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.

Source: All of the following information has been extracted from IRD Tax Information Bulletin Vol 23 No. 1. Please click for more detailed analysis.