House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Housing and Assistant Treasurer the Hon. Michael Sukkar MP)

Chapter 2 - Online hotel bookings

Outline of chapter

2.1 Schedule 2 to this Bill amends the GST Act to require offshore suppliers of rights or options to use commercial accommodation in Australia to include these supplies in working out their GST turnover.

2.2 All legislative references in this Chapter are to the GST Act unless otherwise stated.

Context of amendments

2.3 There are a number of requirements for a supply of commercial accommodation to be a taxable supply. These include that the supply is connected with the indirect tax zone, the supply is made by an entity that is registered or required to be registered for GST and the supply is not GST-free or input taxed (section 9-5).

2.4 An entity will be required to be registered for GST if it is carrying on an enterprise and its GST turnover equals or exceeds the registration turnover threshold (section 23-5).

2.5 In determining GST turnover, prior to the amendments, certain supplies were disregarded and therefore not used in working out whether an entity's GST turnover exceeded the registration turnover threshold (sections 188-15 and 188-20). This included any supply that satisfied both of the following conditions:

•

the supply was of a right or option to use commercial accommodation (broadly a right to occupy all or part of a hotel or other commercial residential accommodation) in the indirect tax zone;

•

the supply was not made:

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in the indirect tax zone; or

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through an enterprise that the supplier carried on in the indirect tax zone.

2.6 This exception was originally introduced when the GST Act was amended in 2005 to clarify how it applied to supplies of rights and options concerning intangible supplies.

2.7 Because the supplies mentioned in paragraph 2.5 are not included in GST turnover, entities that make those supplies are not required to register for GST if their GST turnover does not exceed the relevant threshold. This also means that GST is not charged on these bookings, which advantages these overseas operators.

Summary of new law

2.8 Schedule 2 to this Bill amends the GST Act to require offshore suppliers of rights or options to use commercial accommodation in the indirect tax zone (broadly Australia) to include these supplies in working out their GST turnover. If the GST turnover of such offshore suppliers equals or exceeds the registration turnover threshold then GST must be remitted for their taxable supplies.

Comparison of key features of new law and current law

Detailed explanation of new law

2.9 The amendments include in an entity's GST turnover supplies of a right or option to use commercial accommodation in the indirect zone, even where that supply is not made in the indirect tax zone and is made through an enterprise that the supplier does not carry on in the indirect tax zone. [Schedule 2, item 3, paragraphs 188-15(3)(c) and 188-20(3)(c) of the GST Act]

2.10 The term 'indirect tax zone' means Australia other than the external territories and certain offshore areas. A reference to Australia in this Chapter concerning GST supplies is to the indirect tax zone.

2.11 This ensures that entities that supply rights to use Australian commercial accommodation, such as hotels, motels, hostels, student accommodation, or caravan parks but carry on their business offshore are still required to register for GST if their GST turnover, including those supplies, equals or exceeds the relevant GST turnover threshold.

2.12 Currently, the GST registration threshold is $75,000, or $150,000 if the entity is a non-profit organisation.

2.13 The amendments recognise that both Australian and overseas consumers now increasingly book Australian hotels and similar accommodation using online service providers that are based overseas. Accordingly, the amendments ensure that there is neutrality in the GST treatment of Australian hotel and similar accommodation regardless of whether the right to use the accommodation is purchased directly through an Australian supplier or from an offshore supplier.

2.14 The amendments apply to supplies where the offshore entity acquires rights or options to use commercial accommodation in the indirect tax zone and on-sells those rights to a customer. In those circumstances the offshore entity is contracting with the customer in its own right.

Example 2.1 : Offshore hotel supplier

Down-under Holidays is a United Kingdom based travel supplier that acquires rights to stay in Australian Hotels and makes online sales of this accommodation to customers in the UK and Australia. Down-under Holidays operates its business exclusively in the United Kingdom.

Down-under Holidays acquires a number of packages of hotel accommodation in Sydney from a Sydney hotel in 2021. The supply by the Sydney hotel to Down-under Holidays is a taxable supply of commercial accommodation, and the Sydney hotel is required to remit GST in relation to those supplies.

When Down-under Holidays on-sells the accommodation, it does so as a principal. As its GST turnover is $1.5 million, it is required to register for GST, and remit GST in relation to any taxable supplies it makes. Down-under Holidays is entitled to claim an input tax credit for its acquisition of taxable supplies of commercial accommodation from the Sydney hotel.

2.15 The amendments do not apply to supplies of rights to hotel accommodation that are merely facilitated by an offshore entity acting as an agent on behalf of a hotel. Under an agency arrangement the hotel is the supplier to the customer and, as such, has the obligation to account for the GST on the total amount paid by the customer.

2.16 Whether the offshore supplier is the agent of the hotel or a principal requires the consideration and balancing of various factors. A critical indicator of an agency arrangement is the requirement that the agent account to its principal for monies had and received on its behalf.

Consequential amendments

2.17 Consequential amendments are made to remove references to the repealed paragraphs from other provisions. [Schedule 2, items 1 and 2, paragraph 83-5(2)(c) and subsection 151-5(2) of the GST Act]

Application and transitional provisions

2.18 The measure applies in relation to either:

•

supplies for which any of the consideration is first provided on or after 1 July 2019; or

•

supplies where the invoice is issued on or after 1 July 2019.

[Schedule 2, item 4]

2.19 If an invoice is issued before 1 July 2019, then the measure does not apply in relation to the supply even if consideration is first provided after 1 July 2019, or vice versa.

2.20 This application generally aligns with the attribution rules for GST.