Goods and services tax: if you let out residential premises do you need to get an ABN for PAYG purposes or register for GST?

You are entitled to get an Australian Business Number (ABN) if you are carrying on an enterprise [1] in Australia, if you make supplies connected with Australia in the course of carrying on an enterprise, or if you are a Corporations Law company whether or not you are carrying on an enterprise. [2]

You are required to register for the Goods and Services Tax (GST) if you are carrying on an enterprise and your GST turnover meets the registration turnover threshold [3] . In most cases, you meet the registration turnover threshold if the GST exclusive value of your taxable and GST-free supplies is $75,000 or above [4] . Input taxed supplies do not count toward the threshold for GST registration purposes [5] . A supply by way of lease or licence of residential premises to be used predominantly for residential accommodation is an input taxed supply. [5A] Also, you may register for GST if you are carrying on, or intend to carry on, an enterprise [6] .

Therefore your entitlement to get an ABN and register for GST both turn on the meaning of 'carrying on an enterprise'.

The meaning of enterprise is relevant for supplies of residential premises, commercial residential premises, commercial premises [6A] and supplies of property for mixed purposes. If you let out a property the relevant alternative parts of the enterprise definition are: 'an activity, or series of activities, done: (a) in the form of a business; or (b) in the form of an adventure or concern in the nature of trade; or (c) on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property'. [7]

Whether the letting of a property can be regarded as an activity or activities in the form of a business or an adventure or concern in the nature of trade will always be a question of fact and degree. [8]

The letting of a property by itself is an activity in the nature of investment rather than a business, or an adventure or concern in the nature of trade. [9] Therefore, paragraphs (a) and (b) do not need to be considered any further.

The letting of a property is an activity in the nature of a lease, licence or other grant of an interest in property. If it is done on a regular and continuous basis, the activity will meet the definition of enterprise.

The meaning of 'regular or continuous' is considered in Miscellaneous Taxation Ruling MT 2006/1. The word 'regular' is taken to mean 'repeated at reasonably proximate intervals', and the word 'continuous' to mean 'there is no significant cessation or interruption to the activity'. Therefore a continuous tenancy, or tenancies repeated at reasonably close intervals, will meet this expression and will be an enterprise under paragraph (c) of the definition.

'Carrying on' is defined to mean the same for both ABN [10] and GST [11] . For the purposes of both Acts 'carrying on' an enterprise includes doing anything in the course of the commencement or termination of the enterprise. Therefore, the activities you do in commencing or terminating the letting out of a property are activities of an enterprise.

If you let a property on a continuous or regular basis then you will be carrying on an enterprise. Therefore, you can get an ABN and register for GST. This applies whether or not you let out residential or commercial premises. However, the questions of whether you need to get an ABN or register for GST are different questions and need to be addressed separately.

If you are carrying on an enterprise, you are entitled to an ABN, but there is no compulsion to get one. However, if you do not have an ABN, there may be Pay As You Go (PAYG) withholding implications.

An entity (the payer) must withhold an amount from a payment it makes to another entity if the payment is for a supply that the other entity has made in the course or furtherance of its enterprise, unless an exception applies [12] . If you let out a rental property, this could mean that the tenant has to withhold an amount from the rent unless an exception applies. The relevant exceptions are: (i) the landlord has given the tenant the landlord's ABN, either on a tax invoice or another document relevant to the supply [13] ; (ii) where the supply has been made through an agent, the agent has given the tenant the agent's ABN [14] ; (iii) the payment is made otherwise than in the course or furtherance of an enterprise carried on in Australia by the payer [15] ; (iv) the supply is wholly input taxed [16] . This will apply to the letting of many residential premises (see paragraphs 21 to 25).

Many property owners let out their property through agents who will be carrying on an enterprise and will be registered for GST. Where the agent quotes the agent's ABN to the tenant on a tax invoice or another document relating to the supply, the exception in (ii) will apply and there will be no need for the property owner to get an ABN for PAYG purposes. This will apply in relation to both residential and commercial premises. ( Please note that the tests in paragraphs 14 to 26 are for PAYG withholding purposes only. The tests for GST appear in paragraphs 27 to 36 .)

The exception in (iii) will apply where the rental property is to be used by the tenant for private or domestic purposes, as it is the use of the property that determines the character of the payment. In other words, the exception will apply where the tenant uses the property as a residence, for holiday purposes or for the pursuit of a hobby or some other non-business purpose. In these cases you will not need an ABN for PAYG withholding purposes.

The PAYG withholding laws do not make allowance for apportionment. If a payment comes within the scope of PAYG, then the whole of the payment is subject to an amount being withheld.

In some cases you may let out premises that are only partially residential premises to be used predominantly for residential accommodation which the tenant uses for both private and business purposes. An example of this is where a tenant both lives in and conducts a medical practice from a house that has been partially converted as a doctor's surgery. The conversion results in part of the premises ceasing to be residential premises to be used predominantly for residential accommodation. In this case the supply by way of lease of the premises is not a wholly input taxed supply. [16A] Where a tenant is using the premises partly for private purposes and partly for the furtherance of the tenant's enterprise, it is the main purpose of the payment that will determine whether or not it comes within the scope of PAYG and an amount is to be withheld. The main purpose of the payment is established by the main or primary use the tenant makes of the premises.

If what you are letting out is a home for the tenant to live in, then the main purpose of the payment will be one of a private or domestic nature. In this case the exception in (iii) will apply because the payment is made otherwise than in the course or furtherance of an enterprise and you will not need an ABN for PAYG withholding purposes. [16B]

Simon has a large house for rent. Two rooms of the house have been modified so as to be designed as a veterinary surgery. The modification results in the two rooms ceasing to be residential premises to be used predominantly for residential accommodation. Brian, who is a veterinary surgeon, rents the house from Simon so that he can conduct his business from the surgery part and live in the remainder. Even though Brian uses part of the premises as his veterinary surgery, he resides in the remaining part of the premises. Therefore, the rental payments are essentially private or domestic in nature and the withholding exception in (iii) will apply. Simon will not have to give Brian an ABN to avoid having an amount withheld from the rental payments. Paragraph (iv) of the exceptions does not apply in this case, as the supply is not wholly input taxed. (For the GST treatment see paragraph 35).

However, if you are letting out a commercial property with residential quarters attached and the tenant uses the property in the course or furtherance of the tenant's enterprise, then the exception in (iii) will not apply. In this case, you will need to give the tenant an ABN to avoid having amounts withheld from the rental payments.

Hanna has a commercial building for lease. The building is fitted out as a shop with a small residence at the rear. Matthew has a mower sales and repair business and is looking for new premises from which he can conduct the business. He rents the building from Hanna for this purpose. He also decides that he will utilise the residence part of the building and live in this with his family. Because the building is properly described as a shop with residence attached and Matthew's main purpose in renting the building is to use the shop in his enterprise, the rent he pays will have a business character and the exception in (iii) will not apply. Unless Hanna or her agent gives Matthew an ABN, Matthew will have to withhold amounts from the rental payments. (For the GST treatment see paragraph 36 ).

The exception in (iv) applies where the whole of the supply is input taxed. In relation to a rental property, this requires that the supply must be a supply of residential premises to be used predominantly for residential accommodation [17] .

Amy is a freelance writer who works from home. She rents the house from Belinda. The physical characteristics of the house evidence that it is residential premises to be used predominantly for residential accommodation. Amy has set up one room as a home office in which she does her writing. Amy's use of the premises does not change the character of the supply of the house by way of lease from being an input taxed supply of residential premises to be used predominantly for residential accommodation. [17A] As the whole of the supply is input taxed, the exception in (iv) applies.Belinda will not have to give Amy an ABN to avoid having amounts withheld from the rental payments. (For the GST treatment see paragraph 29).

Steve is an electrician who has his own business. He rents the house, in which he and his family live, from Lesley. Steve uses the garage attached to the house as storage for the materials and equipment he uses in his business. Although Steve uses the garage for business purposes, the supply of the house, including the garage, is an input taxed supply of residential premises to be used predominantly for residential accommodation. Therefore the whole of the supply will be input taxed and the exception in (iv) will apply. Lesley will not have to give Steve an ABN to avoid having amounts withheld from the rental payments. (For the GST treatment see paragraph 29).

The exception in (iv) will also apply where residential premises are let to an entity and the entity uses the premises to supply residential accommodation to its own employees. This is because the supply will be wholly input taxed.

Rick and Christine have a luxury home unit for rent in Surfers Paradise. Buscorp Ltd rents the unit from Rick and Christine to provide residential accommodation for its newly appointed chief executive officer who has come from Melbourne to take up the position. As the unit is residential premises to be used predominately for residential accommodation, the whole of the supply will be input taxed. Therefore, Rick and Christine will not have to give Buscorp Ltd an ABN to avoid having amounts withheld from the rental payments. (For the GST treatment see paragraph 29 ).

Where the rental property is a commercial property, you will need to quote an ABN to the tenant to avoid having an amount withheld from the rental payments unless one of the other exceptions applies. The exception in (iv) does not apply to commercial property.

If your GST turnover meets the registration turnover threshold, you are required to register for GST. [18]

Where you let out residential premises that are to be used predominantly for residential accommodation, the supply is input taxed and the rent is not included in your GST turnover for threshold purposes. If you do not make other supplies that are taxable or GST-free, you will not have to register for GST.

In Example 3 (home office), at paragraph 22, Belinda does not have to register for GST if she does not make any other supplies that are taxable or GST-free. The same situation would apply to Lesley in Example 4 (garage), at paragraph 23, and Rick and Christine in Example 5 (home unit), at paragraph 25, if they did not make any other taxable or GST-free supplies.

If you let commercial property or commercial residential premises [18A] , you are making a taxable supply if the requirements of a taxable supply [19] are met. Therefore, the rent you receive from the supply will be included in determining your GST turnover for the registration turnover threshold. If the GST exclusive values of the rent plus any other taxable or GST-free supplies you make meets the registration turnover threshold, you are required to register for GST.

If your GST turnover does not meet the threshold, you are not required to register. However, if you are not registered or required to be registered for GST, the supply of the property will not be taxable and your tenant will not be able to claim input tax credits in respect of the rents.

A supply by way of lease of premises is an input taxed supply to the extent that the premises are residential premises to be used predominantly for residential accommodation. Therefore, supplies of mixed property may be partly taxable, depending on the registration status of the landlord. Where the landlord is registered, or required to be registered for GST, the letting of mixed property will be taxable to the extent that the premises are not residential premises to be used predominantly for residential accommodation [20] .

A portion of the rent received for a supply of a mixed property will be included in determining your GST turnover for the registration turnover threshold. The amount you take into account is the portion of the rent that relates to the part of the property that is not residential premises to be used predominantly for residential accommodation.

If your GST turnover meets the threshold, you will be required to register and the supply of mixed property will be partly taxable. If your GST turnover is below the registration turnover threshold you are not required to register but you can voluntarily register. If you are not registered or required to be registered, the supply of mixed property is not taxable to any extent.

In Example 1 (surgery), at paragraph 18, the portion of the rent that relates to the part of the premises designed as a surgery will count towards Simon's GST turnover for GST registration purposes. If the GST exclusive value of this portion of the annual rent is below $75,000 and Simon makes no other taxable or GST-free supplies, Simon will not have to register for GST. However, if Simon does not register for GST, the supply will not be taxable and Brian will not be able to claim input tax credits in respect of the portion of the rent that relates to the surgery.

The same applies to Hanna and Matthew in Example 2 (shop), at paragraph 20. The portion of the rent relating to the shop counts towards Hanna's registration threshold. If the GST exclusive value of this is below $75,000 annually and Hanna makes no other taxable or GST-free supplies, she is not required to register. If she does not register then the supply will not be taxable and there will be no input tax credits available to Matthew in respect of the rent on the shop.