GST - converting Airbnb to long-term residential rental due to COVID-19 outbreak
An individual owns a property which they use to provide short-term holiday accommodation via Airbnb in a tourist destination.
The individual claimed GST on the purchase of the property in 2013.
Due to government-imposed travel restrictions, the individual decided to rent the property to long-term residential tenants. It is unclear whether this will, in fact, be a long-term change in their activity because the intention is currently to move back to short-term accommodation once conditions change.
The only GST activity the individual carried out previously was the provision of short-term holiday accommodation.
What are the GST consequences of this change in use of the property caused by the COVID-19 pandemic?
The supply of long-term residential accommodation is an exempt supply. Because the individual's only taxable activity was the supply of short-term holiday accommodation, the individual will no longer have a taxable activity. The making of exempt supplies does not constitute a tax activity.
To be registered for GST a person must be carrying on a taxable activity. A registered person who ceases to carry on all taxable activities must inform the Commissioner of that fact within 21 days of the date of cessation. The Commissioner must cancel the registration of the person with effect from the last day of the taxable period during which all taxable activities ceased, or from such other date as may be determined by the Commissioner. However, the Commissioner cannot cancel the registration of a registered person if there are reasonable grounds for believing that the registered person will carry on any taxable activity at any time within 12 months from that date of cessation.
If the individual has entered into a residential lease for a period of more than 12 months, their GST registration will need to be cancelled. This will result in a deemed supply of the property at market value on which the individual must account for output tax in their final GST return.
If the lease is for less than 12 months and there are reasonable grounds for believing the property will revert to short-term holiday accommodation, or if the individual had another taxable activity, the individual’s GST registration does not need to be cancelled. However, the individual would need to make a GST apportionment in their 31 March 2020 GST return to reflect that the property is no longer being used to carry on a taxable activity. Because the property has been owned since 2013 and the change in use is only for the month or so before 31 March 2020, the resulting output tax liability is likely to be relatively small. Going forward, a further adjustment will be required in the 31 March 2021 GST return to reflect the exempt use during that 12-month period. Assuming the property reverts to taxable use before 31 March 2021 and remains so through to 31 March 2022, all GST output tax paid for the exempt use should be able to be claimed back in the 31 March 2022 return pursuant to section 21FB.
Goods and Services Tax Act 1985, ss 6, 14(1)(c), 21, 21FB, 51, 52.
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