  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

(b)  ......

(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)  ...

It is therefore necessary to determine whether or not you are supplying residential premises, and if so, whether you are supplying commercial residential premises or accommodation in commercial residential premises to an individual, where you either own or control the commercial residential premises.

If you are supplying residential premises to be used predominantly for residential accommodation, which are not commercial residential premises, then your supplies will be input taxed. However, a supply by way of lease, hire or licence of commercial residential premises would generally be a taxable supply.

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' in the following paragraphs:

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 accommodation.²

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).

....

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.

Based on information supplied, the Apartments provide shelter and basic living facilities including bathroom/s, toilet, laundry, bedroom/s, living area and kitchen, displaying physical characteristics suitable and capable of providing residential accommodation. Accordingly, the Apartments satisfy the definition of residential premises and the supply of the accommodation in the Apartments will be an input taxed supply under paragraph 40-35(1)(a). This is provided the Apartments are not commercial residential premises.

Therefore, it remains to be determined whether the Apartments also meet 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.

The ATO's view on the meaning of commercial residential premises is set out in Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises (GSTR 2012/6).

Paragraphs 9 and 140 of GSTR 2012/6 relevantly provide that the terms in paragraph (a) of the definition of commercial residential premises are not defined within the GST Act and therefore take their ordinary meanings in context. The ordinary meanings of these terms can be found in paragraph 141 of GSTR 2012/6, which provides as follows:

141. The following meanings sourced from the Macquarie Dictionary 5th Edition (Macquarie), the Oxford English Dictionary 2nd and 3rd editions (OED) and the Shorter Oxford English Dictionary 5th Edition (SOED) are relevant in interpreting paragraph (a) of the definition:¹⁸

Hotel

•         a building in which accommodation and food, and alcoholic drinks are available.

•         building or establishment where travellers or tourists are provided with overnight accommodation, meals and other services.

•         an establishment, esp. of a comfortable or luxurious kind, where paying visitors are provided with accommodation, meals and other services.

Motel

•         a roadside hotel which provides accommodation for travellers in self-contained, serviced units, with parking for their vehicles.

•         a hotel catering primarily for motorists; spec. on comprising self-contained accommodation with adjacent parking space.

Inn

•         a small hotel that provides lodging, food etc., for travellers and others.

•         a public house providing accommodation, refreshments, etc., for payment, esp. for travellers.

•         now also, a public house serving alcoholic liquor for consumption on the premises, whether providing accommodation or not.

Hostel

•         a supervised place of accommodation, usually supplying board and lodging provided at a comparatively low cost, as one for students, nurses, etc.

•         a public house of lodging and entertainment for strangers and travellers; an inn, a hotel.

•         a house of residence for students at a university or on a course, esp. at a non-residential college, or for some other special class of people.

Boarding house

•         a dwelling in which lodging is provided to paying residents who share common facilities such as a kitchen, laundry, living room, etc.

•         a dwelling, usually a private house, in which board and lodging are provided for payment.

•         a house offering board and lodging for paying guests.

In their ordinary meanings, these terms share the common attribute of providing accommodation to guests. Paragraph (f) of the definition of commercial residential premises extends the scope of the definition to premises that are 'similar' to the class of establishments described in paragraphs (a) to (e).

Premises that are 'similar' to establishments that are commercial residential premises must have sufficient characteristics in common with the class of premises described above.

Paragraphs 10 and 11 of GSTR 2012/6 provide that the tests to be applied in determining whether premises fall within either paragraph (a) or (f) of the definition of 'commercial residential premises' necessarily raise questions of fact involving matters of impression and degree which include consideration of the overall physical character of the premises together with how the premises are operated.

Paragraph 12 of GSTR 2012/6 lists the following 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:

•         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.³

•         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 the status of 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.

Paragraphs 13 to 24 of GSTR 2012/6 discuss the features of hotels, motels and inns. Some of the comments made in these paragraphs include the following:

Features of hotels, motels and inns

13. A motel is a particular type of hotel that primarily caters to the needs of motorists seeking roadside accommodation. An inn is a small hotel at which board (meals) and lodging are provided to travellers. Subject to those qualifications, the following features of hotels are equally relevant to motels and inns.

14. Hotels provide accommodation for a commercial purpose. Non-profit entities can also operate commercial residential premises. For example, various non-profit organisations operate hotels in a business-like manner.

15. Hotels have the capacity to supply accommodation for multiple occupancies.

16. Hotels usually offer meals to guests and they usually have a kitchen where meals are prepared for guests. The premises usually include a restaurant or dining room for guests. A motel does not necessarily have a dining room, but guests of the motel may still be provided meals.

17. The guest rooms in a hotel are invariably furnished, and always include a bed, and some living area, and usually an adjoining bathroom. In some cases, hotel rooms may also have a kitchenette for self-catering.

18. Linen and towels are usually supplied. The rooms are usually cleaned and serviced by staff on a daily basis, with the costs of these services being included in the tariff.

19. Predominantly, the guests of hotels are travellers who ordinarily have their principal place of residence elsewhere, and who need or desire accommodation while away for business or pleasure. However, this feature may not be evident in hotels, sometimes referred to as residential or private hotels, that provide accommodation to long-term residents for whom the premises are a permanent place of residence.

20. Guests of hotels do not usually enjoy an exclusive right to occupy any particular part of the premises in the same way as a tenant to whom a house or apartment is let. Nor does a guest of a hotel usually let a room for a term. The guest is usually charged at a daily rate multiplied by the number of days of occupancy. However, it is not essential that all guests in a hotel stay for a short period. This feature may not be evident in hotels that provide accommodation to long-term residents.

21. Hotels usually have a reception desk to handle the requirements of both management and guests, particularly when guests check in or check out of the establishment. Hotels may also offer concierge services either at the reception desk or at a separate concierge's desk.

22. Hotels do not normally provide shared accommodation to guests in the sense of having a number of unrelated guests sharing a kitchen and living facilities.

23. A hotel is centrally managed by the operator, typically having at least one person present, or offsite but readily accessible, to manage the accommodation and arrange or provide services.

24. Accommodation in a hotel is supplied by the operator of the hotel in its own right and not in the capacity of agent for a third party. The arrangement between the parties will reveal whether there is an agent-principal relationship.

The features of hostels and boarding houses are discussed in paragraphs 26 to 35 and 36 to 40 of GSTR 2012/6 respectively.

Essentially, the term 'hostel' includes premises that can be described as a hostel, a hotel or inn. The features of hotels and inns identified earlier are also relevant to hostels. Hostels also include supervised places of accommodation usually supplying board (meals) and lodging at a comparatively low cost. Hostel accommodation may be provided either in a dormitory environment or in separate bedrooms.

Physical characteristics of hostels may include a commercial kitchen where meals are prepared, a communal area suitable for a dining area for occupants, and a communal laundry; however, the provision of meals is not an essential feature of a hostel. The feature that a hostel, or premises similar to a hostel, be a supervised place of accommodation can be evident where occupants can raise queries and concerns pertaining to the management of the premises with an on-site manager.

A 'boarding house' is a dwelling at which board (meals) and lodging are provided to guests or residents. While the term indicates that the premises ordinarily consist of a single dwelling, premises are not precluded from being a boarding house where the premises consists of a building with an additional stand-alone structure in which board, or lodging, or both, is provided.

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 hotel, motel or inn is a building or establishment from which accommodation and other services or facilities are supplied. Broadly, accommodation falling into this category would have multiple occupancies such as a block of apartments, central management of the properties, commercial infrastructure such as reception area and provision of services to the guests beyond the accommodation such as breakfast or room servicing.

Paragraph 25 of GSTR 2012/6 states that when determining whether premises are, or are similar to, a hotel, motel or inn, it is necessary to consider the premises in its entirety. It is not sufficient to only consider the features of part of the premises, such as an individual room, in which accommodation is provided.

This position is supported by the following observation made by Emmett J in the Full Federal Court decision of South Steyne Hotel Pty Ltd v. Federal Commissioner of Taxation FCAFC 155:

A hotel, motel, inn, hostel or boarding house consists of more than the rooms or apartments that are occupied by guests. It must also of necessity include common areas such as reception areas, dining areas, car parks and the like, such as were the subject of the management lot. The supply that consisted only of the rooms or apartments or accommodation units in a hotel complex is not, without those other areas, the supply of commercial residential premises.

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,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.

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 at 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.⁹ ...

Regarding separately titled rooms, apartments, cottages or villas, the above paragraphs emphasise that in addition to living accommodation areas, premises that are commercial residential premises include commercial infrastructure to support the commercial operation of the premises. Such infrastructure is used to provide services to the occupants (guests) and may include (but is not limited to) reception areas, dining and bar areas, meeting/function areas, kitchens, laundry facilities, storage areas and car parks.

An owner of a single or even multiple apartments in a building complex will not be able to supply accommodation in commercial residential premises if it does not also control and supply the commercial infrastructure.

Where residential accommodation is rented without sufficient commercial infrastructure, such supplies would be input taxed supplies of residential premises to be used predominantly for residential accommodation rather than taxable supplies of commercial residential premises.

Application to this case

The following physical characteristics and manner in which the Apartments are operated have the following in common with hotels, motels, inns, hostels and boarding houses:

• The Apartments are operated in a commercial/business like manner with the intention of making a profit.
• The accommodation is advertised to the general public.
• Occupants have the status of guests - that is, travellers who have their principal place of residence elsewhere.
• The Apartments are capable of multiple occupancy as you provide shared accommodation in the separate rooms of each of the premises to unrelated parties.
• The Apartments are centrally managed by you offsite.
• The Apartments are furnished albeit with basic furniture only.
• Utilities and Wi-Fi are included in the room charges.

However, the accommodation supplied in the Apartments does not 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 to support its commercial operation and provide services to guests.

•         You do not provide room service, food, alcoholic drinks and other services. You only provide accommodation.

•         You do not provide daily cleaning services, linen or consumables to the occupants. Occupants are required to clean the Apartments and are expected to leave the Apartments clean and in the same physical state as when the property was rented.

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

As stated above, determining whether premises are commercial residential premises is a matter of overall impression and degree involving weighing up all relevant factors.

Taking all of the above guidelines and facts into consideration, we conclude that the accommodation you provide when renting the Apartments is not the supply of commercial residential premises. Such supplies are thus input taxed supplies of residential premises and not taxable supplies.

Conclusion

Your supply of accommodation in the above listed Apartments are input taxed supplies of residential premises pursuant to subsection 40-35(1). That is, your supplies are not taxable supplies under section 9-5. Consequently, you are not required to pay GST on your supply of the short-term accommodation in the Apartments, and you are not entitled to an input tax credit for anything acquired or imported to make the supply of the accommodation.

Question 2

Detailed reasoning

GST registration

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 this 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 Regulation23-15.01 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 you are carrying on a leasing enterprise. Therefore, you meet the requirement in paragraph 23-5(a) and subsection 23-10(1).

Under subsection 188-10(1) your GST turnover will meet the registration turnover threshold if:

•         your current GST turnover is at or above the turnover threshold, and the Commissioner is not satisfied that your projected GST turnover is below the turnover threshold, or

•         your projected GST turnover is at or above the turnover threshold.

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 connection with an enterprise that you carry on.

Your turnover consists solely of input taxed supplies of residential accommodation which you are not required to include in the calculation of your GST turnover. Therefore, your GST turnover does not meet the GST registration turnover threshold under paragraph 23-5(b) and you are not required to register for GST.

Conclusion

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

You may voluntarily register for GST; however, 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 an activity statement.