On 22 October 2019 IRD released a draft interpretation statement PUB00347. There is a lot of material in this draft IS and, in this article, we can only draw your attention to a few points. The Department is interested in supplies of accommodation for less than 4 weeks. It is not intended to cover accommodation provided to residential tenants, borders etc. The statement also covers short stay accommodation provided in a property exclusively used for that purpose.
Short stay accommodation is not an exempt supply. It is potentially subject to GST.
For GST to apply, there has to be a taxable activity which means the short stay accommodation activity needs to be carried on continuously or regularly.
If a person is registered for GST, some costs will be fully used in the taxable activity but if some also relate to non-taxable GST use an apportionment will be required.
This PUB is looking particularly at AirB&B and similar. If a registered person disposes of the property used for making taxable supplies of short stay accommodation, there is a GST consequence. GST output tax is charged on the sale price unless zero rating applies. As stated in a previous Tax-e-mail, input tax is restricted to the amount not previously claimed on cost price.
When cancelling GST registration there is a deemed disposal and the property is deemed to be sold at open market value.
Clause 13 confirms the statement “GST – Supply of Accommodation in Holiday Homes” published in PIB 160 (March 1987) no longer has current application.
Look out for the situation where your client carries on a business and supplies AirB&B accommodation as well. The two sources of income need to be added together for the purposes of GST registration. For example, a lawyer who buys and rents an AirB&B type property is likely to have to include the property as part of his taxable activity.
Unfortunately, there is an issue regarding supplies made to associated persons being deemed to be at market value for GST purposes.
This has implications for whether the GST threshold is exceeded and whether GST has to be paid on use by associated parties. One issue not resolved yet is in relation to properties owned jointly by spouses. Are they a partnership, remembering that partners are associated to a partnership or some form of unincorporated body? The GST ramifications of this could be significant even for something that is fundamentally a family beach house.
We understand the Department intends to give some more thought to these issues so it might be some time before we see the completed interpretation statement.
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