Private ruling: GST and supply of accommodation
Date of advice: 4 December 2017
Published: April 2018

Ruling: Q1: Are you making an input taxed supply of residential premises pursuant to section 40-35 of the A New Tax System (Goods and Services Tax Act) 1999 (GST Act) when you supply accommodation at premises located at a specified address? | A1: No.

Relevant facts and circumstances: You are not registered for GST. You own property located at a specified address (the Property). The Property contains a number of fully furnished self-contained units situated side by side. Each unit contains bedroom, bathroom, kitchen (containing refrigerator, microwave, toaster and kettle), dining and living facilities. Each unit also contains a TV and DVD player. The Property also contains off-street car parking facilities for each unit. The Property is available for short-term accommodation. Typically occupants will stay for a period of between 1 – 4 nights. The Property has the future potential to generate turnover of $75,000 or more. You have engaged Trust B to operate/manage the accommodation of the Property. There are no formal contracts/agreements in place between you and Trust B such as management or lease agreements. Currently an informal agreement exists between you and Trust B whereby Trust B retains 20% of the rental income as a management fee. Trust B provides accommodation to guests of the Property in their capacity as your agent and is not making a supply of accommodation in their own right. Trust B manages any bookings, collects rental income, arranges the collection and drop-off of keys and arranges the cleaning of the units. Units are cleaned at the end of each stay. However in cases where a guest stays longer than a week, a cleaner is arranged to clean the unit on a weekly basis. The Property is promoted/advertised on various accommodation websites. On a guest booking accommodation through an accommodation website, Trust B is notified of the booking details via e-mail or text. Contact is made between Trust B and the guest with the guest being provided a code to a lock box at the Property containing keys to the unit/apartment. On departure the guest will either leave the keys in the vacated unit or return to the lock box. Minimal contact is made between Trust B and the guest although an employee of Trust B will attend face to face if required/requested or if there is an issue with the accommodation. Accommodation prices are calculated on a daily basis. That is prices are calculated by applying a daily room rate to the number of days a guest occupies the unit. Information available on the accommodation websites state guests must check-out by 10:00am and are able to check-in after 1:00pm. The Property does not contain a reception area, bar, restaurant or similar commercial infrastructure. The units do not contain laundry facilities and the Property does not have communal laundry facilities. The guests are not provided meals. Linen and towels are provided to guests. Guests are able to contact Trust B if they require additional/replacement linen or towels. Guests are also able to contact Trust B, either directly or through the accommodation websites, if there are any issues with the accommodation. Complimentary tea, coffee and long life milk is also provided to guests. Dishwashing detergent is also provided complimentary to the occupants. Utilities such as water, gas and electricity are provided and included in the tariff charged to guests. Internet and phone facilities are not provided.

Relevant legislative provisions: 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(2)(a) | A New Tax System (Goods and Services Tax Act) 1999 Section 195-1 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 | Subsection 40-35(1) provides that 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 an entity that owns or controls the commercial residential premises) is input taxed. Paragraph 40-35(2)(a) further clarifies that the supply will only be input taxed 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 and capable of being occupied as a residence or for residential accommodation (regardless of the term of occupation). | Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises provides the ATO view of the characteristics of residential premises. | Paragraph 9 of GSTR 2012/5 explains that the requirement that the residential premises are to be used predominately for residential accommodation in section 40-35 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 15 of GSTR 2012/5 continues by stating that to satisfy the definition of residential premises, premises must provide shelter and basic living facilities. | In this case the Property in question will satisfy the definition of ‘residential premises’ as the premises provide shelter and basic living facilities. | The next step is to consider whether the Property also falls within the scope of being ‘commercial residential premises’. Commercial residential premises are 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. | The definition of ‘commercial residential premises’ encompasses similar establishments or establishments that exhibit characteristics that place them on a similar footing to hotels, motels, inns, hostels and boarding houses. Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises provides the ATO view of 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. 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. | 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. In addition to the physical characteristics of the premises, 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. | Paragraph 10 of GSTR provides that objective factors are relevant to characterising premises as falling within either paragraph (a) or (f) of the definition include the overall physical character of the premises and how the premises are operated. Where these objective factors do not give a clear characterisation, the following may also be considered: | ● contractual documentation that provides evidence of current or future use, and | ● government zoning and planning permissions. | 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. Paragraph 41 of GSTR 2012/6 states in part that ultimately, whether premises are commercial residential premises is a matter of overall impression involving the weighing up of all relevant factors. | The tests to be applied are whether the premises are a hotel, motel, inn, hostel or boarding house, 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. These tests necessarily raise questions of fact involving matters of impression and degree. | The Property exhibits all of the characteristics of commercial residential premises as listed in paragraph 12 of GSTR 2012/6 to some extent. | Given the facts provided we consider the Property in question bears the closest resemblance to a ‘motel’. Paragraphs 13 through 25 of GSTR 2012/6 describe the features typical of hotels, motels and inns. Paragraph 13 notes that a ‘motel’ is a particular type of hotel that primarily caters to the needs of motorists seeking roadside accommodation and subject to this qualification, the features of a hotel as listed are equally relevant to motels. In considering those features the following is noted: | ● Hotels provide accommodation for a commercial purpose. In this case, whilst your activities are conducted on a relatively small scale, we consider your activities are conducted for a commercial purpose. | ● Hotels have the capacity to supply accommodation for multiple occupancies. Such is the situation in your case. | ● 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. In this case the Property does not have a commercial kitchen or dining area. Meals including breakfast are not offered to the guests. The Property units all contain fully equipped kitchen and dining areas for guests to prepare and consume meals. | ● The guest rooms in a hotel are invariably furnished, and always include a bed, and some living area, and usually an adjoining bathroom such is the case in this instance. | ● A hotel usually supplies linen and towels. In this case linen and towels are provided to guests. Guests are able to contact Trust B if they require additional/replacement linen or towels. | ● Rooms/apartments in hotels are usually cleaned and serviced by staff on a daily basis, with the costs of these services being included in the tariff. In this case the units are primarily cleaned at the end of each guests’ stay. However in cases where a guest stays longer than a week, a cleaner is arranged to clean the unit on a weekly basis. | ● 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. Again, such is the case in regard to the occupants of the Property given their typical length of stay. | ● 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. In this case, guests book accommodation based on a daily rate and do not typically let a unit/apartment for a term. | ● 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. In this case the Property does not contain a reception area. Guests are able to contact Trust B, either directly or through the accommodation websites, if there are any issues with the accommodation. | ● 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. In this case all units are fully self-contained. Guests are not required to share kitchen and living facilities with other unrelated guests. | ● 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. As discussed above, the Property does not have anyone on-site on a regular basis however guests are able to contact Trust B regarding any issues with the accommodation. If required or requested, an employee of Trust B will attend the Property to resolve the issue. | ● 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. In this case there are no formal agreements in place between you and Trust B. In the absence of any formal lease agreement we consider that you, as owner of the Property, supplies the accommodation to guests in your own right. Trust B provides accommodation to guests of the Property in their capacity as your agent. | As discussed above, when determining whether premises are, or are similar to, a hotel, motel or inn, it is necessary to consider the premises in its entirety and include the overall physical character of the premises and how the premises are operated. | As discussed above, a motel is defined as ‘a roadside hotel which provides accommodation for travellers in self-contained, serviced units, with parking for their vehicles’. We consider this would be an appropriate description of the Property. Furthermore, in weighing up all the relevant factors as discussed above, we consider that the Property exhibits sufficient characteristics typically inherent to a motel to be classified as being similar enough to this type of establishment under paragraph (f) of the definition of ‘commercial residential premises’ at section 195-1. | As such, your supplies of accommodation on the Property are not input taxed pursuant to section 40-35.