Private ruling: GST and supplies of accommodation
Date of advice: 23 January 2019
Published: May 2019
Ruling period: XX XXXX 20XX – XX XXXX 20YY
Date scheme commenced: The scheme has commenced

Ruling: Q1: Will your supplies of accommodation in premises situated at a specified location be input taxed supplies pursuant to section 40-35 of the A New Tax System (Goods and Services Tax) Act 1999 ? | A1: No

Relevant facts and circumstances: You are not registered for GST. You intend to enter into a residential property lease (as lessee) in regard to property situated at a specified location (the Property) from the Owner of the Property. The Property consists of specified number apartments. The Property is not strata titled with the lease being a single lease for the entirety of the Property. You intend to make the specified number apartments available for short-term accommodation via on-line vacation rental platforms (for example Airbnb). All of the apartments are fully self-contained and include kitchen, bathroom, living and laundry (washer and dryer) facilities. You will arrange bookings remotely and will facilitate cleaning of the apartments only after the departure of each occupant. The apartments are independently accessible and there are no internal common areas such as hallways, foyer/reception, dining area, laundry, meeting/function areas, storage areas or any other facilities. Two parking bays are available for the whole building and are assigned to specific apartments. There will be no on-site management and no services provided to the occupants of the apartments during their stay. All apartments have keyless PIN Code locks on their doors. Prior to arrival guests will be sent a code active for the length of their stay. On arrival guests will use the code to self-access the apartment they booked. Payment is handled prior to arrival remotely and there are no other elements to the check-in. A link to an online house manual is provided to guests prior to arrival that answers all key questions that are likely to arise during/about their stay. On departure, guests simply close the door ensuring it is locked. The following consumables are provided to guests: ● Coffee, tea and sugar ● Shampoo, conditioner and shower gel ● Dishwashing liquid/tablets ● Toilet paper. Free Wi-Fi access with high speed internet is also provided. Linen and towels are provided No other food, drink, supplies or services will be made available. When guests encounter any issues with the accommodation they may contact Airbnb or send an SMS to a mobile number provided which will be monitored off-site. In regard to maintenance issues, a work order is then passed onto a local tradesman. Other queries are responded to during business hours unless urgent. In regard to noise control, there is a noise sensor system that sends a notification to the guest’s phone once the pre-set decibel level is breached for the pre-set level of time. The notification alerts them that a noise breach has been registered and requests them to be mindful of their neighbours. If the breach continues this is escalated with a remote phone call to the guest to ensure compliance. Each apartment will be advertised on Airbnb independently. There will be no marketing or branding of the Property in totality and no signage on-site. The Property is not intended to be operated as a single commercial enterprise. Each apartment will be separately advertised on Airbnb and persons wishing to rent a particular apartment will make a booking specifically for that apartment. Further, there will be no name under which the entire complex of apartments will be operated. The duration of a guest’s occupation of an apartment will be subject to availability. With guests booking in advance, it is unlikely that an apartment would be available for a booking of 28 days or longer. However, you would consider a booking of 28 days or more if requested. It is your intention to advertise for short term bookings (e.g. long weekends, a week or fortnight) and it is anticipated that the property will be consistently booked throughout the year. As such, it is unlikely a booking for 28 days or more would arise.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 40-35 | Subsection 40-35(1) | Paragraph 40-35(1)(a) | Subsection 40-35(2) | Division 87 | Section 195-1

Reasons for decision: Summary: 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 The issue in this case is whether your supply of accommodation is an input taxed supply under section 40-35. Input taxed means that GST is not payable on the supply and there is no entitlement to an input tax credit for anything acquired to make the supply. Under subsection 40-35(1), 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. Under subsection 40-35(2) of the GST Act, the supply will only be input taxed to the extent that 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 falls within the exclusion 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 11 of GSTR provides that in determining whether premises are a hotel, motel, inn, hostel or boarding house or similar is a question of fact involving matters of impression and degree. 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. The features of hotels, motels and inns are further discussed in paragraphs 13 to 25 of GSTR 2012/6. | Detailed Reasoning - Application to your situation: Given the facts of this case, you will be making supplies of accommodation in premises that you will control by virtue of the lease you will enter into with the owner over the Property in its entirety. Therefore the relevant question to be addressed is whether the accommodation you will provide is in ‘commercial residential premises’. In this case you exhibit all of the characteristics listed in paragraph 12 of GSTR 2012/6 to some extent. Part C of GSTR 2012/6 applies the principles discussed in GSTR 2012/6 to a range of common types of supplies. Paragraph 241 of GSTR 2012/6 discusses supplies of, or accommodation in, holiday houses, apartments and units stating: 241. The physical characteristics of holiday houses, apartments and units indicate that they are residential premises to be used predominantly for residential accommodation. It is necessary to consider the features of a hotel, motel, inn, hostel and boarding house to determine whether the overall character of the premises is similar to the classes of premises. See Example 12 at paragraphs 82 to 85 of this Ruling. In this case, the physical characteristics of the Property indicate that they are residential premises to be used predominantly for residential accommodation. We consider the Property bears the closest similarity to a hotel or motel. As such, we need to consider the features of a hotel and motel to determine whether the operation of the Property is similar enough to a hotel or motel to be classified as ‘commercial residential premises’. Example 12 referred to in paragraph 241 of GSTR 2012/6 states: 82. Gus owns an apartment in a block of strata titled holiday apartments. Gus's apartment is let out for short-term stays during the year through an on-site manager (who acts as Gus's agent). The on-site manager, who acts as agent in respect to several apartments, provides keys to guests, and cleans the rooms between stays, refreshing items such as linen, towels and the tea and coffee making facilities. The body corporate maintains common areas but does not otherwise involve itself with occupants. 83. The premises are being operated so as to provide accommodation on a commercial basis to travellers (guests) who are temporarily away from their usual homes. The premises are managed by the on-site manager who also provides some services to guests. The manager does not supply the accommodation in their own right, but as agent for Gus. 84. While the accommodation provided through Gus's apartment does display some characteristics of commercial residential premises, the supply of the accommodation through the single apartment is not sufficiently similar to a hotel, motel, inn, hostel or boarding house to be characterised as accommodation provided in commercial residential premises. The fact that the manager acts as agent in respect to several apartments in the block and offers accommodation in that capacity to several parties at once is not sufficient to characterise the supply Gus makes to the guests through the manager as accommodation provided in commercial residential premises. 85. Gus's supply of his apartment by lease, hire or licence is an input taxed supply of residential premises to be used predominantly for residential accommodation under paragraph 40-35(1)(a). The above example illustrates a number of aspects similar to those in this case namely linen, towels and tea and coffee making facilities are provided. Furthermore, you will be providing accommodation on a commercial basis to travellers (guests) who are temporarily away from their usual homes. In contrast to the above example, the Property does not have on-site management however paragraph 12 of GSTR 2012/6 provides management can be provided through off-site facilities. Paragraph 166 of GSTR 2012/6 further discusses this aspect stating a ‘hotel is centrally managed by the operator, typically having at least one person present, or off-site but readily accessible, to manage the accommodation and to arrange or provide services’. This is the situation in this case with guests able to contact Airbnb or a dedicated mobile number with any issues. Example 12 above also illustrates the scenario where Gus is making a supply of accommodation (through a manager acting in the capacity as Gus’ agent) in a single apartment within a block of multiple apartments. Whilst acknowledging the accommodation being supplied by Gus does display some characteristics of commercial residential premises, the feature of multiple occupancy is not present. The conclusion being that the supply by Gus is not a supply of accommodation provided in commercial residential premises. This issue is discussed in paragraphs 156 to 158 with reference to South Steyne Hotel Pty Ltd v. Federal Commissioner of Taxation [2009] FCA 13 and the subsequent appeal ( South Steyne Hotel Pty Ltd v Federal Commissioner of Taxation [2009] FCAFC 155). On appeal Emmett J noted that 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. This is in contrast to your situation where you have leased the entire complex containing specified number apartments, with accommodation being offered to multiple unrelated guests at the same time. You contend that the Property lacks sufficient commercial infrastructure for it to operate as commercial residential premises. You are of the view that there is insufficient infrastructure to provide services to the occupants as detailed in paragraph 95 of GSTR 2012/6. In this case it is acknowledged the level of services provided is slight. Therefore, the degree of infrastructure provided is not at a level that may be evident in customary commercial residential premises. However, the minimal commercial infrastructure when combined with other features exhibited, suggest that the Property is sufficiently similar to a hotel or motel. We consider that your supplies will constitute supplies of accommodation in commercial residential premises that you control. Therefore your supplies will fall within the exclusion in paragraph 40-35(1)(a). Your supplies will not be input taxed. | Detailed Reasoning - Division 87 – Supplies of long-term accommodation: Division 87 contains concessionary treatment for entities that supply commercial accommodation that is provided to an individual as long-term accommodation (28 days or more) by either: ● modifying the value of the taxable supply, thereby reducing the amount of GST payable; or ● allowing the taxpayer to choose not to apply Division 87 in which case the supply is an input taxed supply Further information on this issue is contained in Goods and Services Tax Ruling GSTR 2012/7: Goods and services tax: long-term accommodation in commercial residential premises .