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Edited version of your written advice
Authorisation Number: 1051252410382
Date of advice: 18 July 2017
Subject: Sale of a retirement village
Will your supply of the land be a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999?
No, it will be an input taxed supply pursuant to section 40-65 of the A New Tax System (Goods and Services Tax) Act 1999.
Relevant facts and circumstances
You are the registered proprietor of the land.
You are registered with the Australian Charities and Not for Profit Commission.
The land was used for retirement village accommodation.
The retirement village is no longer operated on the land and is unoccupied.
You previously recorded the land on the register of Retirement Village Land pursuant to the relevant legislation, but since the property has ceased to be used as a retirement village, that notification has been withdrawn.
The improvements comprise of xx self-contained one bedroom apartments, each with their own cooking, bathroom and toilet facilities and a lounge room.
The residents prepared and ate their own meals in their respective units. Each unit has a kitchen, bathroom and built-in wardrobes. Some have balconies or potential courtyards.
There was no on site management.
The communal building is only a general meeting area with tea and coffee making facilities. The premises do not include commercial infrastructure such as reception areas, dining and bar area, communal kitchens, storage and carparks to support a commercial operation.
The residents entered into a loan/licence agreement with you, which gave the resident the licence to occupy their unit after paying an in-going contribution, as agreed between the two parties. Upon departure, the in-going contribution was refunded to the resident or their estate, less a deferred management fee. The resident shared any capital gain or loss.
You also provided affordable housing as part of your social justice mission and as a result of this, the majority of residents at this particular location did not pay an in-going lump sum contribution. The residents paid a fortnightly recurring charge to meet village expenses.
The residents were required to separately arrange and pay for the connection of telephone, gas, and electricity.
The residents were responsible for cleaning and minor maintenance of the premises.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 9-5
A New Tax System (Goods and Services Tax) Act 1999 section 40-35
A New Tax System (Goods and Services Tax) Act 1999 section 40-65
A New Tax System (Goods and Services Tax) Act 1999 section 40-70
A New Tax System (Goods and Services Tax) Act 1999 section 195-1
Reasons for decision
In this ruling, unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).
Section 9-5 provides that you make a taxable supply if:
(a) you make the supply for consideration
(b) the supply is made in the course or furtherance of an enterprise that you carry on
(c) the supply is connected with the indirect tax zone, and
(d) you are registered, or required to be registered.
However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.
Under subsection 40-65(1), the sale of real property is input taxed, but only to the extent that the property is residential premises to be used predominantly for residential accommodation.
Subsection 40-65 (2) provides that the sale is not input taxed to the extent the residential premises are:
● commercial residential premises, or
● new residential premises other than those used for residential accommodation before 2 December 1998.
'Residential premises’ is defined in section 195-1 as land or a building that:
● is occupied as a residence or for residential accommodation, or
● is intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation;
(regardless of the term of the occupation or intended occupation).
Paragraphs 9 and 10 of Goods and Services Tax Ruling GSTR 2012/5 Goods and service tax: residential premises (GSTR 2012/5) explain that the requirement in sections 40-35, 40-65 and 40-70 that premises be 'residential premises to be used predominantly for residential accommodation (regardless of the term of occupation)' is to be interpreted as a single test that looks to the physical characteristics of the property to determine the premises' suitability and capability for residential accommodation. The test does not require an examination of the subjective intention of, or use by, any particular person. Premises that display physical characteristics evidencing their suitability and capability to provide residential accommodation are residential premises even if they are used for a purpose other than to provide residential accommodation (for example, where the premises are used as a business office).
As explained in paragraph 15 of GSTR 2012/5, to satisfy the definition of residential premises, premises must provide shelter and basic living facilities. The units are self-contained one bedroom apartments with their own cooking, bathroom and toilet facilities and a lounge room. Therefore, the units have the elements of shelter and basic living facilities required to be residential premises. The retirement village does not meet the criteria for new residential premises.
However, we also need to consider whether the supply of the retirement village is a supply of commercial residential premises, as this would exclude the supply from the input taxed treatment provided by section 40-65.
The term 'Commercial residential premises’ is defined in section 195-1 to include a hotel, motel, inn, hostel or boarding house, or anything similar.
Guidance on whether premises are characterised as commercial residential premises is provided in Goods and Services Tax Ruling GSTR 2012/6 Goods and service tax: commercial residential premises (GSTR 2012/6).
Paragraph 11 of GSTR 2012/6 explains that:
The tests to be applied are whether the premises are a hotel, motel, inn, hostel or boarding house for the purposes of paragraph (a), or whether the premises are similar to these types of premises, in the sense that they have a sufficient likeness or resemblance to any of these types of establishments for the purposes of paragraph (f). These tests necessarily raise questions of fact involving matters of impression and degree.
Paragraph 86 of GSTR 2012/6 states:
86. Premises may be characterised under paragraphs (a) or (f) of the definition of commercial residential premises when they are not operating. Premises that are not being operated at the time of supply may be classified by their overall physical character, considered with other objective characteristics.
Paragraph 87 of GSTR 2012/6 lists several factors that may objectively indicate whether premises are a hotel, motel, inn, hostel or boarding house. It further explains that where these indicators reveal that the premises have been specifically constructed for a different purpose (for example, to be used as a retirement village), or not designed as a hotel, motel, inn, hostel, boarding house or similar premises, the non-operating premises are not commercial residential premises
Your retirement village was specifically built and operated as such. Therefore, your supply of the land will not be a taxable supply. It will be an input taxed supply pursuant to section 40-65.
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