Private ruling: Supply of accommodation
Date of advice: 12 November 2018
Published: February 2019

Ruling: Q1: Is the Trustee liable to pay GST (if any), under section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), on the supply of short term accommodation? | A1: No.

Relevant facts and circumstances: You are not registered for GST. Your trustee is X. The sole director of this company is XX. You own a property in the Indirect Tax Zone. You don’t own any other properties. The property consists of three adjoining units and a converted shed, four dwellings in total. One of the dwellings is leased as residential premises on a long term basis. The other two units and the converted shed are leased as holiday rentals. You applied for a ruling regarding the supply of short term accommodation in the two units and the converted shed that are leased as holiday rentals. The premises are advertised and booked via Airbnb and through a rental agent. They are fully furnished. Two of the dwellings have a maximum capacity of two occupants and the other a maximum of four occupants. The dwellings display physical characteristics demonstrating that they are suitable for, and capable of, being occupied as a residence or for residential accommodation. There is no minimum stay. Most occupants stay one or two nights. There is no reception on site. XX manages the dwellings. XX residence is located a specified number of metres away from the short stay dwellings. Occupants enter the dwellings with a security keypad code. There is only street parking available to guests. There is no parking on the property. Fresh linen is provided to the occupants for the duration of their stay. There is no daily cleaning, linen change or other services provided during any particular stay. You only clean the premises and change the linen after each occupant has vacated. There are no food services provided. You do not provide any welcome packs such as coffee, tea, milk etc. The occupants have exclusive access to their rented unit for the duration of their stay. In the year ended 30 June 2018, the proceeds from leasing the three short stay dwellings exceeded $75,000, for the first time.

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 subsection 40-35(1) | A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Reasons for decision: Summary: 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 terms marked by an *asterisk are defined terms in the GST Act ● all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on ato.gov.au Section 9-40 provides that you must pay GST on any taxable supply that you make. Under section 9-5, 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 (emphasis added) to the extent that it is *GST-free or * input taxed (emphasis added). The primary issue in this case is whether your supply of the short stay dwellings through leasing or letting out of the property would be an input taxed supply. Input taxed means that GST is not payable on the supply and there is no entitlement to an input tax credit for anything acquired to make the supply. | Detailed Reasoning - Input taxed supplies and residential premises: Subsection 40-35(1) 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). ‘Residential premises’ is defined in section 195-1 as land or a building that: ● is occupied as a residence or for residential accommodation, or ● 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 GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) provides the Australian Tax Office’s view of the factors to consider and the characteristics of residential premises. Paragraphs 9 and 15 of GSTR 2012/5 explain that a single test looking at the physical characteristics of the property will determine the premises’ suitability and capability for residential accommodation. To satisfy the definition of residential premises, the premises must provide shelter and basic living facilities. Paragraph 7 of GSTR 2012/5 explains that the physical characteristics of the premises will determine whether the property is residential premises for the purposes of subsection 40-35(1). It states that the definition of residential premises ‘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’. From the facts and information provided, your 3 short stay dwellings satisfy the definition of ‘residential premises’. | Detailed Reasoning - Commercial residential premises: However, it is necessary to further consider whether the supply of your property is a supply of commercial residential premises. Commercial residential premises are defined in section 195-1 as: (a) a hotel, motel, inn, hostel or boarding house, or (b) … … (f) anything similar to residential premises described in paragraphs (a) to (e).… Guidance on whether premises are characterised as residential premises or commercial residential premises is provided in Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises (GSTR 2012/6). Paragraph 10 of GSTR 2012/6 explains that the objective factors that are relevant to characterising premises under 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. Paragraph 11 of GSTR 2012/6 provides that 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. Paragraph 95 to 98 of GSTR 2012/6 considers separately titled rooms, apartments, cottages or villas and explains that in order for premises to be commercial residential premises, the living accommodation areas must be accompanied by commercial infrastructure to support the commercial operation of the premises. Paragraph 95 of GSTR 2012/6 outlines that commercial infrastructure includes (but is not limited to) reception areas, dining and bar areas, meeting/function areas, kitchens, laundry facilities, storage areas and car parks. This commercial infrastructure is used to provide services to occupants. We are of the view that you are not making supplies of accommodation in commercial residential premises after considering: ● all of the physical and operating characteristics of the lease of the properties and ● the lack of sufficient commercial infrastructure supplied. You are making an input taxed supply of accommodation in residential premises when you let the 3 short stay dwellings to the occupants. Therefore, the leasing of your 3 short stay dwellings is not a taxable supply under section 9-5. Your supply of accommodation in those premises is not subject to GST.