Private ruling: GST and commercial residential premises
Published: June 2012

Ruling: Q1: Are you making supplies of commercial residential premises? | A1: No.

Relevant facts and circumstances: You lease properties from owners under lease agreements. (Also included in the operations described below are properties that you own). You then rent those properties out to the public for short-time stays. You operate a website for taking bookings. You have previously employed a cleaner and an admin person on a casual basis to handle the bookings and cleaning of properties after they have been vacated. This is no longer the case and you handle both the cleaning and bookings. There are no additional services for guests. The properties are self-contained and once the guest picks up the keys there is no involvement by you until after the guest vacates. The properties are cottages/homes that are rented to groups/families. The premises have facilities such as kitchens, laundries, living rooms and bedrooms. Your turnover exceeds the GST threshold. You contend that your supplies are not that of commercial residential property as there is no: · central management; · services offered; · multiple occupancy: You believe that the facts in the example at paragraph 121 of GSTR 2000/20 are very similar to your circumstances

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 40-35

Reasons for decision: Summary: You are not making supplies of commercial residential premises. | Detailed Reasoning - Detailed reasoning: Supplies of residential accommodation such as cottages and homes in return for rent is usually an input taxed supply under section 40-35 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). Paragraph 40-35(1)(a) removes 'commercial residential premises' from the input taxed supply provisions. Section 195-1 defines commercial residential premises to mean: (a) a hotel, motel, inn, hostel or boarding house; or (b) … (c) … (d) … (da) … (e) … (f) anything similar to *residential premises described in paragraphs (a) to (e). The Goods and Services Tax Ruling, GSTR 2000/20 'Goods and Services Tax: commercial residential premises' sets out the Commissioner's view of what type of premises are covered by the statutory definition. The terms 'hotel', 'motel' and 'inn', by their ordinary meanings are largely synonymous. The Macquarie Dictionary is used in GSTR 2000/20 to provide 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 1. A supervised place of accommodation, usually supplying board and lodging provided at a comparatively low cost, as one for students, nurses, or the like. 2. [cross reference] Youth hostel: a simple lodging place for young travellers. Boarding house a place, usually a home, at which board and lodging are provided. The supplies you make do not meet the definitions set out above, however paragraph (f) of the statutory definition provides that residential premises that are 'similar' to hotels, motels, inns, hostels or boarding houses are also 'commercial residential premises'. The interpretative issue surrounding the definition of 'commercial residential premises', is centred on what things are sufficiently 'similar' to hotels, motels, inns, hostels and boarding houses, to be caught by paragraph (f). Paragraph (f) broadens the definition of 'commercial residential premises'. The purpose of paragraph (f) is to include residential premises that, while not in themselves covered by paragraphs (a), (b) or (e), exhibit characteristics that place them on a similar footing to those premises that are covered. The question of what are 'similar establishments' to hotels, inns and boarding houses, has been examined on several occasions by the courts for the purposes of the Value Added Tax in the United Kingdom. In The Lord Mayor and Citizens of the City of Westminster , the Tribunal took the approach that a 'similar establishment' must have sufficient characteristics in common with the class of premises described, to allow them to be classed with them, rather than with premises of another kind. To determine this, the Tribunal examined the premises' characteristics and compared them with the characteristics it identified for the class 'hotel, inn, or boarding-house' as a whole. The Commissioner follows a similar approach in GSTR 2000/20 to that taken by the Tribunal, in setting down the characteristics for commercial residential premises as defined in the GST Act. | Detailed Reasoning - Characteristics of commercial residential premises: The characteristics set out below refer to the common meaning of the terms 'hotel, motel, inn, hostel or boarding house' as they are generally understood. At the same time, they are broad enough to include premises that are considered 'similar' to these. The test is one of fact and degree. However, if the establishment you operate exhibits the characteristics set out below, it is commercial residential premises under paragraph (a) or (f). | Detailed Reasoning - The main characteristics are:: · Commercial intention; · Multiple occupancy; · Holding out to the public; · Accommodation is the main purpose; · Central management; · Management offers accommodation in its own right; · Services offered; | Detailed Reasoning - Status of guests.: In some cases it may be a question of degree as to whether premises exhibit all of these characteristics. However, when viewed as a whole the establishment may be commercial residential premises. | Detailed Reasoning - Commercial intention: The establishment is operated on a commercial basis. It possesses the characteristics of a business. Hotels, motels, inns, hostels and boarding houses are normally conducted in business like manner, for reward. Some of the indicators of carrying on a business may be of use in considering this characteristic. The Miscellaneous Taxation Ruling MT 2006/1 discusses the indicators of carrying on a business for Australian Business Number purposes. MT 2006/1 draws its concepts from Taxation Ruling TR 97/11. From this latter Ruling the following relevant indicators are drawn: · whether the activity has a significant commercial purpose or character; this indicator comprises many aspects of the other indicators; · whether the taxpayer has more than just an intention to engage in business; · whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity; · whether there is repetition and regularity of the activity; · whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business; · whether the activity is planned, organised and carried on in a businesslike manner such that it is directed at making a profit; · the size, scale and permanency of the activity; and · whether the activity is better described as a hobby, a form of recreation or a sporting activity. On balance it is considered that you have a commercial intention in carrying out your activities. | Detailed Reasoning - Multiple occupancy: The establishment provides sleeping accommodation on a multiple occupancy basis. The establishment may be a building, a part of a building, a precinct within a building, or a collection of buildings. The establishment may be partly owner occupied. It is a normal characteristic of hotels, motels, inns, hostels and boarding houses, that they are available to the public to be let on a multiple occupancy basis. The scale of the premises, something conceptually similar to multiple occupancy, has been considered relevant in other jurisdictions. In a New Zealand case, Keane DJ considered scale in deciding whether premises were a 'boarding house' (sic) and hence a commercial dwelling under the (NZ) GST law. Premises that only offer accommodation to one person or a small group living or travelling together do not demonstrate the characteristic of multiple occupancy. Premises limited to single occupancy, even where they are regularly let for short-term stays, for example, a cottage let as a weekender, do not have this common characteristic of a hotel, motel, inn, hostel or boarding house. When the collection of dwellings for lease is considered in entirety, it is considered that multiple occupation is offered. | Detailed Reasoning - Holding out to the public: The establishment holds itself out as premises that will receive travellers who are willing and able to pay for accommodation and / or that it will accept reservations or contracts to let accommodation to guests or lodgers. For premises to come within the ordinary and legal concepts of 'hotel, motel, inn, hostel or boarding house', they must be held out as such. There are two separate concepts relevant to 'holding out': the presentation of the establishment to the public, and the purpose of the accommodation. Under the common law and Australian statute, a hotel or inn is usually defined in the following terms: 'any establishment held out by the proprietor as offering food, drink and if so required, sleeping accommodation, without special contract, to any traveller presenting himself who appears able and willing to pay a reasonable sum for the services and facilities provided and who is in a fit state to be received.' The necessity of holding premises out for hire is also a commercial reality. Premises that make representations to the public, for example; by way of advertising, naming or signage that indicate they offer accommodation for hire, have this characteristic. Holding out generally overlaps with the 'commercial intention' characteristic. Premises that do not hold themselves out for accommodation hire are unlikely to be run on a commercial basis. An indicator of premises being held out to the public is compliance with the necessary local and State regulatory requirements that exist for hotels, motels, bed and breakfasts and the like. Such regulations include: zoning, building codes and health regulations. A large house, that accommodates an extended family or a group of acquaintances, even when most pay rent or board, would not meet this characteristic if the household does not offer accommodation to the public and makes no representations that it would do so. While you promote to some degree through your website the availability of the premises, you are not required to comply with local and State regulatory requirements that exist for hotels, motels, bed and breakfasts and the like. | Detailed Reasoning - Accommodation is the main purpose: The provision of accommodation is the establishment's primary purpose, or one of its main purposes, after the service of food and / or drink. The provision of accommodation is the primary purpose of a motel, inn, hostel or boarding house and similar premises. Many hotels also offer accommodation as a primary purpose of their operation together with the service of food and drink. Clearly these are 'hotels' for the purposes of paragraph (a) of the statutory definition. However, the ordinary meaning of 'hotel' encompasses another class of establishment, that has the service of alcohol as its primary purpose. Such premises often have some form of multiple occupancy accommodation so as to comply with their licensing regulations. While such establishments are 'hotels' for the purposes of paragraph (a), they are not the standard against which the concept of 'similar to' is measured, for the purposes of paragraph (f). The placement of 'hotel' in paragraph (a) in the context of 'motel, inn, hostel or boarding house', indicates that the concept envisaged, has the offer of accommodation as its main or a substantial purpose. It is considered that supplying accommodation is the main purpose of your activities. | Detailed Reasoning - Central management: The establishment has central management to accept reservations, allocate rooms, receive payments and arrange the services provided throughout the premises. Most hotels, motels and inns, have management or employees on the premises, with some facility for guest reception. It is part of the essence of these types of premises, that accommodation is hired together with certain services and facilities. Both reception and services depend on the standard and type of premises offered. Establishments that operate in a similar manner to a hotel, motel or inn usually have an owner or manager present or readily accessible, holding some control over the premises as a whole and managing them. Frequently, larger hotels, motels and inns have additional staff, who perform functions such as making bookings, receiving travellers, taking payments and providing or arranging services for guests or lodgers. In some cases, however, the management presence may be limited in hours or provided by an office off the site. It is considered that you have central management, albeit remote. | Detailed Reasoning - Management offers accommodation in its own right: The management has control of the premises as a whole, whether or not they own the property or any part of it and lets them in its own right, rather than as an agent. This is of particular relevance to strata titled premises. The question of whether or not you have control of the premises may be examined by looking at whose right you are conferring when you let a room to a guest. You control premises if you hold a lease or licence or other right to occupation, and are conferring your right to the guest. An agreement or arrangement that allows you to let premises on the owner's behalf is not the same. Instead you are conferring the owner's right to occupancy, as their agent. Under common law, the keeper of a boarding or lodging house hires accommodation under special contract with each lodger and retains control of the premises as a whole. There is a difference between this, and offering residential tenancies within larger premises, where the owner relinquishes control of the parts of their premises in question, as occurs in some rooming houses. You control the premises either by way of lease or ownership, you refer to your clients as guests rather than tenants which is commensurate with short term stay arrangements. | Detailed Reasoning - Services: Services are provided to guests. These may include periodic cleaning (usually daily or weekly), provision of food, laundering services, telephone (usually through a centralised system, allowing the guest to be billed for calls made), and minor services, like wake-up calls or taxi bookings. The tariff you charge usually includes amounts to cover the cost of cleaning and maintaining guests' rooms during their stay. Often, there is access to meals or the facilities for guests to make and consume their own. Other examples of services include; providing telephones, replacing linen, laundry, and other, minor services, such as wake-up calls, or providing local information. Guests' expectations of service levels vary with the style of accommodation and, to some extent, the tariff charged. An absence of services indicates that the premises may not be commercial residential. Similarly, where guests are required to supply items such as towels or linen or anything else to make the premises fit for accommodation, the premises are less likely to be commercial residential. You do not supply the type of services contemplated. | Detailed Reasoning - Status as guests: Those being provided with accommodation are guests, boarders or lodgers. Guests or lodgers can expect a reasonable amount of privacy from management, their staff and other guests, but not to the same level expected by a tenant. Those who hire commercial accommodation have the status of guests, or lodgers. They have the right to occupy and enjoy the premises, but not to the extent of having a legal interest in the premises. It is an accepted part of the normal act of hiring a room in a hotel that management retains rights over it, such as the right to entry. This is a relevant determining feature, when classifying such premises as holiday accommodation and serviced apartments. If, for example, you enter into a residential tenancy agreement, your tenant does not have the status of a guest. Your clients, being short term stayers, are more akin to guests than tenants. GSTR 2000/20 applies the above characteristics to common types of accommodation. While GSTR 2000/20 does not provide an example of your exact situation, there are examples that are instructive. In respect of serviced apartments, an ordinary block of flats let out on six month tenancies is not commercial residential premises, even if they are all owned by one person. Something more needs to be shown for those premises to be commercial residential premises. There is a borderline between residential premises and commercial residential premises, which is distinguished by the possession or absence of the characteristics. Some serviced apartments have minimal services and the management may be represented by nothing more on site than a security desk. Again, something more than this is necessary for the apartments to be commercial residential premises. An on-site presence, providing some level of service on demand, indicates that the premises are commercial. Example 4 from GSTR 2000/20 states: · Chi Square apartments are a collection of apartments, advertised and let by the management, located off-premises. A guard staffs a security desk and provides keys to incoming guests. No other services are provided during occupants' stays, though cleaning is conducted by the management, after each departure. The apartments are equipped with kitchens for self-catering and direct dial telephones. There is no restaurant or room service. · Chi Square exhibits some of the characteristics of premises similar to hotels, motels and inns but on these facts, the apartments are not commercial residential premises. Further, if you supply accommodation in a single detached or semidetached home on its own land, where the guest is granted the right to use the entire premises, they are not commercial residential premises, regardless of the length of the stay. These premises are not in the nature of a hotel, motel, inn, hostel or boarding house. Example 5 in GSTR 2000/20 states: · Pi Cottage is advertised for weekend stays in national holiday magazines. The cottage is self contained and accommodates a couple or a small family. The owner lives elsewhere and engages a letting agent. The house is cleaned after each stay. Breakfast provisions are included in the tariff. · Although Pi Cottage is held out as accommodation for hire and includes some services it does not offer multiple occupancy to guests and therefore is not commercial residential premises. This view lends weight to your contention that you are not making supplies of commercial residential accommodation. Where accommodation of different styles is managed and let centrally and offered by an entity across a range of locations and not through an agent for others, the various premises must be classified using the characteristics that each premises exhibits. However, where separately titled adjacent cottages or villas are combined and then offered for letting by an entity, they can form commercial residential premises. It follows that when classifying the supplies of cottages/houses you make, the supplies should be classified using the characteristics of each premises. Accordingly, on balance, you are not making supplies of commercial residential premises.

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