What Happens When You Convert Motel Units Into Dwellings
Interpretative Decision (ID) 2008/136 by the Australian Tax Office (ATO) points out that if a unit was previously a motel room then its first sale as an independent dwelling will subject to GST.
This ID considers a motel that was constructed before GST was introduced, where the units were owned by the entity that constructed them and had been operated as a motel.
The units were strata titled and sold individually without any substantial renovations.
Commercial residential premises and the first sale of new residential premises are subject to GST on sale if the owner is registered for GST.
The ruling states that an individual unit did not qualify as commercial residential premises but the change of use made each unit a new residential premises.
The concession that if new residential premises are used as a rental for a continuous period of at least five years then their sale would not be subject to GST could not apply because they had been used in a motel business.
Properties used for residential accommodation before December 2, 1998 are not subject to GST when later sold. Residential accommodation is not defined in the relevant legislation but in this ID the ATO concluded that a motel business was not within this reference to residential accommodation. As a result the taxpayer had to remit GST on the sale of an old unit that had not been substantially renovated.
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