Edited version of private advice

Authorisation Number: 1052128060055

Date of advice: 19 July 2023

Ruling

Subject: GST and leases of independent living units in a retirement village

Question

Is your supply by way of lease of accommodation in independent living units (ILUs) in a retirement village (RV) an input taxed supply of residential premises under subsection 40-35(1) of the A New Tax System (Goods and Services Tax Act) 1999 (GST Act)?

Answer

Yes, the supply by way of lease of accommodation in an ILU in the RV is an input taxed supply of residential premises under paragraph 40-35(1)(a) of the GST. Goods and services tax (GST) is not payable on the supply by way of lease of accommodation in an ILU in the RV to the extent that supply is input taxed.

This ruling applies for the following periods:

DD MM YYYY to the DD MM YYYY

Relevant facts and circumstances

You are the operator of a complex. You are not an endorsed charitable institution or an endorsed trustee of a charitable fund.

You lease ILUs to a resident of the complex. Each ILU comprise two or three bedrooms, a kitchen, a bathroom and living space with the living independently in the ILUs.

The premises are not used, or intended to be used, for the provision of residential care by an approved provider.

The residents of the ILU are not receiving services referred to in paragraph 38-25(3)(c) of the GST Act being daily living activities assistance or nursing services as prescribed by the paragraph.

The average duration of a complex lease is approximately 12 years.

You are registered for goods and services tax (GST).

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 subsection 40-35 (1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 40-35 (2)

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

Reasons for decision

Input taxed supplies

Subsection 40-35(1) of the GST Act provides that a supply of premises that is by way of lease, hire or licence is input taxed if:

(a)          the supply is of residential premises (other than a supply of commercial residential premises or a supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises) or

(b)          the supply is of commercial accommodation and Division 87 (which is about long-term accommodation in commercial premises) would apply to the supply but for a choice made by the supplier under section 87-25 of the GST Act.

The supply is input taxed only to the extent that the premises are to be used predominantly for residential accommodation (regardless of the term of occupation) (paragraph 40-35(2)(a) of the GST Act).

However, the supply of premises is not input taxed if the lease, hire or licence, or renewal or extension of a lease, hire or licence is a long-term lease (paragraph 40-35(2)(b) of the GST Act).

Residential Premises

Section 195-1 of the GST Act defines residential premises as: land or a building that

(a)          is occupied as a residence or for residential accommodation or

(b)          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) and includes a floating home.

The Commissioner has considered the term 'residential premises' in Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5).

Paragraph 10 of GSTR 2012/5 explains that 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.

To satisfy the definition of residential premises, premises must provide shelter and basic living facilities. Premises that do not have the physical characteristics to provide these are not residential premises to be used predominantly for residential accommodation (paragraph 15 of GSTR 2012/5).

A supply of a residential apartment in a building may include a garage, car-parking space, or storage area which is ancillary or incidental to the dominant component of the supply being the residential apartment. It can be reasonably concluded that the garage, car-parking space, or storage area are to be used for the better enjoyment of the residential apartment (paragraph 16 of GSTR 2012/5).

The ILUs are buildings on land occupied as a residence by residents of the complex and display the physical characteristics which provide residents with shelter and basic living facilities suitable for residential accommodation and as such satisfy the definition of residential premises.

Retirement village

The complex are premises comprising land on which accommodation facilities in the form of ILUs and non-accommodation facilities including a community centre and associated recreational facility have been constructed.

Under section 195-1 of the GST Act premises are an RV if:

•                     the premises are residential premises; and

•                     accommodation in the premises is intended to be for persons who are at least 55 years old, or who are a certain age that is more than 55 years; and

•                     the premises include communal facilities for use by the residents of the premises.

but the following are not RVs:

•                     premises used, or intended to be used, for the provision of residential care (within the meaning of the Aged Care Act 1997) by an approved provider (within the meaning of the Aged Care Quality and Safety Commission Act 2018);

•                     commercial residential premises.

The RV complex will come within the definition of a retirement village for GST purposes.

Common areas and recreational community facilities

It is necessary to consider when the common areas and recreational community facilities contribute to the enjoyment of the occupation of the ILUs by the residents and therefore form part of residential premises.

Goods and Services Tax Ruling GSTR 2007/1 Goods and services tax: when retirement village premises include communal facilities for use by the residents of the premises (GSTR 2007/1) explains that the RV's residential premises include communal facilities when:

•                     the communal facilities are physical and

•                     the communal facilities are within, attached to or connected to the residential buildings or constructed on the surrounding land that actually or substantially contributes to the enjoyment of the buildings or to the fulfilment of its purposes as a residence (although communal facilities need not themselves be residential premises) (paragraph 19 of GSTR 2007/1).

In the RV context communal facilities would ordinarily include the following types of facilities: a library, a dining room, a recreation room, a chapel, an equipped gymnasium and outdoor recreational and leisure facilities such as a tennis court, a swimming pool or a barbeque area (paragraph 23 of GSTR 2007/1).

The word 'residence' in the definition of residential premises extends to:

•                     that part of the common area and other appurtenances to the building and

•                     the land immediately contiguous to the building, and

•                     that is predominantly necessary for the use and enjoyment of the building as a place of residence to individuals (paragraph 12 of issue 1 of the Retirement Villages Industry Partnership - Issues Register (Issues Register)).

It follows, that the ILU in the complex and those parts of the land immediately contiguous with the ILU as well as other facilities incidental to or for the use and enjoyment of the residential premises including path, driveways, parks, gardens and communal recreational facilities within the curtilage of the complex come within the definition of residential premises in section 195-1 of the GST.

Other facilities, services or outlets

To the extent facilities, services or outlets cannot reasonably be expected to be provided as part of residential rent of the ILU those facilities, services or outlets are taxable supplies where the requirements of section 9-5 of the GST Act are otherwise satisfied. Examples of areas not included in rented residential premises of ILUs include restaurants and associated dining areas where prepared meals are provided, hairdressing/beauty salon, pharmacy, medical room, nursing station, convenience stores and areas geographically situated away from the residence. Examples of services that are not considered to be residential rent include resident's personal laundry, cleaning and meals, bus services and diversional activities.

The complex does not supply residents with facilities or services or outlets that cannot reasonably be expected to be provided as part of residential rent of their ILU.

Commercial residential premises

Commercial residential premises (CRP) is defined in section 195-1 of the GST Act to include a hotel, motel, inn, hostel, boarding house, caravan park or camping ground and anything similar to these premises as well as certain premises used for school accommodation, certain ships and marinas at which one or more berths are occupied or are to be occupied by ships used as residences.

Supplies of CRPs and supplies of accommodation in CRPs are considered in Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises (GSTR 2012/6). Paragraph 12 of GSTR 2012/6 sets out common characteristics of operating hotels, motels, inns, hostels and boarding houses that assist in characterising premises as commercial residential premises.

The complex does not hold itself out as accommodation for tourists, guests or lodgers. Further, the status of residents in a leasehold situation is that of a tenant or lessee rather than guests, lodgers or boarders. The characteristics of the QRC weigh against it being sufficiently similar to a hotel, motel, inn etc to be considered CRPs or anything similar to hotels, motels, etc (see example 1 at paragraph 43 of GSTR 2012/6). It follows, that the ILU in the complex does not fall within the meaning of CRP as defined in section 195-1 of the GST Act (see also paragraph 9 of issue 1 of the Retirement Villages Industry Partnership - Issues Register (Issues Register).

As the complex comprises residential premises (ILUs) which does not fall into the definition of CRP all the requirements of the definition of an RV in section 195-1 of the GST Act are satisfied with regards to the complex.

Long term lease

Under paragraph 40-35(1)(a) of the GST Act the supply of residential premises by way of lease that are not CRP are input taxed. This is the case unless, the premises are supplied by way of a long-term lease (paragraph 40-35(2)(b) of the GST Act).

The term 'long term lease' is defined in section 195-1 of the GST Act to mean a supply by way of lease, hire or licence (including a renewal or extension of a lease, hire or licence) for at least 50 years if:

•                     at the time of the lease, hire or licence, or renewal or extension of the lease, hire or licence, it was reasonable to expect that it would continue for at least 50 years; and

•                     unless the supplier is an Australian government agency (AGA) the terms of the lease, hire or licence, or renewal or extension of the lease, hire of licence, as they apply to the recipient are substantially the same as those under which the supplier held the premises.

Residents are generally at least 65 years of age on entering the lease. The average duration of an RV lease is approximately 12 years and the lease cannot be assigned.

Accordingly, at the time the residents enter into the lease agreement, it is not 'reasonable to expect' that the lease will continue for at least 50 years.

Consequently, the lease granted by you in the complex is not a long-term lease as defined in section 195-1 of the GST Act and paragraph 40-35(2)(b) of the GST Act does not apply.

GST-free

The resident of the ILU in the complex is not receiving services referred to in paragraph 38-25(3)(c) of the GST Act being daily living activities assistance or nursing services as prescribed by the paragraph. The grant of the lease which confers a right to occupy and reside in an ILU and use of common areas and recreational facilities incidental to the ILU are not used or intended to be used to provide 'care' as the residents all live independently and as such the related accommodation in the complex is not GST-free.

Conclusion

You are making an input taxed supply under subsection 40-35(1) of the GST Act when you supply the ILU in the RV complex by way of lease (that is granted for a period greater than 50 years) to a resident.

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