Edited version of your written advice

Authorisation Number: 1012802765020

Ruling

Subject: GST and access to transitional arrangements set out in GSTR 2011/1

Question 1

Will you, the Partnership be treated as the same entity (for the purposes of GSTR 2011/1) when Entity A disposes of some or all of its interest?

Answer

Yes.

When entity A disposes of some or all of its interest in the Partnership (which is the Beneficiary of Trust A, to the other members, this will not be a general dissolution of the Partnership. We consider that there is a reconstituted partnership which is treated as a continuing partnership.

Question 2

Will you be required to include the 'repayment benefit' in the consideration for the supply of the village under the definition in section 9-15 in the circumstances set out in question one, if the Partnership meets the tests for the transitional arrangements set out in GSTR 2011/1?

Answer

Yes

However, where you sell the retirement village as a taxable or GST free sale you will be permitted to apply the interpretation set out in paragraph 32 of GSTR 2011/1.

Relevant facts and circumstances

On ddmmyyyy "A trust deed (the Deed) was created between Entity B and X entities collectively known as the Beneficiary.

On ddmmyyyy, you applied for and received an ABN in the name of the X entities. You registered as a Partnership' with a start date of ddmmyyyy.

The Deed set out the details of the arrangement including the purpose of acquiring some land. In mmyyyy, Entity B acquired 2 parcels of land as bare trustee for the X entities collectively known as the Beneficiary (You). The Properties are located in Australia.

The Deed

Background

A the Beneficiary will pay or provide the whole of the purchase moneys for the properties … (the Properties).

B The Trustee will become nominee purchaser pursuant to certain Contracts for Sale of land by Offer and Acceptance to purchase the Properties for the Beneficiary….

C The Trustee will be nominated as purchaser pursuant to the Offer and Acceptance documents as Trustee for and on behalf of the Beneficiary.

D The parties want now to evidence that the beneficial ownership in the Properties will rest with the Beneficiary and if considered appropriate by the Beneficiary to enable the Register of Land Titles to enter a registrar's caveat to protect the interest of the Beneficiary in respect of the Properties.

Operative Part

1 Interpretations

1.1 'Proportionate Share' shall mean the undivided beneficial interest of each person or entity comprising the Beneficiary in the Trust fund … and

Vesting date means the date specified in item X

2 Properties held in Trust

2.1 The Trustee declares and confirms that it will be nominated as purchaser pursuant to the Offer and Acceptance documents in its capacity as trustee for the Beneficiary and not in its own corporate capacity and at all times it will hold the Properties (together with all rights pertaining to them, income from them and proceeds of its sale) on Trust for the Beneficiary (and its beneficiaries as the case may be).

3 Purpose

3.1 The Beneficiary has requested the Trustee to become nominee purchaser pursuant to the Offer and Acceptance documents to purchase the Properties and, pro rata to their Proportioned Share, make contributions on behalf of the Beneficiary and make distributions of revenue to the Beneficiary.

Item 3 of the Schedule to the Deed lists the beneficiary interests:

There is no Partnership Deed. Your agent advised that you treated the Trust Deed as a partnership arrangement. Your agent has advised that 'Beneficiary' means the Partnership of the X named entities (rather than there being X separate 'Beneficiaries').

You considered a number of offers to purchase interests in the property over the years. On ddmmyyyy you entered into a 'Heads of Agreements' with an unrelated third party. The Vendor was listed as Entity B.

Background item A states:

A. Entity B owns the Pinjarra Land on which it has developed and operates the Pinjarra Village.

You provided a copy of an independent audit report issued to the members of the Partnership.

The covering letter and notes to the financial statements refer to the "partnership" with the exception of Notes 1 (f) and (g) where the notes refer to "the Company" or "the Group".

The auditor's opinion is to the effect that the report represents fairly the partnership's financial position.

The covering letter, under the heading "Material uncertainty regarding continuation as a going concern" states:

Without qualifying our opinion, we draw attention to Note 1(m) in the financial report which indicates that the Partnership's current liabilities exceed it's current assets by $XX.XX at ddmmyyyy. The Partnership is not a separate legal entity. The assets and liabilities are those owned or liable by the Trustee of the Partnership. The bank borrowings disclosed in the financial report expire on ddmmyyyy. These conditions, along with other matters as set forth in Note 1(m), indicate the existence of a material uncertainty which may cast significant doubt about the Partnership's ability to continue as a going concern and therefore, the Partnership may be unable to realise its assets and discharge its liabilities in the normal course of business, and at the amounts stated in the financial report.

Note 1(m) to the financial statements states:

These financial statements have been prepared by the partners of the partnership on the basis that ¡t will continue as a going concern. The Partnership is not a separate legal entity. The assets disclosed on the partnership's balance sheet are legally owned by the trustee of the partnership and beneficially owned by the partners in the partnership. The liabilities of the Partnership are borrowings by the trustee of the partnership, which the partners have indemnified against loss arising from acting as trustee. In relation to the bank borrowings that are disclosed in the balance sheet and Note 13, the facility which expired on ddmmyyyy, was refinanced as disclosed in note 13. Also during the year ended ddmmyyyy, additional funds were contributed by the partnership's partners as disclosed in the Statement of Partners' Funds, that enabled the bank indebtedness to be reduced. Together with further reductions from the proceeds of the sale of independent living units, the loan was reduced to $X.X million at the date of this financial report. The continuation of the development project depends on the lease of ILUs as they are constructed and funding from the bank or the partners through to completion. The financial statements do not include any adjustment relating to the recoverability and classification of recorded asset amounts or to the amounts and classification of liabilities that might be necessary, if the partnership does not continue as a going concern.

Retirement Village

Preparation for the construction of the Retirement Village commenced on ddmmyyyy.

The intention was to develop a retirement village of XXX independent living units (ILU) for leasing to residents on a life lease tenure governed by the Western Australian Retirement Village Act 1992. XX units were completed by August 2011, and YY were occupied. As at mmyyyy there are ZZ completed units and AA are occupied.

Residents enter into a Lease Agreement with the designated operator of the retirement village. The Operator is listed as entity B and it is described as the Lessor and builder of the unit being leased.

Under the Lease Agreement, the lessor grants a 60 year lease of the unit to residents in consideration for the resident lending an amount of money interest free (the Loan) to the lessor.

The loan is to be repaid after termination or surrender of the lease.

On ddmmyyyy, your agent advised the Tax Office that they had formed an intention, in mmyyyy, to sell the property as a taxable supply of new residential premises.

You contended that your acquisitions were intended to be for developing the retirement village ('development acquisitions') and from April 2009, they had a dual application to both the sale of the village assets as taxable supplies and making input taxed supplies.

You advised that the apportionment methodology which was used to determine the extent of your creditable purpose and application under an output based indirect method did not include ingoing contributions as an economic benefit associated with the taxable or GST-free supply of the village.

A review of your entitlement to input tax credits was conducted in yyyy. In the course of the review the entity structure that you chose upon GST registration ('Other Partnership') was accepted, for purposes of the review, as a partnership.

Further, your entitlement to avail yourself of the transitional arrangements contained in Goods and Services Tax Ruling GSTR 2011/1 Goods and services tax: development, lease and disposal of a retirement village tenanted under a 'loan-lease' arrangement (GSTR 2011/1), was not covered in any detail as part of the review.

Entity A now proposes to dispose of a portion or all of its percentage interest to the other entities that make up the Beneficiary.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 9-5,

A New Tax System (Goods and Services Tax) Act 1999 9-15 and

A New Tax System (Goods and Services Tax) Act 1999 195-1.

Assumption(s)

Entity B holds the land (on which the Retirement Village is located) as bare trustee, for and at the direction of, the Partnership, which operates the retirement village.

Reasons for decision

In this reasoning, please note:

• unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

• all terms marked by an *asterisk are defined terms in the GST Act

On ddmmyyyy you asked us:

• Is the Partnership when reconstituted, treated as the same entity for GST purposes?

• Will it be entitled to the administrative concession set out in GSTR 2011/1?

You provided copies of:

• The Bare Trust Deed

• A 'Heads of Agreements'

• Financial Statements for the Partnership and the accompanying independent audit report.

Your agent contended that the entities named as the "Beneficiary" in the Deed were partners who considered that they owned, and were operating a retirement village as a general law partnership.

We considered these documents and found that they were not conclusive evidence as to the existence or otherwise of a general law partnership.

However, based on those documents and your agent's contentions, we have made the following assumption:

Entity B holds the land, on which Retirement Village business is located, as bare trustee for and at the direction of, the Partnership, which operates the retirement village."

The Partnership applied for and received an ABN and has reported the supplies and acquisitions associated with the construction and operations of the Retirement village.

Goods and Services Tax Ruling GSTR 2003/13 Goods and services tax: general law partnerships (GSTR 2003/13) explains how the GST law applies to transactions involving general law partnerships.

You have asked whether for the purposes of subparagraph 6(a) of Goods and Services Tax Ruling GSTR 2011/1 Goods and services tax: development, lease and disposal of a retirement village tenanted under a 'loan-lease' arrangement (GSTR 2011/1) whether, when one of the partners a portion or all of its percentage interest whether the partnership will be still partnership entity.

Paragraphs 126 and 127 of GSTR 2003/13 explain the effects of dissolution of a general law partnership. They explain that, where a partnership continues after the departure of a partner, but the remaining partners continue the enterprise, then this is called a technical dissolution.

Paragraphs 148 and 150 of GSTR 2003/31 state:

148. Under general law, any change in the membership of a general law partnership leads to its dissolution. However, as previously discussed in paragraphs 126 and 127 of this ruling, the dissolution may not lead to the winding up of the partnership. The continuing partners and any new partner may conduct the business of the partnership without any break in its continuity. We refer to this as a reconstituted partnership.

149. Whether or not there is a reconstituted partnership depends on the intention of the parties and the terms and conditions of the partnership agreement.

150. A written partnership agreement may expressly provide for the continuation of the firm or business in the event of a change in the membership of the partnership. This provision is often referred to as a continuity or non-dissolution clause. In the absence of a written agreement, such a clause may be implied by the conduct of the partners following the retirement or death of a partner, or introduction of a new partner.

Therefore, where the action of the continuing partners demonstrates that this is not a general dissolution and the partnership continues, we consider that there is a reconstituted partnership which is treated as a continuing partnership.

When Entity A disposes of some or all of its interest in the Partnership (which is the Beneficiary of the Trust), this will not be a general dissolution of the Partnership. We consider that there is a reconstituted partnership which is treated as a continuing partnership.

Access to Transitional arrangements

You asked whether the reconstituted partnership can access the concessional treatment in GSTR 2011.

This concession is found in paragraph 32 of GSTR 2011/1 and provides that a vendor of a Retirement village (under the circumstances set out below) will not be required to include the liabilities to repay the ingoing contributions in the consideration for the supply of the village subject to meeting certain requirements. This concession will impact on the calculation of the GST liability which will be reduced. This concession is available to the entities in the circumstances set out below, subject to further conditions set out in paragraphs 34 of GSTR 2011/1 onwards.

Paragraph 6 of GSTR 2011/1 provides that this ruling applies to arrangements that have the following features.

Paragraph 6 of GSTR 2011/1 states:

6. This Ruling applies to arrangements that have the following features:

(a) An entity ('the vendor') acquires land and makes acquisitions or importations in order to develop a retirement village.

(b) The vendor enters into residence contracts with incoming residents in relation to a residential unit or apartment in the retirement village (a 'unit').

(c) The unit is, or is intended to be, occupied as a residence or for residential accommodation.

(d) An amount ('ingoing contribution') is paid by the incoming resident to the vendor, to secure the right to reside in the village. The right to reside takes the form of a lease or licence (for convenience, 'lease') of extended duration.

(e) The ingoing contribution is in the form of an interest-free loan. The vendor is contractually obliged to repay the amount of the loan in full when the lease terminates.

(f) The vendor then supplies all or part of the village by way of sale or long-term lease as a taxable supply (or as a GST-free going concern) to another entity (for convenience, 'purchaser') as 'new residential premises' for the purposes of section 40-75. The vendor may or may not have had the intention to sell the retirement village at the time it was first developed.

(g) The sale arrangement contemplates, either expressly or by implication, that the purchaser will repay ingoing contributions outstanding at the time of sale.

We consider that the reconstituted partnership meets requirements (a) to (e) as set out above. We consider that Entity B acquired the land on your behalf as a bare trustee. Therefore, you are the relevant entity for the purposes of paragraph 6(a).

Therefore, where:

A. You sell the village by way of sale or long-term lease as a taxable supply (or as a GST-free going concern) to another entity as 'new residential premises' for the purposes of section 40-75 and

B. the sale arrangement contemplates expressly or by implication that the purchaser will repay the ingoing contributions outstanding at the time of sale;

you are required to include the repayment benefit in the calculation of the value of the consideration, unless you are entitled to access the transitional arrangements in paragraph 30 to 39 of GSTR 2011/1.

Paragraphs 32 to 38 set out the circumstances where an entity can access the transitional arrangements,

32. The Commissioner accepts that, prior to the issue of the Addendum to GSTR 2004/9, a reasonable interpretation of that Ruling was that liabilities to repay ingoing contributions which the purchaser of a retirement village became exposed to as a result of statute would not be included in the vendor's consideration for the supply of the village.

33. Accordingly, the vendor of a retirement village can apply the interpretation in paragraph 32 of this Ruling to the supply of a village which occurs before the date of issue of this Ruling.

34. Furthermore, the vendor of a retirement village will be permitted to apply the interpretation in paragraph 32 of this Ruling where it can be objectively determined that before the date of issue of this Ruling, the vendor became commercially committed to construct and develop a retirement village in accordance with the arrangement in this Ruling.

35. Eligibility for this transitional arrangement is based on commitment to the construction and development of the village. It does not require the vendor to establish that it was commercially committed to selling the village before the issue of this Ruling.

36. For the purposes of paragraph 34 of this Ruling, an entity will be commercially committed before the date of issue of this Ruling where, before that time, they have incurred, or become legally required to incur, significant financial costs for the purposes of entering into or carrying out an arrangement covered by this Ruling. An entity will only be considered to have incurred significant financial costs for these purposes where they have evidence which establishes an objective intention to enter into or carry out an arrangement of the relevant kind at the time the expenditure was incurred.

37. Accordingly, the transitional arrangements will not apply merely because an entity has purchased or contracted to purchase land, purchased an option over land or incurred costs in commissioning a feasibility study. Additional factors would be necessary in such cases in order to demonstrate that the taxpayer's commercial commitment relates to an arrangement covered by this Ruling. Such factors may include business plans, zoning approvals, development agreement approvals, or finance approvals which evidence an objective intention to enter into an arrangement of the relevant kind at the time the expenditure was incurred.

38. The transitional arrangements in paragraphs 33 and 34 of this Ruling do not apply if the vendor determines the extent of their creditable purpose and application using an output based indirect method⁸ which effectively recognises ingoing contributions as an economic benefit associated with the taxable or GST-free supply of the village.

Conclusion

You began construction of the retirement village in ddmmyyyy and completed ZZ units by mmyyyy. Accordingly, you were commercially committed to the project before January 20YY.

You have advised that, as per paragraph 38 of GSTR 2011/1, you did not determine the extent of your creditable purpose and application using an output based indirect method which effectively recognises ingoing contributions as an economic benefit associated with the taxable or GST-free supply of the village.

Therefore, where you sell the retirement village as a taxable or GST free sale, you will be permitted to apply the interpretation set out in paragraph 32 of GSTR 2011/1.

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