GST on Offshore Hotel Bookings

GST on Offshore Hotel Bookings – Client Update

You may recall there was an announcement in the May 2018 Budget of new GST measures that sought to extend GST by ensuring that offshore sellers of hotel accommodation in Australia calculate their GST turnover in the same way as local sellers of accommodation.

The Foreign OTA’s are in the process of gathering information to determine how to apply the new legislation and the questions they are asking has generated some uncertainty within the industry and for that reason we wish to respond to some of the questions we have received.

Are all Accommodation businesses impacted?

The new laws will require Foreign OTA’s to charge GST on booking fees where the Accommodation Property they are receiving the booking on behalf of is registered for GST and is providing “Commercial Accommodation” to their guests. The Foreign OTA will remit the GST to the Australian Government on behalf of the Accommodation property.

Commercial Accommodation providers such as Hotels, Motels and Backpackers will simply be required to notify the Foreign OTA of their GST Registration status.

For Non-commercial Accommodation providers such as Management Rights Operators, the GST will not apply to the booking fee collected by the Foreign OTA.

How is it administered?

To work out which of their customers are ‘exempt’, and Expedia may send an email to their customers to ask them to confirm if they are registered for GST or not.

This is a YES or No Question.

Holmans view…

We maintain our view that for most Management Rights Operators “Yes I am registered for GST” is the wrong answer to give.

We recently sought advice from the National Tax Association of Australia (NTAA) to ask how they believe our clients should respond to the question “Please confirm Your Registration Status?”

The NTAA consider that our clients should be answering the question as though they were the unit owner (i.e. the owner of the property) and in most cases the unit owner is not registered for GST. In any event, GST is not charged on the accommodation supplied to guests.

Hence, we are advising our clients to answer “Not Registered for GST” to the question.

What is the consequence of answering “No”?

The “No” answer supports the general position that Management Rights operators are acting as an agent for their unit owners and this helps maintain the position that there should be ‘No GST’ on the tariff charged to guests.

This outcome should be the same irrespective of whether the booking has come direct to the Property or via a Foreign OTA website.

The “No” answer will result in there being no net change to the profit position of the Management Rights Operator or to their Unit Owners.

What are the consequences of Answering “Yes?”

We say that the “Yes I am Registered for GST” answer is incorrect and that it creates exposure for the Management Rights Operator and their Unit Owners that is not intended by the new legislation.

We detail our concerns with answering this question incorrectly as follows:

  1. The “Yes I am registered for GST” answer is, in our view, incorrect as the question, “Please confirm your GST Status” is in fact a question that should be asked to the Unit Owner and not to their Letting Agent.
  2. The “Yes I am Registered for GST” answer suggests that the property owner is entitled to claim GST on costs associated with the supply of guest accommodation. The Industry has consistently argued that the accommodation supplied by Management Rights Operators is ‘input taxed’ which means:
    • a. Owners don’t apply GST to the tariff charged to the guest; and
    • b. Owners absorb the GST on the inputs such as Commissions and other costs.

The “Yes I am Registered for GST” answer indicates that the Management Rights Operator is not acting as agent for the property but as principal or manager. We are concerned that the ATO may use this disclosure as evidence that the Management Rights Operator is operating a commercial residential premises in its own right (not as agent) and this would support the argument that GST should be charged to the guests tariffs.

In summary we believe you should look at the question as one that is being ask to the owner of the accommodation property. In the context of Management Rights it is therefore a question that you are being asked to answer on behalf of your unit owners and in our opinion the answer should be “Not Registered for GST” on the basis that it is “Non-Commercial Property that is input taxed”.

The information, opinions or conclusions provided above are generic in nature and do not express individual advice or recommendations. You should always consult a suitably qualified professional before taking any course of action outlined above. Holmans welcome any queries you may have in relation to the above matters.

Need help and want more information? Call Holmans for assistance on (07) 5430 7600 or send us an email.