Private ruling: GST and supplies of accommodation
Date of advice: 2 November 2018
Published: January 2019
Ruling period: 1 July 2018 – 30 June 2022
Date scheme commenced: 1 July 2018

Ruling: Q1: Are you making taxable supplies pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when you provide supplies of short-term accommodation at various locations in apartments that you manage as agent of the apartment owner? | A1: Property 1 - No Property 2 - No Property 3 - No | Q2: Are you making taxable supplies pursuant to section 9-5 of the GST Act when you provide supplies of short-term accommodation at various locations in apartments that you lease from apartment owners and subsequently sub-lease to guests? | A2: Property 1 - No Property 2 - No Property 3 – Not applicable. You do not lease apartments from apartment owners at this location for the purpose of sub-leasing to guests.

Relevant facts and circumstances: You are registered for GST. You carry on an enterprise of providing short-term residential accommodation in self-contained apartments that you either manage or lease (with rights to sub-lease) at various locations. Property 1 You manage three apartments (owned by Director – Individual A) and lease/sub-lease a further X apartments for the purpose of short-term accommodation to guests. Property 1 has a total of X00 apartments. Property 2 You manage two apartments (owned by Individual A) and lease/sub-lease a further one apartment at Property 2 for the purpose of short-term accommodation to guests. Property 2 has a total of X0 apartments. Property 3 You manage one apartment (owned by Individual A) at Property 3 for the purpose of short-term accommodation to guests. Property 3 has a total of X0 apartments. The properties above are residential apartment complexes that: ● do not have common dining room facilities ● do not have common kitchen facilities ● do not have an in-house restaurant or bar ● do not have a concierge or reception area ● do not have any type of food, drink or room service ● do not have swimming pool, spa or gym facilities (although guests of Property 2 have access to pool and gym facilities in a neighbouring apartment complex) In regard to the apartments you manage, you let the apartments to guests as agent for the apartment owner (Individual A). You do not act as an agent for any other apartment owners for the purpose of letting apartments to guests in the above locations. In regard to the apartments you lease from apartment owners and sub-lease/sub-let to guests, you enter into a lease agreement as lessee with the apartment owner (lessor). You have provided a copy of a typical lease agreement between you and an apartment owner. The lease agreement contains the following clauses: 24. Subject to the provisions of Part 10 of the Residential Tenancies Act, the Tenant may assign the Tenants interest in this Agreement or sublet the Premises to a person with the oral or written consent of the person. 58.1. The Owner of the property herewith consents and gives the tenant permission to sublease the above property as a short term holiday accommodation for the term of the lease. You are one of numerous managers/operators/agents that provide accommodation in the above locations. There are also a number of apartments in the complexes that are owner occupied. All apartments you let to guests in your capacity as agent, and those apartments you lease from other apartment owners and subsequently sub-lease to guests, are fully furnished and contain bedroom, bathroom, kitchen and living facilities. Guests are provided with the following services: ● free use of Unlimited NBN Internet Wifi ● free use of Fetch ● access to Netflix (guests required to bring their own account) ● free welcome breakfast package (first day only) ● free use of a motor vehicle (with basement car parking space) ● linen and towels ● infant cots and car seats if requested You own the vehicles that are provided to guests for their use. Guests are provided with contact details (welcome letter and business card) in case of emergencies or reporting faults). You enter into contractual arrangements with service providers (ISP in regard to Internet/WiFi access, Fetch subscriptions, electricity, gas and water). You are responsible for, or arrange for, cleaning of the apartments and the washing of linen and towels on a guest’s departure. Guests are responsible for laundering linen and towels during their stay. Guests self-check-in by collecting the apartment keys from a lock box. The lock box is located outside your office at the Property 1 complex. The office is manned primarily to collect any deliveries and guests can collect keys from the office when open (usually between 9am and 4:30pm Monday to Friday). You do not have a written agreement with Individual A in respect to the apartments she owns which you manage as Individual A’s agent. However you do charge Individual A a management fee and a fee for services such as cleaning and laundry. You have not entered into any agreements or contracts with the Owners Corporations or Body Corporates of the properties in question. The apartments you lease directly from owners are typically unfurnished. You furnish the apartments which you then sub-lease to guests. You treat your supplies of accommodation to guests as input taxed supplies.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 9-5 | Section 9-40 | Section 40-35 | Paragraph 40-35(1)(a) | Subsection 40-35(2) | Section 195-1

Reasons for decision: Summary: Are you making taxable supplies when you provide supplies of short-term accommodation at various locations in apartments that you manage as agent of the apartment owner? The issue of an agent and principal in the context of supplies of accommodation is discussed in paragraphs 223 to 227 of Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises. Paragraph 225 of GSTR 2012/6 states: 225. An agent is a person who is authorised, either expressly or impliedly, by a principal to act for that principal to create or affect legal relations between the principal and third parties. Whether an entity is an agent is determined by the agreement between the parties. A provision in an agreement that states that an agency relationship exists must be considered with all of the other terms of the agreement. It is necessary to consider, within the context of the overall agreement, whether the entity is acting as an agent in respect to the supply of accommodation. While an entity may act as an agent for some purposes, it does not necessarily mean that the entity is an agent for all purposes. In this case, the apartments that you manage are owned by an associated entity (Individual A). You do not have a written agreement with Individual A. You do charge Individual A management fees and a fee for services such as cleaning and laundry. Goods and Services Tax Ruling, GSTR 2000/37, Goods and services tax: agency relationships and the application of the law describes what is meant by principal/agent relationships. Paragraph 10 of GSTR 2000/37 explains that an entity may be authorised by another party to do something on that party's behalf. Generally, the authorised entity is called an agent. The party who authorises the agent to act on their behalf is called the principal. Paragraph 15 of GSTR 2000/37 further explains that when an agent uses his or her authority to act for a principal, then any act done on behalf of that principal is an act of the principal. Also, a principal is not bound by acts that are not within the expressed, implied or ostensible authority conferred on the agent. Given the fact that you are providing accommodation to guests in the capacity as an agent of the apartment owner and principal (Individual A) and with reference to paragraphs 10 and 15 of GSTR 2000/37, you as an agent, are not the supplier of the accommodation to the guests. As such, you do not make taxable supplies in respect to the accommodation provided to guests in the apartments owned by Individual A. In respect to the arrangement, you will be providing management or agency services to Individual A, the principal. Are you making taxable supplies pursuant to section 9-5 of the GST Act when you provide supplies of short-term accommodation at various locations in apartments that you lease from apartment owners and subsequently sub-lease to guests? Section 9-40 provides that you are liable for GST on any taxable supplies that you make. Section 9-5 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 for GST. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. The issue in this case is whether supplies of accommodation in apartments that you lease from the owners and subsequently sub-lease to guests are input taxed. In this case we will only consider your supplies of accommodation at the Property 1 and Property 2 locations. You do not lease apartments from apartment owners at the Property 3 location for the purpose of sub-leasing to guests. Under paragraph 40-35(1)(a), a supply of residential premises by way of lease, hire or licence (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) is input taxed. Under subsection 40-35(2), the supply is input taxed only to the extent the premises are to be used predominately for residential accommodation (regardless of the term of occupation). The definition of ‘residential premises’ in section 195-1 refers to 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 occupation or intended occupation). Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) outlines the characteristics of residential premises. Paragraph 9 of GSTR 2012/5 explains that the requirement in section 40-35 that premises be ‘residential premises to be used predominately for residential accommodation’ 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. Further, paragraph 15 of GSTR 2012/5 states that to satisfy the definition of residential premises, premises must provide shelter and basic living facilities. The apartments in question will satisfy the definition of ‘residential premises’ as the apartments are self-contained providing shelter and basic living facilities such as bedroom, bathroom, kitchen and living areas. As such, the next issue to consider is whether your supplies fall within the exclusions in paragraph 40-35(1)(a) of being a supply of accommodation in commercial residential premises that you own or control. The term ‘commercial residential premises’ is defined in section 195-1 to include, amongst other things: (a) a hotel, motel, inn, hostel or boarding house; or (b) … … (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 sets out the ATO view on how GST applies to supplies of commercial residential premises and supplies of accommodation in commercial residential premises. 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 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. Paragraph 12 of GSTR 2012/6 lists the following eight 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, and ● occupants have the status of guests. | Detailed Reasoning - Property 1: You will be providing supplies of accommodation to guests that, to some extent, exhibit all of the above features of an operating hotel, motel, inn, hostel and boarding house. You will be supplying accommodation to guests in X apartments in a complex containing a total of Y apartments (approximately X%). In this case, we consider that the premises in question bear the closest resemblance to a ‘hotel’ or ‘motel’ than other types premises defined as commercial residential premises in section 195-1. Features typically specific to hotels, motels and inns are contained in paragraphs 13 to 25 of GSTR 2012/6. The following discussion focuses on the features described in GSTR 2012/6 and those illustrated in respect to your supplies at Property 1. A motel is a particular type of hotel that primarily caters to the needs of motorists seeking roadside accommodation. In this case you will provide accommodation in a self-contained residential apartment with access to a basement car parking space. Hotels provide accommodation for a commercial purpose and have capacity to supply the accommodation on a multiple occupancy basis (paragraph 14 and 15 of GSTR 2012/6). Rooms 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 (paragraph 17 of GSTR 2012/6). Also guests are predominately travellers who ordinarily have their principal place of residence elsewhere, and who need or desire accommodation while away for business or pleasure (paragraph 19 of GSTR 2012/6). Such is the situation in this case. Paragraph 16 of GSTR 2012/6 states that a motel does not necessarily have a dining room for guests however, guests of a motel may still be provided meals. In this case you do not provide meals to guests although you do provide a welcome breakfast package to guests on the first day of their stay. Paragraph 18 of GSTR 2012/6 discusses that linen and towels are usually supplied, with apartments usually cleaned and serviced by staff on a daily basis with the costs of these services being included in the tariff. In this case, cleaning of the apartments is not done on a daily basis. Cleaning is done following a guest’s departure. A guest of a hotel usually let a room or apartment 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 (paragraph 20 of GSTR 2012/6). In this case your supply of accommodation will typically be on a short-term basis with tariffs calculated on a daily basis. 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 (paragraph 21 of GSTR 2012/6). In this case guests self-check-in by collecting the apartment keys from a lock box on site. The lock box is located outside your office on the premises. The office is manned primarily to collect any deliveries and guests can collect keys from the office when open (usually between 9am and 4:30pm Monday to Friday). 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 (paragraph 22 of GSTR 2012/6). In this case the apartments are self-contained with guests having their own kitchen and living facilities. Paragraphs 23 and 24 of GSTR 2012/6 discuss that such premises are 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. Furthermore accommodation is supplied by the operator in its own right and not in the capacity of agent for a third party. In this case, guests are provided with contact details (welcome letter and business card) in case of emergencies or reporting faults. You lease apartments from the apartment owners and subsequently sub-lease those apartments to the guests in your own right. Paragraph 25 of GSTR 2012/6 provides 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. Paragraph 95 of GSTR 2012/6 discusses (in the context of separately strata titled apartments) that in addition to living accommodation areas, 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 and is used to provide services to occupants of the premises. In considering whether the premises are ‘a hotel, motel, inn, hostel, boarding house or similar, such premises would contain some or all of the commercial infrastructure mentioned above to some degree. This issue is further discussed at paragraph 197 of GSTR 2012/6 with reference to South Steyne Hotel Pty Ltd v. Federal Commissioner of Taxation [2009] FCAFC 155 where Emmett J at [26] made the following observation: 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. The management lot is an essential part of the Sebel Hotel. In this case the operation of your business contains a number of the features of a hotel or motel as discussed above with reference to paragraphs 13 to 25 of GSTR 2012/6. However, we consider that the premises lack the required supporting commercial infrastructure to fall within the exclusion in paragraph 40-35(1)(a) of supplying accommodation in commercial residential premises that you own or control. As such, your supply of accommodation at the Property 1 premises will be an input taxed supply of residential premises pursuant to section 40-35. | Detailed Reasoning - Property 2: In this case you will be supplying accommodation to guests in one apartment in a complex containing a total of X apartments (approximately X%). Similarly to the discussion above, we consider that the Property 2 premises lack the required supporting commercial infrastructure to fall within the exclusion in paragraph 40-35(1)(a) of supplying accommodation in commercial residential premises that you own or control. Furthermore, as previously discussed one of the characteristics common to operating hotels, motels, inns, hostels and boarding houses is the capacity to provide accommodation to on a multiple occupancy basis (i.e. to multiple, unrelated guests or residents at once in separate rooms, or in a dormitory). This issue is discussed in paragraphs 156 to 158 of GSTR 2012/6 with reference to a number of judicial decisions: 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. Given the above, your supply of accommodation in a single apartment at the Property 2 premises will be an input taxed supply of residential premises pursuant to section 40-35.

Reasons for decision: Note: 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