Boarding Houses – Unravelling the GST Confusion

Do you own a boarding house, or are thinking of investing in one?

If so, you will need to be across the GST treatment associated with the investment. This can be a confusing area to understand at the best of times, but particularly when it comes to Boarding Houses.

Background – do I need to consider GST registration?

In Australia, you’re legally required to register for GST if your annual turnover is expected to be over $75,000. We call this the turnover test.

For the average boarding house, your turnover should well exceed this threshold so GST registration will be a requirement.

However, regardless of the turnover test, consideration should be given to GST registration as you are developing/purchasing and running a commercial property, therefore you would normally automatically register so that you can apply going concern to your current purchase and sale in future.

“So, I’m registered for GST, now what?”

Normally, if you’re GST Registered, all your income will attract GST [equal to 1/11th of the sale value]. However, to add to the complication with a boarding house, special rules apply so it may not be this straight forward.

The GST treatment on income will depend upon the nature of the accommodation provided. We discuss this in detail below.

Short Term - Long Term - Predominately Long Term

Short-term accommodation is when a guest stays for less than 28 continuous days, in which case you're liable for GST of one-eleventh of the price you charge for the accommodation

Long-term accommodation is defined under Division 87 of the GST ACT – when a guest stays for 28 or more continuous days, in which case concessionary GST treatment applies

Predominantly long-term accommodation is defined under – if at least 70% of the individuals to whom you provide commercial accommodation stay for 28 or more continuous days, in which case concessionary GST treatment applies.

The following table summarises the positions

If you provide short term accommodation, then you are liable for GST on all income, but can also claim credits back for expenses incurred in producing that income.

If you supply some long-term accommodation, but not predominantly, then the portion of your income which relates to long-term accommodation then you can choose to apply the concessionary GST treatment available, and that portion of your rental income is Input Taxed. You can choose to not apply this concession under Section 87.25 of the GST Act 1999 if you wish.

For predominantly long-term accommodation, all of your income is eligible to be Input Taxed.

What does Input Taxed mean?

If your supply is Input Taxed, then under Division 40-1, there is “no GST payable on the supply, but there is also no entitlement to an input tax credit for anything acquired or imported to make the supply…”.

This means that although you don’t have to pay/charge GST on the income you receive, you also can’t claim any GST credits that you may incur in the running of the business. You can still claim a tax deduction, but aren’t entitled to a GST refund of the same.

As mentioned previously, you are able to choose not to apply the concessional GST rules, but if you choose to elect this option, you can’t change your mind within 12 months of applying Section 87.25.