Show download pdf controls
  • Retirement Villages Working Group key messages May 2019

    The second quarterly meeting was held on 10 May 2019, with updates for the priority topics outlined below:

    Sales of villages by charities

    • Further discussion around sales of retirement villages used by charities for the purpose of only making GST-free supplies and the meaning of ‘new residential premises’.
    • Generally, as the premises have not been used solely for making input taxed supplies, the first sale of a ‘charitable’ village will be a supply of ‘new residential premises’ with GST payable.
    • The Retirement Living Council (RLC) acknowledged that this may need to be progressed as an advocacy issue.

    GSTR 2011/1 transitional concessions

    This issue deals with access to the transitional concessions in GSTR 2011/1: Goods and services tax: development, lease and disposal of a retirement village tenanted under a ‘loan-lease’ arrangement. Specifically, when an entity will be accepted as being ‘commercially committed’ before the relevant date of 27 April 2011.

    The group will initially focus on 4 key points raised by the RLC:

    • Should the GST test for accessing the transitional concessions in GSTR 2011/1 which is based on ‘commercial commitment’ be aligned with the Income test in TR 2002/14 Income tax: taxation of retirement village operators, which considers whether the owner of a retirement village ‘began an arrangement’ to develop or acquire the village.
    • Could an agreed dollar amount be used as a benchmark for determining whether significant financial costs were incurred by the entity before the relevant date?
    • Do the examples of the transitional arrangements in GSTR 2011/1 need to better reflect commercial reality and the steps involved in undertaking a retirement village development?
    • Can the transitional concessions apply to members of an economic group where another member of that group can demonstrate that they were ‘commercially committed’ to undertake a RV development before the relevant date?

    The group is working through a number of scenarios with a view of gaining more clarity on where the ‘flags in the sand are’ in relation to applying the transitional treatment in GSTR 2011/1.

    Apportionment of initial and ongoing capital costs

    The discussions around this issue are in relation to the apportionment of GST credits. The scope of this consultation issue is limited to capital costs for villages being developed for operation only (i.e. Where there is no ‘dual intention’).

    • Industry members spoke of compliance burdens and a lack of certainty around what constitutes a fair and reasonable method for apportionment of credits relating to the construction and operation of their villages.
    • While an entity’s extent of creditable purpose will be a question of fact, the working group are considering ways to address some of the practical difficulties being faced by the RV industry in determining the extent of creditable purpose for their capital acquisitions. This includes exploring whether a form of safe harbour can be developed to provide more surety for RV operators.

    Intention to sell/'dual intention'

    The concept of ‘dual intention’ is recognised in law for GST, however, in practice there is still uncertainty around the evidence required to demonstrate that an entity has a dual intention. Industry members have indicated that while ATO public guidance sets out some factors that may support a dual intention, it does not provide sufficient guidance at a practical level for RV industry members.

    The working group will be:

    • Considering the GST vs Income tax treatment.
    • Contemplating the Australian Accounting Standards and their effect on reporting of RV developments for tax purposes.
    • Clarifying how Division 129 in the GST Act should apply for retirement developments when an entity has a dual intention.

    Leasehold issues

    This issue primarily involves the characterisation of supplies of leasehold interests in retirement villages and includes 3 sub-issues:

    • The circumstances in which a non-government entity will meet the GST definition of ‘long term lease’.
    • The characterisation of supplies of leasehold interests in a retirement village and whether the nature of a leasing supply changes as a village is developed on the land.
    • GST at settlement withholding implications for supplies of retirement villages by way of long-term lease.

    While the ATO has confirmed that as a legal principle, a non-Government entity can grant a long-term lease, there would be limited circumstances where the GST definition would actually be met. The group is working to determine the circumstances in which both limbs of the definition will be met and relevantly when a lease will be on substantially the same terms.

    Meals in serviced apartments

    This issue centres on the meaning of ‘provide’ in subsection 38-25(3A) and whether a retirement village operator has a requirement to actually provide each and every meal, to residents in serviced apartments.

    • Leading Aged Services Australia (LASA) indicated that RV operators were concerned that the GST characterisation of an Operator’s supply may be affected by a resident’s choice not to take their meals, or to arrange their own.
    • It was acknowledged that the intention of the GST law (s38-25(3A)) needs to be considered in the context of the care needs of residents in serviced apartments. Industry is seeking more practical guidance that takes into account the new accreditation standards and increasing demand to provide residents with more choice and independence in the delivery of their care services
      Last modified: 14 Jan 2020QC 61108