Hotel seeks GST clarification

A new Victorian hotel investment scheme may have to seek a private ruling from the tax office over its status when GST comes into effect next year.

A new Victorian hotel investment scheme may have to seek a private ruling from the tax office over its status when GST comes into effect next year.

The 139-room four-star hotel is being built at the Victorian coastal town of Warrnambool, with investors paying more than $180,000 for a room.

If each investor is treated as an individual by the tax office, they will not be able to charge or claim GST inputs and the hotel will enjoy a GST-free exemption, says Peter Doran from the responsible entity, CTM Property.

“Had the GST costs been factored into the investment, it would probably have a negative impact on tourism for the region and the occupancy rate at the hotel,” Doran says.

The alternative is for investors to buy their rooms through a company, which could be registered for gaining GST inputs. This means the hotel will then charge GST on its room rates.

“This will mean higher returns for the investor as they will be able to claim the GST inputs, but a lot will depend on the tax offices definition of an enterprise,” Doran says.

In a report on the impact of GST on the hotel development, PKF Worldwide says where the operator of the hotel is the owner, the GST complexities is easily solved.

In this case, however, the owners of the hotel are the investors. An operator, All Seasons, is to run the facility.

“The contentious aspect is whether the investor will be accepted as carrying on an enterprise (effectively being a business) for GST purposes,” the PKF report says.

If the investor is not allowed to register for GST, then the additional GST on the purchase price of the rooms will be treated as an additional cost to the investment.

“The investors will not be liable to charge GST on the supply of the unit to guests of the hotel via the operator,” PKF says.