Edited version of private ruling

Authorisation Number: 1011680512157

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Ruling

Subject: GST and ingoing loan liability assumed by the purchaser of a retirement village

Question

Does the consideration for the taxable supply of your retirement village premises include the value of the repayment benefit of the ingoing loan contributions which are assumed by the purchaser of the village?

Answer

No, the consideration for the taxable supply of your retirement village premises does not include the value of the repayment benefit of the ingoing loan contributions as they are the contractual obligations of another entity.

Relevant facts

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are registered for GST.

You are the registered proprietor of land situated in Australia. The Land carries a current planning permit for use of the Land as a retirement village (RV).

The RV project commenced in a specified year and was built in stages with a total of X villas built to date. The first resident moved in less than five years ago and a number of units are now occupied.

You entered into a management/lease agreement (the Management Agreement) with another entity (Entity A), in return for an annual lease payment of $X.

You licensed the Land to Entity A for the purpose of constructing a retirement village in accordance with the Permit, or any future variation thereto and conducting the operation of the retirement village. All obligations of the retirement village operator pursuant to the Resident Agreements (the Lease/sub lease agreement) will be the responsibility of Entity A including the repayment of the ingoing loan contributions and Entity A will be entitled to retain the proceeds of ingoing fees paid by residents of the village pursuant to the Resident Agreements.

You entered into agreements with the tenants to lease (Lease/sublease agreements) the accommodation to them. Entity A was a party to this lease agreement. This agreement set out that Entity A was entitled to receive all lease fees and any levies that the residents were required to pay.

Entity A entered into an agreement with each resident called the Loan agreement. You are not a party to this agreement however the agreement provides that the resident agrees to loan the Operator the loan amount from the date the ingoing contribution is payable under the lease and that the operator must repay the loan amount to the resident on the exit entitlement date and that the loan is interest free.

Neither you nor Entity A has included the value of the ingoing loan contributions in any apportionment calculations in claims for ITC's.

The RV village including the ILUs and associated infrastructure will be sold for $X and you will assign all the loan lease agreements.

The Sale Agreement for the RV land and buildings sets out that that you are the vendor and the sale is of land held under freehold title. The sale price is $X and will not be one of a GST-free going concern. You will not use the margin scheme to calculate the GST liability and Clause X provides that the Leases and Loan Agreements must, pursuant to the Business Sale Agreement, be assigned to the Purchaser by way of deed of assignment in the form of the deed of assignment included as an annexure of the same name to the Business Sale Agreement.

Reasons for decision

Summary

You do not have a liability to repay loans to residents of the village (other than that imposed as a charge over the land), and consequently do not receive a benefit from the purchaser's acceptance of the liability to repay the loans. It is not, therefore, relevant to consider whether you need to gross up the sale price of the land and premises.

Detailed explanation

You are the owner of the retirement village and the land on which it is situated. You entered into two agreements in relation to this property.

The first is an agreement between you and Entity A whereby you lease the land to Entity A. The purpose of this agreement is to enable Entity A to access the property to develop and operate the RV.

The second is a loan/lease agreement between you and the residents of the retirement village. This agreement sets out the various fees the residents agree to pay including the ingoing loan contributions and various service payments to acquire the right to live in one of the units in the RV. The agreement sets out that these payments including the ingoing loan contribution are payable to Entity A who operates the village in return for this consideration. Entity A is required by this agreement to repay the loan contributions to the residents when they exit the RV

The units have been tenanted for less than five years. On the facts supplied it is considered that the independent living units (ILUs) are residential premises and as per section 40-75 of the GST Act will meet the criteria for new residential premises. Therefore the supply of the ILUs and associated infrastructure will be a taxable supply.

You will also be supplying the leases you have entered into with the residents which will be assigned as per the Deed of Assignment of loans and leases.

As set out in the facts both the residents lease agreement and the loan agreement provide that Entity A will receive the ingoing loan contribution and is liable to repay these amounts to the resident when they exit the RV.

You have asked whether you are required to include the value of these liabilities assumed by the purchaser in the value for the sale price of the RV and ILUs.

The are two main factors that need to be considered in addressing this issue.

The first is who receives the benefit and the second is whether they must include the benefit in the consideration for their supply.

Although the relevant State RV Act sets out the there is a charge is over the land that you hold and you could be considered to be the ultimate beneficiary of the transaction when the purchaser assumes the liabilities, the contractual arrangements between you, Entity A and the resident are that Entity A has the obligation to repay the loans.

Therefore, you are not receiving any benefit associated with the purchaser assuming the obligation to repay the loans, as the benefit is to Entity A. Therefore you are not required to gross up the consideration for the sale of the retirement village premises to include the obligation assumed by the purchaser to repay the ingoing loans to residents when they exit the Village.