Private ruling: Supply of residential premises by sub-lease
Date of advice: 10 August 2020
Published: September 2020

Ruling: Q1: Are you required to be registered for GST under section 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act) in relation to your supply of rental accommodation in the 9 apartments (the Apartments)? | A1: No, you are not required to be registered for GST in relation to your supply of rental accommodation in the Apartments.

Relevant facts and circumstances: You (A Pty Ltd) are carrying on a leasing enterprise. You acquired a franchise to operate the leasing enterprise under the franchise name B. You have a franchise agreement with B. Your turnover from this enterprise for the financial year 2018/2019 was $. You do not carry on any other enterprise. You have an Australian business number (ABN). You are not registered for GST. You supply rental accommodation in X apartments (the Apartments). You lease the Apartments from the owners and you then sublease the Apartments in your own right. Where your lease from the owner of an apartment expires, you continue with the lease either on a periodic month to month basis or renewal for another 6 or 12 month tenancy. You sublease the Apartments to corporate and government companies needing a "home away from home". Your clients use the Apartments as their residence for the duration of their project - anywhere between 7 nights to several months at a time. The average stay is 30 nights. The Apartments comprise of 1 and 2 bedroom units. They are fully furnished including bedroom(s), a kitchen, bathroom(s), toilet(s), and internal laundry. Rates are charged on a nightly basis, nightly rates vary depending on the length of stay. If a tenant wants to extend their stay they are charged the nightly fee per original agreement. Neither you nor B a lease or own other apartments at the two properties at which the Apartments are located ('the Properties'). B do not advertise their name on the Properties. Neither you nor B have any agreements with the Body Corporates granting you exclusive right to carry on a leasing business from the Properties. All other apartments within the Properties are either owner occupied or rented out either by the owner of the apartment or their agent. You do not act as an agent for other apartment owners of the Properties in renting out their apartments The Body Corporate at each respective site undertakes all repairs and maintenance of common areas and the car parks. You and B do not have any control or influence over what works are to be performed or who is engaged to perform the work. You do not have authority or influence in the day to day activities carried on at the Properties. Both of your directors are employed through the business. The directors deal directly with the tenants and perform the following: · meeting tenants on arrival; · handing over keys; · showing them how everything works; · answering any questions they have; · attending to tenants' requests, for example if tenant makes any additional requests such as providing a porta cot or foldaway bed, your directors organise this; · arranging access for maintenance and if there is any maintenance to be performed, your directors will organise access with the tenant, but does not organise or authorise the work to be performed; · key return You employ subcontractors - a professional housekeeping company that cleans the Apartments on a weekly basis and provides full linen change. You can only enter an Apartment if allowed to by the sub-lessee. Sub-lessees can request a weekly cleaning service if required. All cleaning is performed by subcontractors. A compulsory departure clean is completed at the end of each rental period. The cost of the clean is included in the rental charge. No other services are provided. Sub-lessees are responsible for their own laundry and cooking. Utilities are connected and the costs associated with the utilities are incorporated in the rent. The land line telephones are not connected. There are smart televisions in the Apartments which allow tenants to access their own accounts if they wish to watch Foxtel or Netflix. You do not supply these or any similar services.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 23-5 | A New Tax System (Goods and Services Tax) Act 1999 section 23-15 | 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 195-1 | A New Tax System (Goods and Services Tax) Regulations 2019 Regulation23-15.01

Reasons for decision: 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. 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 . You are carrying on a leasing enterprise. Therefore, you meet the requirement in paragraph 23-5(a). What we need to determine is whether your annual turnover meets the GST registration turnover threshold of $75,000. Subsection 188-10(1) provides that you have a GST turnover that meets a particular turnover threshold if: (a) 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 (b) your projected GST turnover is at or above the turnover threshold . Your current GST 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. Your projected GST 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 that month and the next 11 months. When calculating your current and projected GST turnover, supplies that are input taxed are excluded from the calculation. In this case, it is relevant to determine whether your supply of the Apartments for residential accommodation is a supply of residential premises which is input taxed and therefore to be excluded from the calculation of your current and projected GST turnover. | Detailed Reasoning - Residential premises: Under paragraph 40-35(1)(a), a supply of residential premises by way of lease, hire or licence is input taxed if 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 an entity that owns or controls the commercial residential premises). Paragraph 40-35(2)(a) qualifies the above stating that the supply will be input taxed only to the extent that the premises are to be used predominantly for residential accommodation (regardless of the term of occupation). 'Residential premises' is a defined term for GST purposes, and 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. The phrase 'residential premises are to be used predominantly for residential accommodation (regardless of the term of occupation)' is explained in GSTR 2012/5 Goods and Services Tax Ruling, Goods and services tax: residential premises (GSTR 2012/5). Paragraph 9 states that the term 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. Paragraph 10 of GSTR 2012/5 further explains: 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... The self-contained apartment units from which you supply accommodation have the physical characteristics relevant to providing basic living facilities such as a bedroom, living area, kitchen, bathroom and toilet. This means the Apartments are suitable and capable of being occupied for residential accommodation. Accordingly, we consider you are making supplies of residential premises to be used predominantly for residential accommodation and paragraph 40-35(1)(a) is partly satisfied. Paragraph 40-35(2)(a) is satisfied. However, paragraph 40-35(1)(a) will only be fully satisfied if your supply of the premises are not characterised as commercial residential premises or your supplies of accommodation are not in commercial residential premises that you own or control. | Detailed Reasoning - 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. GSTR 2012/6 Goods and Services Tax Ruling, 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 7 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 factors 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. Paragraph 12 of GSTR 2012/6 lists 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: · 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. GSTR 2012/6 at paragraph 193 notes that there is a relationship between residential premises and some commercial residential premises in the GST Act. In some cases there may be an overlap in that some premises which fit within the definition of residential premises also fit within the definition of commercial residential premises. Further, GSTR 2012/6 states: 95. 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. 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. 201. 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... 230. A single strata titled hotel room cannot, by itself, exhibit the characteristics of commercial residential premises. A supply by way of sale or lease of a number of hotel rooms, without the commercial infrastructure to support the operation of the premises as commercial residential premises, is an input taxed supply of residential premises. Comparing the Apartments to the characteristics of commercial residential premises referred to above, we do not consider the Apartments, in themselves, to be commercial residential premises. Paragraph 40-35(1)(a) creates two exceptions to the supply of residential premises being input taxed: · if the supply is 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. Having established that your supply of the Apartments is not a supply of commercial residential premises, it is necessary to consider whether you are supplying accommodation in commercial residential premises that you 'own or control'. In your case you are supplying rental accommodation in the Apartments within larger complexes of apartments. You do not provide services such as a restaurant, room service, or a reception area. The Body Corporate at each respective site is independently responsible for the upkeep of common areas such as carparks and neither you nor B have any arrangements with them. You have not been granted an exclusive right to operate your leasing enterprise in the respective complexes and you have no authority or control in regard to the day to day operations of the buildings as a whole. Paragraph 111 of GSTR 2012/6 states: Under paragraph 40-35(1)(a), a supply of residential premises by way of lease, hire or licence is not input taxed if it is a supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises. The supply of accommodation is therefore a taxable supply where the requirements of section 9-5 are satisfied. In your case, we consider you do not "own or control" the Properties in which the Apartments are located. This is the case regardless of whether the respective complexes as a whole would be considered to be commercial residential premises. Based on the above and the totality of information you have provided, we consider your supplies of accommodation in the Apartments are not supplies of accommodation in commercial residential premises that you own or control. | Detailed Reasoning - Conclusion: Your supplies are neither a supply of commercial residential premises nor a supply of accommodation in commercial residential premises that you own or control. Therefore, the requirements in paragraph 40-35(1)(a) are fully satisfied and your supplies of accommodation from the Apartments are input taxed supplies which are excluded from the calculation of your current and projected annual turnover. As you do not carry on any other enterprise or enterprises, your GST turnover will not meet the GST registration turnover threshold. For this reason, you are not required to be registered for GST in relation to your lease of the Apartments.