Property

Commercial residential premises

Commercial residential premises are places such as hotels, motels, serviced apartments, caravan parks and hostels that provide residential accommodation commercially, with rules that differ from ordinary residential rental.

Commercial residential premises are a special class of residential property. They include hotels, motels, inns, boarding houses, hostels, caravan parks, serviced apartments and similar premises where accommodation is provided in a commercial way. The legal definition includes a range of premises used predominantly for accommodation of the public, rather than a single home let to a tenant.

The distinction from ordinary residential premises matters because the GST treatment is generally different. Supplies of short-term accommodation in commercial residential premises are usually taxable, so a hotel charges GST on its room rates, and the operator, if registered, claims credits on its costs. In contrast, long-term rental of an ordinary home to a tenant is input-taxed, with no GST charged and no credits claimed.

Accommodation provided in commercial residential premises for a long continuous period can be treated differently from short stays, with part of the charge possibly being input-taxed. The detailed rules apply to the stay's length and the way the charge is made up, so a boarding house or a caravan park with long-term residents needs to check the ATO guidance to apply the right treatment. The operator must work out which part of its income is taxable and which is not.

Short-term accommodation platforms have brought attention to this area. A property owner who lets a home or room to guests for short stays may be supplying commercial residential premises, depending on how the accommodation is run and the services provided. If the owner's turnover from these supplies reaches the registration threshold, registration for GST may be required, and the GST would apply to the accommodation charged to guests.

For the business owner, the effect is that a motel or hotel typically must register once turnover reaches the threshold, includes GST in its prices, issues tax invoices on request and claims input tax credits on its costs such as cleaning, laundry and maintenance. A property that is input-taxed cannot claim those credits. So the classification affects pricing, cash flow and the return on a property investment.

Sale of commercial residential premises is generally taxable if the seller is registered, although the going concern concession or the margin scheme could apply. A buyer who will carry on a motel can often buy the business as a going concern with no GST. Because these deals are often large, the conditions should be checked before signing.

This is general information. The rules are detailed, so confirm your position with the ATO or a registered tax professional.

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