Supplies of accommodation

Accommodation provided by GST-registered persons is generally taxable unless it is expressly treated as an exempt supply. The GST Act exempts the supply of accommodation in a "dwelling", but not accommodation that is in a "commercial dwelling". The main reason for exempting the supply of accommodation in a dwelling from GST, as described in the 1985 White Paper on Goods and Services Tax, was to ensure that those in rental accommodation were not disadvantaged compared with owner-occupiers. For this reason, the definition was intended to apply to situations when there was a reasonable level of substitutability between renting and owning a home. This goal was arguably not being achieved because of the potentially wide interpretation of the definition of "dwelling".

In addition, the boundary between the definitions of "dwelling" and "commercial dwelling" could have resulted in different suppliers of essentially the same type of accommodation having their supplies treated differently for GST purposes, depending on whether particular aspects of the definitions were satisfied.

The Taxation (GST and Remedial Matters) Act 2010 amends the definitions of "dwelling" and "commercial dwelling" to provide a clearer boundary between the definitions.

Key features

The amendments narrow the definition of "dwelling" and update the list of accommodation that is treated as being in a "commercial dwelling".

For accommodation to be in a "dwelling" the relevant premises must be occupied by the recipient as their principal place of residence or it must be reasonably foreseeable that this will be the case. The recipient must also be entitled to quiet enjoyment of the property. Accommodation supplied to boarders will also be treated as a supply of accommodation in a "dwelling".

The current definition of "commercial dwelling" has been amended by expanding the list of types of accommodation that are to be treated as such to include homestays, farmstays, bed-and-breakfast accommodation and certain serviced apartments.

Application date

The new definitions apply for supplies of accommodation made on or after 1 April 2011.

Detailed analysis

Definition of "dwelling"

The definition of "dwelling" in section 2(1) of the GST Act has been amended to include premises that the person occupies, or that it can reasonably be foreseen that the person will occupy, as their principal place of residence (paragraph (a)(i)), and of which the person has "quiet enjoyment" (paragraph (a)(ii)).

The term "premises" is defined by reference to section 2 of the Residential Tenancies Act 1986, and therefore includes:

• any part of any premises; and
• any land and appurtenances, other than facilities; and
• any mobile home, caravan, or other means of shelter placed or erected upon any land and intended for occupation on that land.

A definition of a "principal place of residence" is included in the GST Act and means a place that a person occupies as their main residence for the period to which the agreement for the supply of accommodation relates. For example, if accommodation is supplied for six months, to be considered as being in a "dwelling", the accommodation must be the recipient’s principal place of residence, or be reasonably foreseen as being so, for that period.

For a supply to be a supply of accommodation in a "dwelling", the person must also have "quiet enjoyment" of the premises as the term is used in section 38 of the Residential Tenancies Act 1986. This means the person must be entitled to enjoyment of the premises without interruption by the landlord or any person claiming by, through, or under the landlord or having superior title to that of the landlord. Moreover, the landlord must not cause or permit any interference with the reasonable peace, comfort, or privacy of the tenant in their use of the premises.

Paragraph (b) of the definition of "dwelling" extends the definition to include accommodation provided to a person who is occupying the same premises, or part of the same premises, as the supplier of the accommodation and who occupies the premises as their principal place of residence. The intention of this paragraph is to include supplies of accommodation to boarders who reside in the same premises as their landlords and who may not meet the "quiet enjoyment" test.

Finally, a supply will not be a supply of accommodation in a "dwelling" if it is a supply of accommodation in a "commercial dwelling".

Definition of "commercial dwelling"

The definition of "commercial dwelling" in the GST Act provides a list of types of accommodation covered. The amended list adds supplies of the following types of accommodation:

• homestays;
• farmstays;
• bed and breakfast establishments; and
• a serviced apartment managed or operated by a third party for which services, in addition to the supply of accommodation, are provided and in relation to which a resident does not have quiet enjoyment.

The last inclusion ensures that all managed serviced apartments are treated in the same manner, irrespective of the structure adopted to provide the accommodation. This position was previously uncertain.