Private ruling: GST and the supply of accommodation
Date of advice: 15 December 2016
Published: May 2017

Ruling: Q1: Are you making an input taxed supply of residential premises when you supply accommodation in your apartments? | A1: No.

Relevant facts and circumstances: You are not registered for GST. You own property (the Property) that you acquired in MMYY. The Property contains your primary place of residence and X apartments. You operate an accommodation enterprise from the Property. Your intention was to use the apartments for residential rental. Since MMYY you decided to have the apartments available for both short-term accommodation and longer-term accommodation. All apartments are available for short-term or long-term accommodation and one apartment is currently tenanted for long-term accommodation. Premises The apartments are located in two separate buildings, a front building and a rear building on the one title. The front building contains your residence and a one bedroom apartment with a fully equipped kitchen, living and dining area, toilet and bathroom. The rear building contains X apartments. Each apartment has two bedrooms, a fully equipped kitchen, living and dining area, toilet and bathroom. The rear building also contains a communal laundry (the machines are coin operated with soap powder provided). The Property does not have a reception area and tenants do not have access to your residence which is kept separate from the operation of the apartments. Keys and cleaning materials are kept in a small storage area in the communal laundry. There is a car park with one car space for each apartment on the Property. The parking is for the use of tenants only and there is no additional visitor parking. Access to the Property is through security gates. The Property is zoned residential. Each apartment has separate council rates, gas and electricity meters. You have a movable advertising sign on the verge of the Property showing the name, contact phone number and website details of the Property. Operation You have a website that advertises the apartments. You also advertise on third party accommodation sites. The booking and payment for accommodation is done either by phone or third party accommodation websites. In practice, accommodation prices are calculated on: (a) daily basis (minimum 3 nights stay required) (b) weekly basis (c) monthly basis. The average period for short term accommodation is 3-7 days, however stays can be longer. Approximately 40% of accommodation supplied is for a periodic term under a tenancy agreement. The majority of the short-term bookings are rented through the third party offsite travel agent websites on a commission basis. You manage tenant arrivals and departures as follows: ● When a booking is made the tenant advises you of their estimated time of arrival and they are provided with the code to the secured gate. ● Tenants confirm their arrival time and you meet them in the car parking area to provide the key to the apartment. ● You show the apartment to the tenants and check that they are satisfied with the condition of the apartment. The tenant is required to complete a condition report / inspection sheet for the apartment. Appliance manuals are supplied. ● You do not enter the apartment during the tenant's stay. ● The tenants will return the key to you on the day of their departure and you then check the condition of the apartment on their departure. If you are not at the premises the tenant will leave the key at the unit at the end of the tenancy. A supply of accommodation also includes: ● Linen and towels, however tenants may use their own. In addition, you do not provide additional clean sheets/towels and if requested you advise tenants to use the on-site laundry or the local laundromat. ● Toilet paper and soap. ● Free Wi Fi however as your internet facility is slow, many tenants prefer to use their own provider. ● Secure 24-hour dedicated car space. Cleaning and laundering is undertaken at the end of the tenants stay. Tenants are required to contact you by phone or e-mail if they have an issue with the accommodation during their stay. The tenant can schedule a time to meet if necessary. The apartments can be supplied unfurnished, partly or fully furnished. Tenants can obtain special permission to keep small pets. Tenants are allowed to make small changes to their apartments, such as hanging personal pictures on walls, rearranging and supplying their own furniture with prior permission. Tenants are responsible for the cleaning during their stay. You supply the apartment cleaned on arrival and expect the apartment to be reasonably clean on departure. Tenants are responsible and accountable for any damage to the apartment. You have a right to charge a cleaning and/or damage fee on departure. You do not access the apartments during a tenants stay. A potential tenant cannot walk in off the street and book a unit, as there is no reception desk and the entrance gates are kept closed 24 hours. Agreements You treat all guests as tenants and they are required to enter into a written agreement and complete a property inspection report at the beginning and end of their stay. For a supply of accommodation greater than three weeks (up to 90 days), the accommodation price is increased to include electricity and gas. For a supply of accommodation greater than 90 days, a tenant: ● Pays a bond. ● Receives a separate bill for electricity and gas. For tenancies of 90 days or less (short term tenants) tenants enter into a Short Term Tenancy Agreement. Short term tenants are also required to complete a Condition Report for an Apartment. For tenancies greater than 90 days (long term tenants) tenants enter into a Residential Tenancy Periodic Agreement. Long term tenants are also required to complete an Inspection Sheet.

Relevant legislative provisions: 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 Paragraph 40-35(1)(a), and | A New Tax System (Goods and Services Tax) Act 1999 Division 87.

Reasons for decision: Summary: In this reasoning: ● unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) ● reference material(s) referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au Subsection 40-35(1) provides that a supply of premises by lease, hire or licence 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 an entity that owns or controls the commercial residential premises). The premises from which the accommodation is supplied satisfy the definition of 'residential premises' under section 195-1 and you are supplying accommodation in those residential premises. The question to be determined is whether the residential premises are commercial residential premises. Commercial residential premises are defined, in part, 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). … The terms hotel, motel, inn, hostel and boarding house are not defined in the GST Act and take their ordinary meaning. The Macquarie Dictionary 5 th Edition provides the following definitions: 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. a dwelling, usually a private house, in which board and lodging are provided for payment Paragraph (f) of the definition of commercial residential premises extends the scope of the definition to premises that are 'similar' to any of the types of establishments described in paragraphs (a) to (e). Premises that are 'similar' must have sufficient, but not necessarily all, characteristics in common with any of the types of premises. Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises provides the ATO view on the characteristics of commercial residential premises. 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 12 of GSTR 2012/6 lists the characteristics that are considered to be common to operating hotels, motels, inns, hostels and boarding houses: ● commercial intention ● multiple occupancy ● holding out to the public ● accommodation is the main purpose ● central management ● management offers accommodation in its own right ● provision of, or arrangement for, services ● occupants have status of guests. Paragraphs 13 to 24 of GSTR 2012/6 list the following features which are typical in a hotel, motel or inn: ● Hotels provide accommodation for a commercial purpose. ● Hotels have the capacity to provide for multiple occupancy. ● 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. ● Rooms are invariably furnished. ● 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. ● Predominantly, 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. ● 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. ● 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. ● 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. ● 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. As stated in paragraph 25 of GSTR 2012/6, 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. After consideration of all of the physical and operating characteristics of the Property, it is considered that the premises are commercial residential premises and you are providing accommodation in commercial residential premises. Overall the premises share sufficient similarities with motels to meet paragraph (f) of the definition of commercial residential premises. You operate the premises on a commercial basis. You provide multiple occupancy. You own the premises and provide the accommodation in your own right and not as an agent for a third party. The premises are centrally managed by you and you handle the requirements of the operation including the booking process and check in and check out of clients. Whilst you do not have a reception desk and keep your personal residence separate from the operation of the premises, you are in effect performing this function offsite and are available by telephone and email. You hold out to the public that you provide accommodation and this accommodation is provided to the general public including holiday goers. The nature of these clients would indicate they are in a class who would ordinarily have their principal place of residence elsewhere and who need or desire accommodation while away for pleasure. This feature remains present even though you also provide accommodation to clients as their temporary principal place of residence when they may have relocated for work. You have control of the entire premises which include a communal laundry with a coin operated machine, communal walkways, gardens and secure parking. The apartments are supplied ready for immediate use being fully furnished with linen/towels, toilet paper and soap available on arrival. You also provide free Wi-Fi internet access. These features remain present even though there is an option for clients to have partly or fully furnished apartments or provide/use their own linen/towels, toilet paper/soap and internet. While the absence or limited nature of services may result in the premises not being considered the same as a traditional motel, the absence (or limited nature) does not result in the conclusion that the premises cannot be sufficiently similar to motels. Further, paragraph 41 of GSTR 2012/6 provides a list of factors that may indicate that premises are not a hotel, motel, inn, hostel, boarding house or similar premises: ● the operator and occupant agree for accommodation to be supplied for a periodic term (which may be for a period of months or years at a time), such as in a residential lease ● the operator and occupant document the condition of the premises under a written contract before the accommodation is initially supplied and when the occupant ceases to occupy premises ● the operator has the right to impose a cleaning fee on the occupant when the occupant ceases to occupy the premises ● the occupant is permitted, subject to the terms of the lease or licence, to alter the part of the premises occupied by the occupant, such as by attaching hanging devices on a wall ● the occupant is permitted, subject to the terms of the lease or licence, to keep pets in the premises ● the occupant must separately arrange and pay for the connection of a telephone, electricity, or gas service ● the occupant is responsible for the cleaning and minor maintenance of the premises, such as changing light bulbs in their room, and ● the premises are unfurnished. The absence of one or more of the above features does not mean that premises are similar to a hotel, motel, inn, hostel, or boarding house. In your situation, the presence of the above features can differ including whether the accommodation is supplied for three days to three weeks (for example, to a holiday goer), greater than three weeks (up to 90 days), and greater than 90 days (for example, as a principal residence). Generally, for supplies of less than three weeks (for example, holiday goers), the premises are furnished and the guest does not separately arrange and pay utilities the utilities. Whilst the above features may be present to a greater extent, for longer supplies, in particular when accommodation is supplied for greater than 90 days (as a principal residence) it does not indicate that the premises when considered as whole do not have the characteristics of premises similar to motels. In determining whether the premises are similar to a motel, we have considered the premises in their entirety, that is, the operation of the apartments and the physical character of the premises. On balance, while the premises do not have all the commercial infrastructure of a more traditional motel, we consider the premises have sufficient common physical and operational characteristics with such establishments to conclude that the premises are similar to a motel. As such, for GST purposes, the premises are 'commercial residential premises'. Your supply of accommodation in the Property is not input taxed pursuant to the exclusion in paragraph 40-35(1)(a). | Detailed Reasoning - GST registration: You are not currently registered for GST. Section 23-5 provides that you are required to be registered for GST if you are carrying on an enterprise and your GST turnover meets the registration turnover threshold, currently $75,000. | Detailed Reasoning - Long-term accommodation: Long-term stays in commercial residential premises that are for 28 days or more receive concessional treatment under Division 87 reducing the amount of GST payable. Further information is available in Goods and Services Tax Ruling GSTR 2012/7 Goods and services tax: long-term accommodation in commercial residential premises and GST Bulletin GSTB 2001/2 Accommodation in caravan parks and camping grounds .