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Authorisation Number: 1012165389637

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Ruling

Subject: GST and retirement village and aged care

Question 1

Do your project management services constitute taxable supplies?

Answer

Yes

Question 2

Are your supplies of general services and personal services GST free under subsection 38-25(1) section 38-30 or 38-35 of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act)?

Answer

They will be mixed supplies of GST-free and taxable supplies.

Question 3

What is the GST status of your supply of accommodation under the Lease Agreements?

Answer

They will be input taxed supplies.

Question 4

Will you be entitled to recover full input tax credits on in respect of your acquisitions?

Answer

You will be entitled to a portion of the input tax credits in respect of your acquisitions.

Relevant facts and circumstances

You are the Operator of several retirement villages:

The registered owner (owner) of the villages is Entity B.

You are not an approved provider of aged care under the Aged Care Act 1997.

You will appoint Entity C as manager of the Villages. You state that you will remain responsible for the operations undertaken by the Manager.

In ddmmyyyy, Entity C applied to the Department of Health and Ageing (DOHA) for approval to provide community care and flexible care. Entity C did not apply for approval to provide residential care.

The application lists the applicant as Entity C. It states that Entity C will not engage another entity (management company) to deliver care services on its behalf. The application does not assert that Entiy C will deliver care services on behalf of the Operator or any other entity.

In its reply, DOHA advised that Entity C was approved as an approved provider under the Aged Care Act 1997. The letter states that Entity C is approved to provide community care and flexible care. The letter does not refer to Entity C's engagement of a management company, or provision of its care services on behalf of the Operator or any other entity.

The Villages were built as independent living unit retirement villages and were acquired as such by the owner. They are being converted to provide residents with supported living accommodation under a loan/lease model. You advised that supported living accommodation means

"accommodation designed to meet the needs of older persons who wish to enjoy an independent lifestyle whilst ensuring that their care and support requirements are met, and which offers the provision of care and support services to residents as and when required in the comfort and security of their own accommodation unit or within the Village."

You have entered into an agreement with the owner of the retirement village to undertake work on the following areas of the villages - (as specified in the Village One Project Management Agreement):-

· Resident Apartments

· Community Centre

· Care Technology Solutions and IT

· Village General

You advised that the Village One Project Management Agreement is representative of the agreements for the other villages.

Each of your villages is a separate complex. You provided a copy of the site plans for the villages. The plans show that the dwellings are not connected via a common corridor. Rather, the layout of the dwellings is a made up of a number of separate buildings with entry to each apartment via an external doorway.

You do not consider the units to constitute serviced apartments from a GST perspective.

Although there is always an option to sell the Villages, it is anticipated the Villages will continue to be held and operated for the foreseeable future.

You are registered for GST.

Lease Agreement

You entered into leases of the Villages from the Owner under a lease (Head Lease).

Each village will be the subject of a separate lease. You provided a signed and dated copy of the Lease Agreement for Village One.

Under the terms of the Head Lease, you are permitted to grant to Residents the right to use or occupy, (including through an agent) any part or parts of the Land without the consent of the Landlord.

You have prepared a PID and the form was lodged under section 27 of the Retirement Villages Act 1999.

Development and Management Agreement

The owner and you have entered into Development and Management Agreements (Development agreement) whereby the owner will pay you a project management fee for refurbishing the Villages.

You provided a copy of the Project Management Agreement for Village One, which you advised is representative of the agreements for the other villages.

Definitions:-

· -'Works' means all works required to enable the Land to be developed and the Project to be carried out in accordance with the Authorisations, and includes:

o construction of improvements;

o refurbishment of buildings and Improvements; and

o all associated and ancillary works to be carried out on the Land as part of the Project

Entity C Development and Management Agreement

You and the Manager have entered into a Development and Management Agreement

The relevant clauses are:-

Definitions

· Development means the conversion and refurbishment of the Retirement Villages in accordance with the Plans and Specifications.

The Operator appoints Entity C to be its agent to undertake the Development and to Manage the Retirement Villages and Entity C accepts this appointment.

Operation and Management

(a) The parties agree that except as notified by Entity C to the Operator, or except in the case of the failure of the Operator to Manage:

(i) the Operator shall not Manage the Retirement Villages; and

(ii) Entity C shall Manage the Retirement Villages,

and Entity C shall receive payment from the residents of all amounts payable under the Resident Contracts including, but not limited to the ingoing contributions or deferred management fees, lease/rental income and all service fees levied as agent for the Operator;

Under the loan/lease model, you will provide various existing facilities to residents, including:

· transport facilities

· dining facilities

· emergency call access facilities

· recreational and social facilities

· garden areas and walking paths

· administration offices/facilities

· commercial kitchen

Application for residence

Prior to allocation of an accommodation unit, the resident is required to complete an Application for Residence.

Prior to entering the Village, the resident is required to undertake an initial assessment by the Care Manager to identify what personal services are required.

· Under a clause, the resident agrees to provide to the Scheme Operator, any information relating to their medical and care needs as requested by the Scheme Operator.

· Under a clause the Scheme Operator may terminate the application if the Scheme Operator is unable to meed the medical and care needs of the resident, or is not satisfied that the resident has any medical or care needs warranting a place in the supported living community.

Sublease (from the Operator to the Resident)

Under a clause - in conjunction with Item x of the Items Schedule - the applicants in the Villages must be 55 years of age or over, or, in the case of a joint application, at least one applicant must be 55 years of age or over.

The resident is required to pay to the Scheme Operator the amount as required by the Loan Agreement (being all or part of the ingoing contribution).

The ingoing contribution will be by way of an interest free loan by the resident to the Operator. The loan will be made by the resident before a resident may take up occupancy of the accommodation unit pursuant to the lease.

In consideration of a resident making the ingoing contribution by way of interest free loan, the Operator agrees to grant to the resident a sublease of the accommodation unit and to repay the ingoing contribution in accordance with the terms of the Loan Agreement.

The resident is required to pay a general services charge and a maintenance reserve fund contribution.

The resident is also required to pay for personal services set out in the Care and Support Services Agreement.

On exit, the resident pays an exit fee.

Additional fees include

Deferred General Service Charge, which is the difference between the actual General Service Charge and the Maximum Weekly General Service Charge of $xx per week;

General Service Charge

Personal Service Charge for the provision of personal services; and Maintenance Reserve Fund Contribution.

Care and support services agreement

The agreement lists the following personal services available to the resident (a GST-inclusive fee is charged):

· Resident meals:

· Visitor meals:

· Domestic services provided by Community staff:

o apartment cleaning

o personal washing

o personal ironing

· Activities of daily living assistance provided by Community qualified staff:

o bathing, showering, personal hygiene and grooming

o maintaining continence or managing incontinence and using aids and appliances designed to assist continence management

o meal preparation and/or assisting with feeding

o dressing, undressing and using dressing aids

o moving, walking, wheelchair use and using devices and appliances designed to aid mobility, including the fitting of artificial limbs and other personal mobility aids

o communication, including to address difficulties arising from impaired hearing, sight or speech, or lack of common language (including fitting sensory communication aids) and checking batteries and cleaning spectacles.

o medication assistance

o shopping and bill paying

· Nursing services.

· Maintenance services.

· Private transport

· Other optional services (doctor, allied health, hairdressing, etc)

· Telephone with personal phone number

· Internet access in accommodation unit

· Cable television services.

General care services

The General Services Charge (GSC) includes up to a maximum of x hours of care services per week provided by qualified Village community staff. The care services a resident receives are based on care needs and are determined through care assessments conducted by the Care Manager which form the basis of the residents' care plan.

The general care services provided by qualified Village community staff are in addition to any externally or internally delivered community care packages. Furthermore, the efforts of the Village Manager in securing a community care package for a resident will incur no additional fee.

· The agreement lists the following as general care services:

o Assistance with activities of daily living provided by Personal Carers include but are not limited to:

o Bathing, showering, personal hygiene and grooming

o Dressing and undressing

o Maintaining continence or managing incontinence

o Meal preparation and/or assistance with feeding

o Assistance with walking, wheelchair use, fitting artificial limbs, hearing aids

o Medication assistance

o Shopping and paying bills

· Nursing Services provided by Registered Nurse include but are not limited to:

o Clinical assessments

o Medication supervision including liaising with SF, Chemist and Hospitals

o Wound dressings

o Application of specific creams

o Blood pressure and other health monitoring required

o Injections

Funding

Care delivered is from the following three funding sources:

· Care delivered by Entity C and funded by the Entity C through the General Services Charge (GSC).

· Care delivered by Entity C and funded by the individual residents where care needs exceed that funded under the GSC.

Care delivered to residents and funded by community care packages is delivered by the following sources:

· External care providers. Coordination of care delivered by external providers and care delivered by Entity C is facilitated by Entity C' Care Coordinator.

· Entity C will also broker the care delivery on behalf of the care package owners; and

· Entity C will deliver community care directly to residents as an approved provider of aged care.

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 11-5

A New Tax System (Goods and Services Tax) Act 1999 section 11-15

A New Tax System (Goods and Services Tax) Act 1999 section 11-20

A New Tax System (Goods and Services Tax) Act 1999 section 38-25

A New Tax System (Goods and Services Tax) Act 1999 Section 38-30

A New Tax System (Goods and Services Tax) Act 1999 section 38-35

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

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

Aged Care Act 1997

Reasons for decision

Question 1

Do your project management services constitute taxable supplies?

Under section 9-5 of the GST Act, an entity makes a taxable supply if:

· it makes the supply for consideration

· the supply is made in the course or furtherance of an enterprise that it carries on

· the supply is connected with Australia and

· the entity is registered or required to be registered.

However, a supply is not a taxable supply to the extent that it is GST-free or input taxed.

You are supplying project management services for consideration.

Under the development arrangement, the ownership of any agreed structural or other improvements become the property of the owner on the termination or early expiry of the lease. Accordingly, you are supplying construction services and project management services.

As your supplies:-

· are made for consideration,

· are made in the course or furtherance of your enterprise,

· are connected with Australia, and

· you are registered for GST,

they will satisfy the requirements of section 9-5 of the GST Act.

In your factual situation, there is no provision of the GST Act that would make your services GST-free or input taxed. Therefore, your supplies of project management and construction services will be taxable supplies.

Question 2

Are your supplies of general services and personal services GST free under subsection 38-25(1), section 38-30 or section 38-35 of the GST Act?

Residential care

Subsection 38-25(1) of the GST Act provides that :-

(1) A supply of services is GST-free if:

(a) it is a supply of services covered by Schedule 1 to the Quality of Care Principles; and

(b) it is provided through a residential care service (within the meaning of the Aged Care Act 1997); and

(c) the supplier is an approved provider (within the meaning of that Act).

Your agent contends, and we concur, that subsections 38-25(2) and 38-25(3) of the GST Act have no application to your circumstances.

For a service to be GST free under subsection 38-25(1) of the GST Act it must meet all of the criteria.

Some, but not all, of the services that will be supplied under the Care and Support Services Agreement are services covered by Schedule 1 of the Quality of Care Principles. Therefore, only some of the services provided will meet the requirements of paragraph 38-25(1)(a) of the GST Act.

"Residential care service" is defined in the Aged Care Act 1997 to mean an undertaking through which residential care is provided.

Residential care is defined in section 41.3 of the Aged Care Act 1997.

41-3 Meaning of residential care

(1) Residential care is personal care or nursing care, or both personal care and nursing care, that:

(a) is provided to a person in a residential facility in which the person is also provided with accommodation that includes:

(i) appropriate staffing to meet the nursing and personal care needs of the person; and

(ii) meals and cleaning services; and

(iii) furnishings, furniture and equipment for the provision of that care and accommodation; and

(b) meets any other requirements specified in the Residential Care Subsidy Principles.

2. However, residential care does not include any of the following:

(a) care provided to a person in the person's private home;

(b) care provided in a hospital or in a psychiatric facility;

(c) care provided in a facility that primarily provides care to people who are not frail and aged;

(d) care that is specified in the Residential Care Subsidy Principles not to be residential care.

As explained in ATO ID 2001/664, residential facility does not include a private residence. This means that where a person lives in an independent living unit that can be regarded as their home, it will not be considered a residential facility.

Each of your villages is a separate complex. The dwellings were designed and built to be occupied by residents as independent living units. You provided a copy of the site plans for the villages. The plans show that the dwellings are not connected via a common corridor. Rather, the layout of the dwellings is a made up of a number of separate buildings with entry to each apartment via an external doorway. Although you have made some modifications to the units, these are not sufficient to change the essential design of the dwellings. Therefore, the dwellings are still more appropriately described as independent living units.

As the dwellings are independent living units, the care provided is not provided in a residential facility within the meaning of the Aged Care Act 1997. Therefore, you will not satisfy the requirements of paragraph 38-25(1)(b) of the GST Act.

Further, although Entity C is an approved provider, under the Aged Care Act 1997 in relation to Community Care and Flexible Care, neither you nor Entity C is an approved provider in relation to the provision of Residential Care. Accordingly, you will not satisfy the requirements of paragraph 38-25(1)(c) of the GST Act.

Therefore, your supplies of services are not a GST-free supply under subsection 38-25(1) of the GST Act.

Community care

Section 38-30 of the GST Act provides that:-

38-30 Community care etc.

(1) A supply of community care is GST-free if community care subsidy is payable under Part 3-2 of the Aged Care Act 1997 to the supplier for the care.

(2) A supply of care is GST-free if the supplier receives funding under the Home and Community Care Act 1985 in connection with the supply.

(3) A supply of community care is GST-free if the supply is of services:

(a) that are provided to one or more aged or disabled people; and

(b) that are of a kind covered by item 2.1 (daily living activities assistance) of Part 2 of Schedule 1 to the Quality of Care Principles.

(4) A supply of care is GST-free if:

(a) the supplier receives funding from the Commonwealth, a State or a Territory in connection with the supply; and

(b) the supply of the care is of a kind determined in writing by the Aged Care Minister to be similar to a supply that is GST-free because of subsection (2).

Community Care is defined in subsection 45-3(1) of the Aged Care Act 1997 as a package of personal care services and other personal service provided to a person who is not being provided with residential care.

You have entered into (or will enter into) into Care and Support Agreements with the residents whereby you will provide various personal care services. You have engaged Entity C to provide these services to the residents on behalf of, and as agent for you. As noted in clause 2.4 of your PID, you retain responsibility for provision of the services to the residents. Draft Goods and Services Tax Ruling GSTR 2011/D5: GST treatment of care services and accommodation in retirement villages and privately funded nursing homes and hostels. (GSTR 2011/D5) represents the Commissioners preliminary view about the way in which subsections 38-25(3), (4) and (4A) apply. Although paragraphs 60-62 of GSTR 2011/D5 deal with supplies of residential care through an agent, the principle has equal application to the supply of community care through an agent.

Therefore, as explained in paragraphs 60-62 of GSTR 2011/D5, you are the supplier of the services to the residents, even though your supply is delivered by your agent.

Under subsection 38-30(1) of the GST Act, supplies of community care are GST-free if the supplier receives a subsidy under Part 3 of the Aged Care Act 1997. In your situation, Entity C (not you) as the "approved provider" will receive the subsidy. As you will not be receiving the subsidy for the provision of your services, your supply of services will not be GST-free under subsections 38-30(1) of the GST Act.

As neither you, nor Entity C, will receive funding from any other government source, subsections 38-30(2) and (4) of the GST Act will not apply either.

Subsection 38-30(3)

The supply of community care services to an aged or disabled person, by a non-government funded supplier, is GST-free under subsection 38-30(3) to the extent that the services are of a kind covered by item 2.1 of Part 2 of Schedule 1 to the Quality of Care Principles (Item 2.1) - which includes:-.

Part 2 Care and services to be provided for all residents who need them

2.1 Daily living activities assistance - Personal assistance, including individual attention, individual supervision, and physical assistance, with:

(a) bathing, showering, personal hygiene and grooming

(b) maintaining continence or managing incontinence, and using aids and appliances designed to assist continence management

(c) eating and eating aids, and using eating utensils and eating aids (including actual feeding if necessary)

(d) dressing, undressing, and using dressing aids

(e) moving, walking, wheelchair use, and using devices and appliances designed to aid mobility, including the fitting of artificial limbs and other personal mobility aids

(f) communication, including to address difficulties arising from impaired hearing, sight or speech, or lack of common language (including fitting sensory communication aids), and checking hearing aid batteries and cleaning spectacles

Excludes hairdressing

Other services that are not covered by Item 2.1 include:

· assistance with housework

· assistance with gardening

· meal preparation services

· grocery shopping for individuals

· monitoring medication

· rehabilitation services

· assistance with writing cheques, letters, etc

· advocacy services

· provision of social and community activities, such as providing companionship, craft and reading activities to individuals, and

· driving individuals to and from appointments.

You have entered into Care and Support Agreements with the residents whereby you will provide specified services. You will also provide General Services as required. The General Services Charge (GSC) includes up to a maximum of x hours of care services per week provided by qualified Village community staff. Some, but not all, of the services are covered by item 2.1 (daily living assistance) of Part 2 of Schedule 1 to the Quality of Care Principles.

Therefore the package of care services that you supply to the residents will be a mixed supply of Item 2.1 services (GST-free) and other services that are taxable.

Flexible care

Section 38-35 of the GST Act provides that :-

38-35 Flexible care

A supply of flexible care (within the meaning of section 49-3 of the Aged Care Act 1997) is GST-free if flexible care subsidy is payable under Part 3.3 of that Act to the supplier for the care.

Under subsection 38-35 of the GST Act, supplies of flexible care are GST-free if the supplier receives a subsidy under Part 3 of the Aged Care Act 1997. In your situation, Entity C (not you) as the "approved provider" will receive any subsidy. As you will not be receiving the subsidy for the provision of your services, your supply of services will not be GST-free under subsection 38-35 of the GST Act.

As your supplies:-

· are made for consideration

· are made in the course or furtherance of your enterprise

· are connected with Australia and

· you are registered for GST

they will satisfy the requirements of section 9-5 of the GST Act.

In your factual situation, there is no provision of the GST Act that would make your services GST-free or input taxed. Therefore, your supplies of flexible care services will be taxable supplies.

Question 3

What is the GST status of the supply of accommodation under the Lease Agreements?

You will be entering into lease agreements with the residents of your retirement village.

Under section 40-35 of the GST Act a supply of premises that is by way of lease, hire or licence (including a renewal or extension of a lease, hire or licence) is input taxed where:

· the supply is of residential premises (other than commercial residential premises).

Central to section 40-35 of the GST Act is the concept of residential premises which is defined in section 195-1 to mean 'land or a building that:

· is occupied as a residence; or

· is intended to be occupied, and is capable of being occupied, as a residence.

Although retirement villages fit the definition of residential premises, they are not commercial residential premises for the purposes of the GST Act as they do not hold themselves out as accommodation for tourist, guests or lodgers.

Therefore, your supplies of accommodation under the Lease Agreements are input taxed supplies of residential premises unless there is a GST-free provision that overrides 40-35.

Subsection 38-25(4) of the GST Act provides that:-

(4) A supply of accommodation is GST-free if it is made to a person in the course of making a supply to that person that is GST-free under subsection (1), (2) or (3).

As you will not be making GST-free supplies under subsections 38-25(1), (2) or (3) of the GST Act, your supply of accommodation will not be associated with a GST-free supply of services.

Therefore your supplies of the premises will be input taxed supplies.

Question 4

Will you be entitled to recover full input tax credits on in respect of your acquisitions?

Section 11-20 of the GST Act provides that you are entitled to the input tax credit for any creditable acquisition that you make.

Section 11-5 of the GST Act explains that you have made a creditable acquisition for GST purposes if:

· you acquire anything solely or partly for a creditable purpose

· the supply of the thing to you is a taxable supply

· you provide, or are liable to provide, consideration for the supply, and

· you are registered, or required to be registered, for GST.

In your case, you are registered for GST and, on the basis that your acquisitions were taxable supplies to you for which you have supplied consideration, the outstanding issue is whether your acquisitions were solely or partly for a creditable purpose.

Section 11-15 of the GST Act explains that you have acquired a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise: However you do not acquire it for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed or the acquisition is of a private or domestic nature.

Your enterprise makes the following supplies:

· input taxed supplies of residential accommodation

· taxable supplies of services to residents

· GST-free supplies of care services (Item 2.1) to residents

· taxable supplies of project management and construction services.

To the extent that acquisitions can be directly linked to specific supplies, they should be allocated directly to those supplies. Where acquisitions cannot be directly linked to specific supplies, you are required to apportion them between the supplies to which they relate. You are required to use a method which results in a fair and reasonable reflection of the relation of the expenditure to the supply.

As stated in paragraph 106 of GSTR 2006/4 determining the extent of creditable purpose for claiming input tax credits and for making adjustments for changes in extent of creditable purpose, where a direct method of apportioning is available to you, the Commissioner's view is that this will reflect most accurately the actual use of the acquisition.

Where a direct method of apportionment is not available, the Commissioner's view is that an input based indirect method is more likely to produce a result that reflects most accurately the actual use of the acquisition.

The overriding requirement is that the method used must produce an outcome that is fair and reasonable in your particular circumstances.