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Edited version of your private ruling
Authorisation Number: 1012309574430
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Ruling
Subject: Retirement village
Question 1
Whether lump sums received in the form of lease premiums from incoming residents are to be properly included as assessable income pursuant to section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Advice/Answers
Yes.
Question 2
Whether expenditure incurred by the taxpayer in acquiring or developing the village is an allowable deduction in the year it is incurred pursuant to section 8-1 of the ITAA 1997?
Advice/Answers
Yes.
This ruling applies for the following period
Year ended 30 June 2014
Year ended 30 June 2015
Year ended 30 June 2016
The scheme commenced on
1 July 1999
Relevant facts
The taxpayer commenced detailed plans for the development of a substantial retirement village in the first half of the1999 calendar year.
The project was spread out over a number of years in stages, so that the development could proceed progressively.
The plans for the retirement village were well advanced when Taxation Ruling TR 94/24 was withdrawn in X 2000.
The taxpayer sought advice from the Tax Office that the Commissioner considered that the scheme had begun to be carried out prior to the withdrawal of TR 94/24 and therefore the Ruling would continue to apply to the project pursuant to section 14ZAAL (now section 358-20 of Schedule 1) of the Taxation Administration Act 1953 (TAA 1953).
Private Rulings have previously been provided on this scheme up until the 2012-13 income year.
There have been no material variations in any of the facts as originally submitted on which the Commissioner first ruled, other than the delays in completing the development of the project.
The delays have been caused by a variety of factors including town planning delays, constructions delays, slowing of sales due to (amongst other things) the global financial crisis, overall depressed housing market, and lower consumer confidence with the state of the economy and increasing cost of living.
The development is now expected to be completed by mid 2016.
Relevant legislative provisions
Subsection 358-20(3) of the TAA 1953
Section 6-5 of the ITAA 1997
Section 8-1 of the ITAA 1997
Reasons for decision
Subsection 358-20(3) of the TAA 1953 states:
To the extent that a public ruling is withdrawn, it continues to apply to schemes to which it applies that had begun to be carried out before the withdrawal but does not apply to schemes that begin to be carried out after the withdrawal.
Specific to retirement village operators, subparagraph 77(b) of Taxation Ruling TR 2002/14 states:
Construction by stages: The development or construction of a retirement village in stages on one parcel of land is one arrangement. A village owner, who comes within the terms of TR 94/24 and began an arrangement to develop a retirement village in stages prior to the date of withdrawal of TR 94/24, may continue to rely on the ruling after the date of its withdrawal in respect of claiming deductions for construction costs incurred. This is subject to the proviso that lump sums payable by the first residents of each stage are included in assessable income, and that the gross proceeds on sale of the village are also included in assessable income in the year of sale.
As there has been no material change to the development, except for the delays in finalising construction, the Commissioner accepts that the entire project is one integrated project, which commenced in 1999.
Therefore, the taxpayer can continue to apply TR 94/24, and specifically paragraph 7, which provides that:
· the lump sum payable by an incoming resident is considered to be a gross revenue receipt and is included in the assessable income of the taxpayer under section 6-5 of the ITAA 1997; and
· for expenditure incurred in acquiring or developing the village, the expenditure is considered to be of a revenue nature and a deduction will be allowed under section 8-1 of the ITAA 1997 in the year in which it is incurred.
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