Where the Company is providing residential accommodation in residential premises by way of sub-lease, is it making taxable supplies in accordance with section 9-5?
1 No. The Company is not making taxable supplies in accordance section 9-5. It is making input taxed supplies of residential premises in accordance with section 40-35. Question 2 Is the Company required to be registered for GST in accordance with section 23-5, where the annual turnover exceeds the turnover threshold of $75,000? Answer 2 No. The Company is not required to be registered for GST under section 23-5 as input taxed supplies are excluded from the calculation of the GST turnover threshold. The scheme commences on: DD MM YYYY
The Company makes supplies by sub-letting furnished rooms or houses to the public. The Company leases residential premises from real-estate agents or property owners and then sub-lets these residential premises. The premises leased to tenants provide bedrooms, bathrooms, kitchen, living areas and laundry facilities. 100% of the income earned by the Company will be from the tenants of the residential properties, who are all long-term tenants. The Company has an Australian Business Number (ABN) but is not registered for GST.
The A New Tax System (Goods and Services tax) Act 1999 section 9-5 The A New Tax System (Goods and Services tax) Act 1999 section 23-5 The A New Tax System (Goods and Services tax) Act 1999 section 40-35 The A New Tax System (Goods and Services tax) Act 1999 paragraph 40-35(1)(a) The A New Tax System (Goods and Services tax) Act 1999 paragraph 40-35(2)(a) The A New Tax System (Goods and Services tax) Act 1999 section 188-15
Under section 9-5, an entity makes a taxable supply where the supply: 1. Is made for consideration; and 2. Is made in the furtherance of an enterprise being carried on; and 3. Is connected with the indirect tax zone; and 4. Is made by a supplier who is registered or required to be registered for GST. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. In this case, the supplies being made are of long-term residential accommodation of residential premises. The Company leases existing residential properties from either a real-estate agent or the owner of the property and sub-lets fully furnished rooms or the whole property to a long-term tenant. Therefore, we need to determine whether the supply of residential accommodation being provided is an input taxed supply of residential premises. Residential premises
Subsection 40-35(1) provides that a supply of premises by lease, hire or license is input taxed if the supply is of residential premises (other than a supply of commercial residential premises or accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises). Subsection 40-35(2) states that the supply is input taxed only to the extent the premises are to be used predominately for residential accommodation (regardless of the term of occupation). Residential premises' is defined in section 195-1 as 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 the occupation or intended occupation) Guidance on whether premises are considered residential premises is provided in Goods and Services Tax Ruling 2012/5 Goods and Services Tax: residential premises (GSTR 2012/5)
Paragraphs 9, 10 and 15 of GSTR 2012/5 highlight a single test that looks to the physical characteristics of the property to determine the premises suitability and capability for residential accommodation. Paragraph 9 of GSTR 2012/5 states: The requirement in sections 40-35, 40-65 and 40-70 that premises be 'residential premises to be used predominantly for residential accommodation (regardless of the term of occupation)' is to be interpreted as a single test that looks to the physical characteristics of the property to be determine the premises' suitability and capability for residential accommodation. Paragraph 10 of GSTR 2012/5 states: The requirement for residential premises to be used predominately for residential accommodation does not require an examination oof the subjective intention of, or use by, any particular person. Premises that display physical characteristics evidencing their suitability and capacity to provide residential accommodation are residential premises even if they are used for a purpose other than to provide residential accommodation (for example, where the premises are used as a business office). Paragraph 15 of GSTR 2012/5 states:
To satisfy the definition of residential premises, premises must provide shelter and basic living facilities. Premises that do not have the physical characteristics to provide these are not residential premises to be used predominantly for residential accommodation. Further to this, paragraph 77 of GSTR 2012/5 states: The premises may be in any number of forms, including detached buildings, semi-detached buildings, strata title apartments, single rooms or suites of rooms within larger premises. Premises that lack the features of shelter and basic living facilities are not residential premises. In this case, the properties being leased are either single rooms or whole properties which are fully furnished and are leased too long-term tenants. This accommodation satisfies the definition of residential premises as they provide shelter and basic living facilities such as bedrooms, bathrooms, kitchen, living areas and laundry facilities. As a result, the Company is providing input taxed supplies of residential premises in accordance with section 40-35. 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. Section 23-10 provides who may be registered for GST. You may be registered if under this Act you carry on an enterprise (whether or not your turnover is at, above or below 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 Regulation23-15.01 of the A New Tax System (Goods and Services Tax) Regulations 2019 . It has been established that the Company is making input taxed supplies of residential accommodation and is carrying on a leasing enterprise. Therefore, the Company meets the requirement in subsection 23-10(1). Subsection 188-15(1) states that your current 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, other than: a) Supplies that are input taxed; or b) Supplies that are not for consideration (and are not taxable supplies under section 72-5); or
c) Supplies that are not made in connection with an enterprise that you carry on. The Company's turnover consists of income taxed supplies of residential accommodation which represents 100% of the total income generated by the Company. As a result, the Company is not required to register for GST.