Generally, you need to charge GST when you lease out commercial property. This includes short-term leases and commercial accommodation like hotels, hospitals, residential care homes and some serviced apartments.
How much you charge depends on how long your customer is staying and what kinds of services you offer.
The difference between commercial and residential property
The 4-week rule
You’ll need to charge GST on the full value of accommodation for the first 4 weeks' stay. After 4 weeks, you charge GST at a lower rate on certain items.
However, if you agree up-front that a stay will be for more than 4 weeks, charge GST on 60% of the value of domestic goods and services from the start of the stay.
Domestic goods and services
After 4 weeks, charge GST on only 60% of the value of the ‘domestic goods and services’.
These usually include:
- the right to stay on the property
- cleaning and maintenance
- electricity, gas, air-conditioning or heating
- telephone (not tolls), television, radio or similar items.
Non-domestic goods and services
Continue to charge GST as normal on the full value of these items or services:
- food
- toll calls
- medication
- nursing.
Combined charges
You'll need to separate any combined charges that cover domestic and non-domestic goods and services. For example, bed and breakfast.
We'll need the non-domestic, fully taxable supplies (breakfast) separate from the domestic goods or services (bed).
Rest homes and private hospitals
When you’re providing accommodation in rest homes and private hospitals, you split the costs for domestic and non-domestic goods and services.
These are the standard rates we allow for rest homes and private hospitals.
Rest homes
- 45% domestic goods and services
- 55% non-domestic goods and services
Private hospitals
- 35% domestic goods and services
- 65% non-domestic goods and services
Changing accommodation type
You'll need to make a GST adjustment if you turn your commercial property into exempt long-term residential accommodation.
If you change the use of a property, you may need to make a GST adjustment when the property is sold or there is a change in use.
Smith Properties Ltd decides to convert their entire building to residential apartments. All commercial tenants vacate the building. The building is now used for non-taxable purposes (residential renting). Smith Properties Ltd must make a GST adjustment for the period the use changed to 100% non-taxable purposes.
Tax Technical advice
Find out more on our Tax Technical website.
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