Issue
Is the entity, a home unit owner, making an input taxed supply of residential premises under section 40-35 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it supplies a unit through a letting agent to short term guests?
Decision
Yes, the entity is making an input taxed supply of residential premises under section 40-35 of the GST Act when it supplies a unit through a letting agent to short term guests.
Facts:
The entity owns a home unit in a home unit complex which comprises a number of strata titled units. These are mostly let out to short term guests from time to time. Each unit is individually owned.
The letting operator has signed letting agreements with each individual unit owner. The letting operator is an agent for the strata titled unit owners. The letting operator is responsible for managing the letting program for the entire home unit complex. The letting operator receives an amount for 'service and maintenance' from the body corporate.
Catering services, cleaning, laundry, replacement of linen, telephone and maintenance of the units are provided to guests. Housemaids are employed for cleaning and linen change. Laundry is sent to a commercial laundry. Restaurant facilities are not provided on the premises.
The units are advertised to the public. Guests stay for less than 28 days.
The entity is registered for goods and services tax (GST).
Reasons For Decision
Generally, a supply of residential premises (other than commercial residential premises) by way of lease or hire is input taxed if the supply is of residential premises under section 40-35 of the GST Act. Therefore, the issue in this case is whether the units are residential or commercial residential premises.
Goods and Services Tax Ruling GSTR 2000/20 sets out the characteristics of commercial residential premises. In this case, of particular importance is the required fundamental characteristic of multiple occupancy. Under paragraphs 51 and 52 of GSTR 2000/20, this characteristic emphasises the difference between a single room or unit for hire, and a hotel or boarding house. A strata titled unit cannot, by itself, exhibit the characteristics of commercial residential premises.
This is why an individual unit only takes on the character of commercial residential premises when it is aggregated with others and run by an entity who has acquired the interests necessary to let the rooms in its own right, rather than on behalf of the owners, in the same manner as a hotel, motel, inn, or hostel.
Although guests who stay in the home unit receive a wide range of services such as cleaning and laundry similar to those provided to guests in commercial residential premises, the unit is never considered to be a commercial residential premise because it cannot meet the requirements of multiple occupancy.
In addition, paragraph 56 of GSTR 2000/20 states that strata or other separately titled premises used as holiday accommodation are not considered to be commercial residential premises. The majority of the casual letting in such premises is carried on by agents who advertise to the public on behalf of unit owners. The agents may either be real estate agents, operating from separate premises or on-site agents, who may act as the managers of the complex.
In this case, the letting operator lets out the units on behalf of the unit owners as an agent. The on-site agent also acts as a manager of the unit complex. Unit owners who supply their units for accommodation through an agent are supplying residential premises.
Therefore, the supply of the units by the unit owner to holiday guests is an input taxed supply under section 40-35 of the GST Act. [NOTE: As the entity is making an input taxed supply of residential premises, it cannot claim input tax credits for any GST included in the price of goods and services (for example, body corporate fees) acquired in connection with the supply of the home unit (Division 11 of the GST Act).]