Edited version of your written advice

Authorisation Number: 1013134109086

Date of advice: 15 December 2016

Glossary

Ruling

Subject: GST credits for a retirement village and Division 129 adjustments

Issue 1

GST-free supplies

Question 1

Are you liable for goods and services tax (GST) on the entry contribution and ongoing service/maintenance fees you receive for the supply of the right to occupy the residential units to residents?

Answer

No, you are not liable for GST as the supply of the right to occupy the units is a GST-free supply under section 38-260 of the GST Act from a certain date onwards. Prior to this date, your supplies are GST-free under section 38-250 of the GST Act.

Issue 2

GST Credits

Question 1

Are you entitled to claim GST credits for your creditable acquisitions relating to the construction and ongoing maintenance of the units from 1 April 201X till 30 June 201X (and going forward)?

Answer

Yes.

Question 2

Do you have decreasing adjustments under Division 129 in relation to the construction costs and ongoing maintenance of the units prior to 1 April 201X?

Answer

Yes, you have decreasing adjustments under Division 129 and you may claim the adjustments that are attributable to the 30 June 201X tax period and any other tax period ending 30 June thereafter.

Issue 3

GST Lodgment cycle

Question 1

Are you entitled to be an annual activity statement lodger from 1 April 201X to 30 June 201X?

Answer

No- as you exceed the turnover threshold for registration purposes for certain financial years and did not make an annual tax period election for a particular financial year within the appropriate timeframe, you must lodge on a quarterly basis for these periods.

Question 2

Are you entitled to be an annual activity statement lodger from 1 July 201X onwards?

Answer

Yes.

Relevant facts and circumstances

About you

● You are a not for profit entity operating as a charity.

● You account for GST on a quarterly and a cash basis effective from 1 October 200X.

Endorsement as a Charity

● You are registered with the ACNC as a charity and a public benevolent institution.

● You are endorsed as a charity by the Commissioner and granted a number of concessions including GST Concessions from 1 July 200X.

Supplies

● You supply aged/retirement accommodation within the local District Council area for residents over 55 years of age.

● You supply two types of accommodation.

● In consideration of the payment of the premium, the resident is granted:

● Licence to use and reside in the nominated residence; and

● Right to use all communal facilities within the village.

● You do not provide any medical or food services. The following services are provided to residents, the payment for which is deducted from recurrent charges:

● Upkeep of gardens and landscaped areas;

● Maintenance inside and outside of your residence;

● Preventative maintenance;

● Repair or replacement of fixtures and fittings; and

● Estate lighting and rubbish removal.

Communal facility (CF)

● You converted a vacant unit into a multi-purpose recreational room as a communal facility for the residents on a certain date. Activities held in the room include: entertainment, meetings and external hairdressing services.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 7-1,

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

A New Tax System (Goods and Services Tax) Act 1999 subsection 9-30(1),

A New Tax System (Goods and Services Tax) Act 1999 section 11-1,

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 23-5,

A New Tax System (Goods and Services Tax) Act 1999 section 38-1,

A New Tax System (Goods and Services Tax) Act 1999 section 38-250,

A New Tax System (Goods and Services Tax) Act 1999 section 38-260,

A New Tax System (Goods and Services Tax) Act 1999 section 93-5,

A New Tax System (Goods and Services Tax) Act 1999 subsection 129-10(3),

A New Tax System (Goods and Services Tax) Act 1999 subsection 129-20(1),

A New Tax System (Goods and Services Tax) Act 1999 subsection 129-20(3),

A New Tax System (Goods and Services Tax) Act 1999 section 129-75,

A New Tax System (Goods and Services Tax) Act 1999 section 151-5,

A New Tax System (Goods and Services Tax) Act 1999 section 151-20(1a),

A New Tax System (Goods and Services Tax) Act 1999 section 151-25,

A New Tax System (Goods and Services Tax) Act 1999 subsection 188-10(1),

A New Tax System (Goods and Services Tax) Act 1999 subsection 188-15(1),

A New Tax System (Goods and Services Tax) Act 1999 subsection 188-20(1),

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

A New Tax System (Goods and Services Tax) Act 1999 Division 38,

A New Tax System (Goods and Services Tax) Act 1999 Division 129,

A New Tax System (Goods and Services Tax) Act 1999 Subdivision 38-G,

A New Tax System (Goods and Services Tax) Regulations 1999 23-15.02

Taxation Administration Act 1953 section 105-55 of Schedule 1,

Taxation Administration Act 1953 section 357-70 of Schedule 1,

Taxation Administration Act 1953 subsection 155-35(2) of Schedule 1

Other references

GST and non-commercial rules- benchmark market values ATO guide

GST Ruling GSTR 2007/1 Goods and services tax: when retirement village premises include communal facilities for use by the residents of the premises

This ruling applies for the following periods:

1 April 201X till 30 June 201X

The scheme commences on:

1 April 201X

Reasons for decision

Issue 1

GST-Free Supplies

Question 1

Are you liable for goods and services tax (GST) on the entry contribution and ongoing service/maintenance fees you receive for the supply of the right to occupy the residential units to residents?

Summary

No, you are not liable for GST as the supply of the right to occupy the units is a GST-free supply under section 38-260 of the GST Act from a certain date onwards. Prior to this date, your supplies are GST-free under section 38-250 of the GST Act.

Detailed reasoning

When is GST payable and GST-Free Supplies

Section 7-1 states that GST is payable on *taxable supplies. Section 9-5 lists the four key factors of taxable supplies and also states:

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

Subsection 9-30(1) states that a supply is GST-free if:

(a) it is GST-free under Division 38 or under a provision of another Act; or

(b) it is a supply of a right to receive a supply that would be GST-free under paragraph (a).

Division 38

This division (section 38-1) specifies types of supplies that are GST-free. If a supply is GST-free, then no GST is payable on the supply.

Subdivision 38-G lists the various activities of charities which may be GST-Free supplies.

Section 38-260 Supplies of Retirement Village (RV) accommodation

Section 38-260 provides that a supply is GST-free if:

(a) the supplier is an *endorsed charity that operates a *retirement village; and

(b) the supply is made to a resident of the retirement village; and

(c) the supply is:

(i) a supply of accommodation in the retirement village, or a supply of a service related to the supply of the accommodation; or

(ii) a supply of meals.

The term 'retirement village' is defined in section 195-1 as follows:

retirement village: premises are a retirement village if:

(a) the premises are *residential premises; and

(b) 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

(c) the premises include communal facilities for use by the residents of the premises;

but the following are not retirement villages

(d) 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 that Act);

(e) *commercial residential premises.

'Residential premises' is defined in section 195-1 as a 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.

Communal facility (CF)

With respect to the third requirement in the definition of a retirement village (paragraph (c)), Goods and Services Tax Ruling (GSTR) 2007/1 explains 'when retirement village premises include communal facilities for use by residents of the premises'.

GSTR 2007/1 has some key paragraphs which specifically explain what is a CF, when it is considered part of the retirement village, and who it can be used by:

Paragraph 19 says the retirement village residential premises include communal facilities when:

● the communal facilities are physical; and

● the communal facilities are within, attached to or connected to the residential building(s), or constructed on the surrounding land that actually or substantially contributes to the enjoyment of the building(s) or to the fulfilment of its purposes as a residence (although communal facilities need not themselves be residential premises).

Paragraph 22 says that communal facilities are those facilities that are intended and capable of group use by the residents for recreational, sporting, social, religious, or other similar uses that enhance a sense of community among the residents. This is determined objectively having regard to the primary function or purpose of the facilities as evidenced by their physical characteristics.

Paragraph 23 explains that communal facilities would 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.

Lastly, paragraph 24 says while the residents must be able to use the communal facilities, the facilities need not necessarily be for the exclusive use of the residents (for example, the recreation room might be used for a few hours a week by a visiting hairdresser).

By applying these provisions to your circumstances, you satisfy the definition of a retirement village (section 195-1) as follows:

● Your premises are residential premises as you supply residential accommodation for residents to reside in for lifetime use;

● You supply it to those aged at least 55 years old;

● You satisfy the requirements of a CF after a certain date;

● You do not provide residential care or operate as commercial residential premises.

● As a result, your supply of accommodation meets the requirements of section 38-260 as:

● You are an endorsed charity that operates a retirement village;

● You make supplies only to those who reside in the village.

Therefore, from a certain date onwards you are making GST-free supplies of retirement village accommodation. Prior to this date, you are making GST-free supplies of accommodation for nominal consideration under section 38-250 (see below).

Section 38-250 Nominal Consideration etc.

This section states:

(1) A supply is GST-free if:

(a) the supplier is an *endorsed charity, a *gift-deductible entity or a *government school; and

(b) the supply is for *consideration that:

(i) if the supply is a supply of accommodation—is less than 75% of the

*GST inclusive market value of the supply

You are an endorsed charity. To determine whether you meet section 38-250(1)(b)(i), we will compare the consideration you receive for making supplies of residential units against 75% of the GST inclusive market value of the supply. This will be done for the 201X till 201X financial years (Issue 2 Question 1 explains why we commence from 201X). Therefore, we have adopted the following methodology:

1) Gather the ATO's benchmark accommodation weekly rates from 201X till 201X. These rates are published in the ATO's GST and non-commercial rules- benchmark market values guide available on the ATO website. These rates can be used for determining the market value of the supply of long-term residential accommodation. The capital city rate may be used as the appropriate rate across all regions for the relevant state.

2) Calculate 75% of these rates.

3) Compare the consideration you receive for your supplies against 75% of the market value rates to see if they fall below.

It was determined that the consideration you receive on a weekly basis for all types of accommodation you supply is less than 75% of the GST inclusive market value of the supply. Therefore, you were making GST-Free Supplies of accommodation for nominal consideration until you satisfied the definition of a retirement village on a certain date.

Issue 2

GST Credits

Question 1

Are you entitled to claim GST credits for your creditable acquisitions relating to the construction and ongoing maintenance of the units from 1 April 201X till 30 June 201X (and going forward)?

Summary

Yes.

Detailed reasoning

Creditable Acquisitions

Section 11-1 states: You are entitled to input tax credits for your creditable acquisitions.

Section 11-5 defines a creditable acquisition as:

(a) you acquire anything solely or partly for a *creditable purpose; and

(b) the supply of the thing to you is a *taxable supply; and

(c) you provide, or are liable to provide, *consideration for the supply; and

(d) you are *registered, or *required to be registered.

You acquire a thing for a creditable purpose to the extent that you acquire it in *carrying on your *enterprise (section 11-15).

Input tax credits on GST-Free Supplies

Section 38-1 states that if a supply is GST-free then an entitlement to an input tax credit for anything acquired to make the supply is not affected.

You meet the above requirements as follows:

● You are carrying on an enterprise of supplying residential accommodation therefore your acquisitions are for a creditable purpose;

● You only make GST-Free supplies; and,

● You are registered for GST.

Therefore, you are entitled to claim credits on your creditable acquisitions (provided that the acquisition was a taxable supply to you and you provided or are liable to provide consideration for it). However, you can only claim credits on your creditable acquisitions from 1 April 201X till 30 June 201X (and going forward). Prior to this date, you may be able to claim some decreasing adjustments for your acquisitions under Division 129 (see explanation under Question 2 below).

Time limit and period of review on claiming credits

Prior 1 July 201X

For tax periods prior to 1 July 201X, unless an exception applies, a taxpayer's entitlement to an input tax credit ceases if it is not taken into account in working out a net amount within 4 years of the due date for lodgement of the activity statement in which the credit can first be claimed, based on the taxpayer's accounting for GST. A relevant exception is where a taxpayer has given a notice of entitlement to a refund or credit under section 105-55 of Schedule 1 of the TAA (section 105-55) within 4 years of the end of the relevant tax period.

You have provided the Commissioner a notification of your refund entitlement for the purposes of section 105-55 within the relevant timeframe. This means that your entitlement to any credits attributable to the June 201X quarter has not ceased.

However, you are not entitled to claim credits for any periods prior to 1 April 201X as a check of our systems did not detect any earlier notification of refund entitlements provided by you or the Commissioner. However, you may be able to claim some decreasing adjustments for your acquisitions under Division 129 (see explanation under Question 2 below).

Please note, the Commissioner has no discretion to extend the four-year time limit within which a taxpayer may give a section 105-55 notice. This was confirmed by the Administrative Appeals Tribunal (AAT) decision in Australian Leisure Marine Pty Ltd v FC of T, 2010 ATC 10-148.

After 1 July 201X

For tax periods after 1 July 201X, a taxpayer's entitlement to an input tax credit ceases if it is not taken into account in an assessment within 4 years of the due date for lodgement of the AS in which the credit can first be claimed, based on the taxpayer's accounting for GST (section 93-5).

Therefore, you can claim all GST credits for your creditable acquisitions after 1 July 201X as you are within time (subject to the usual requirement for claiming a GST credit such as holding a tax invoice).

Issue 2

Question 2

Do you have decreasing adjustments under Division 129 in relation to the construction costs and ongoing maintenance of the units prior to 1 April 201X?

Summary

Yes, you have decreasing adjustments under Division 129 and you may claim the adjustments that are attributable to the 30 June 201X tax period and any other tax period ending 30 June thereafter.

Detailed reasoning

Section 357-70 of Schedule 1 to the TAA Commissioner may apply the law if more favourable than the ruling

(1) The Commissioner may apply a relevant provision to you in the way it would apply if you had not relied on a ruling if:

(a) doing so would produce a more favourable result for you; and

(b) the Commissioner is not prevented from doing so by a time limit imposed by a *taxation law.

You have been making acquisitions but have not claimed any credits as you believed you were making input taxed supplies. The Commissioner considers that applying Division 129 to you would produce a more favourable result for you. Therefore, as per section 357-70 of Schedule 1 to the TAA, we will apply Division 129 to the acquisitions you made prior to 1 April 201X, provided any adjustments under that Division can be done within the relevant time limits.

Division 129 Changes in the extent of creditable purpose

The extent to which an acquisition is for a creditable purpose affects the amount of the resulting input tax credit. This Division is about allowing adjustments when a taxpayer's planned extent of creditable purpose is different to its actual application of the thing for a creditable purpose. Expressed as percentages, if the actual application of the thing is greater than its planned application, then a decreasing adjustment applies.

Decreasing Adjustment

A *decreasing adjustment is any adjustment which will decrease your net amount in an activity statement (for example, increasing your GST credits and/or reducing your GST payable).

In your case, to determine which acquisitions prior to 1 April 201X can be adjusted to potentially claim decreasing adjustments, we need to determine which acquisitions are eligible (if they fall within the relevant thresholds) and their consequent adjustment periods.

Adjustments and Adjustment Periods

What is an Adjustment Period?

Subsection 129-20(1) explains that an adjustment period for an acquisition is a tax period applying to you that:

(a) starts at least 12 months after the end of the tax period to which the acquisition is attributable (or would be attributable if it were a *creditable acquisition); and

(b) ends:

(i) on 30 June in any year; or

(ii) if none of the tax periods applying to you in a particular year ends on 30 June—closer to 30 June than any of the other tax periods applying to you in that year.

Thresholds

Subsection 129-20(3) states the number of adjustment periods for an acquisition that (does not relate to business finance) depends on the GST exclusive value of the acquisition. An expense relates to business finance if it is incurred in relation to making *financial supplies or are of a private or domestic nature (subsection 129-10(3)). As your acquisitions do not relate to business finance, the relevant thresholds which apply to you are as follows:

This means that if you acquired something for $1,500 (GST exclusive), you will have two adjustment periods to potentially claim an adjustment (see further below for examples).

As you have a section 105-55 notice of entitlement to a refund in relation to the tax period ending 30 June 201X (discussed in Question 1 above), you may claim any decreasing adjustments that are attributable to that period.

As for any adjustment that is attributable to the June 201X to June 201X adjustment periods, any such adjustment must be made within the relevant period of review. The period of review for a particular tax period starts on the day a notice of assessment is issued (this is generally, the day you lodge the relevant activity statement) and ends 4 years starting the day after the notice of assessment is issued (subsection 155-35(2) TAA). This means that provided the period of review for a particular activity statement has not expired, you can claim a decreasing adjustment that falls in a period ending 30 June in a financial year after 30 June 201X.

Section 129-75 Calculating the amount of a decreasing adjustment

The amount of a *decreasing adjustment is worked out as follows:

Decreasing adjustment = Full input tax credit x (*Actual application - *Intended or former application)

Full input tax credit is the amount of GST payable on the supply of the thing acquired.

In your case, as you initially made the acquisitions for the purpose of making input taxed supplies, your intended extent of creditable purpose is nil. Following your ACNC endorsement, your actual application would be 100% because the supplies you make are GST-free and you are entitled to claim all credits for your creditable acquisitions. As your actual application is greater than your intended application, you have a decreasing adjustment.

Your decreasing adjustments will be calculated as:

Full input tax credit x [100% - 0%]

Therefore, your decreasing adjustments will equal 100% of the full input tax credits provided any such adjustments are attributable to the 30 June 201X tax period or any other tax period ending 30 June thereafter.

Issue 3

GST Lodgment cycle

Question 1

Are you entitled to be an annual activity statement lodger from 1 April 201X to 30 June 201X?

Summary

No- as you exceed the turnover threshold for registration purposes for certain financial years and did not make an annual tax period election for a particular financial year within the appropriate timeframe, you must lodge on a quarterly basis for these periods.

Detailed reasoning

Eligibility to make an annual tax period election

Section 151-5 states that you are eligible to make an * annual tax period election if:

(a)  you are not * required to be registered; and

(b)  you have not made any election under section 162-15 to pay GST by instalments (other than such an election that is no longer in effect).

Requirement to be registered for GST

Section 23-5 states you are required to be registered for GST if:

(a) you are *carrying on an *enterprise;

(b) and your *GST turnover meets the *registration turnover threshold.

The terms GST turnover and registration turnover threshold are explained below.

GST Turnover

Subsection 188-10(1) states you have a GST turnover that meets a particular *turnover threshold if:

(a) your *current GST turnover is at or above the turnover threshold, and the Commissioner is not satisfied that your *projected GST turnover is below the turnover threshold; or

(b) your projected GST turnover is at or above the turnover threshold.

Current GST Turnover

Subsection 188-15(1) explains how the current GST turnover is calculated:

Your current GST turnover at a time during a particular month is the sum of the *values of all the supplies that you have made, or are likely to make, during the 12 months ending at the end of that month, other than:

(a) supplies that are *input taxed; or

(b) supplies that are not for *consideration (and are not *taxable supplies under section 72-5); or

(c) supplies that are not made in connection with an *enterprise that you *carry on.

Subsection 188-20(1) explains how the projected GST turnover is calculated:

Your projected GST turnover at a time during a particular month is the sum of the *values of all the supplies that you have made, or are likely to make, during that month and the next 11 months, other than:

(a) supplies that are *input taxed; or

(b) supplies that are not for *consideration (and are not *taxable supplies under section 72-5); or

(c) supplies that are not made in connection with an *enterprise that you *carry on.

Registration turnover threshold

GST Regulations 23-15.02 states that the registration turnover threshold for non-profit bodies is $150,000 with effect from 1 July 2007.

Even though you did not exceed the registration turnover threshold for a particular financial year (FY), you cannot lodge an annual activity statement for that FY as subsection 151-20(1a) states:

You must make your *annual tax period election:

(a) if the tax periods applying to you are *quarterly tax periods—on or before 28 October in the *financial year to which it relates.

As no election was received within the relevant timeframe you must lodge on a quarterly basis from 1 April 201X to 30 June 201X.

Issue 3

Question 2

Are you entitled to be an annual activity statement lodger from 1 July 201X onwards?

Summary

Yes.

Detailed reasoning

Your agent's request to be an annual activity statement lodger was received prior to 28 October 201X (as per subsection 151-20(1a) as discussed in Question 1 above). Therefore, you are entitled to be an annual activity statement lodger from 1 July 201X onwards.

However, you will need to monitor your current and projected GST turnovers to ensure you are aware if you ever cease to be entitled to be an annual activity statement lodger. Section 151-25 provides that your annual tax period election ceases to have effect if on 31 July in a financial year you are required to be registered for GST (that is, your turnover exceeds the registration turnover threshold).