Edited version of your written advice

Authorisation Number: 1051332092544

Date of advice: 8 February 2018

Ruling

Subject: Retirement village operators

Question 1

Is a ‘payment’ by the Taxpayer to an outgoing resident under the terms of Agreement A deductible in the year of payment under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes. A payment by the Taxpayer to an outgoing resident under the terms of Agreement A is an expense incidental to the carrying on of the Taxpayer’s business of granting and obtaining surrender of leases and is therefore deductible under section 8-1 of the ITAA 1997.

Question 2

Is an amount payable by an incoming resident to the Taxpayer (incoming contribution) under the terms of Agreement B included in the assessable income of the Taxpayer pursuant to subsection 6-5(2) of the ITAA 1997?

Answer

No. The amount of an incoming contribution payable by an resident to the Taxpayer under the terms of Agreement B is characterised as a ‘loan’ and is therefore not included in the assessable income of the Taxpayer pursuant to subsection 6-5 (2) of the ITAA 1997.

Question 3

Is an amount of departure fees payable by an outgoing resident to the Taxpayer under the terms of Agreement B included in the assessable income of the Taxpayer pursuant to subsection 6-5(2) of the ITAA 1997?

Answer

Yes. An amount of departure fees payable by an outgoing resident to the Taxpayer under the terms of Agreement B is included in the assessable income of the Taxpayer pursuant to subsection 6-5(2) of the ITAA 1997.

Question 4

Does Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) apply to a scheme involving the introduction of Agreement B by the Taxpayer?

Answer

No.

This ruling applies for the following period:

Income year ended 30 June 20XX to Income year ended 30 June 20XX

Relevant facts and circumstances

Background

The Taxpayer is the head company of a tax consolidated group. Two wholly-owned subsidiaries (the Partnership) currently own the Retirement Village (RV):

● xx.x% - Partner 1

● xx.x% - Partner 2

The group is currently considering a proposal to transfer the ownership interest of Partner 2 to Partner 1. This will result in the Partnership no longer lodging income tax return; however, there will be no change in the beneficial ownership, which will remain with the Taxpayer as the head company.

The Taxpayer acquired a retirement village (RV) in year Y.

The residence’s right in relation to a unit in the RV was governed by Agreement A for a number of years following the acquisition of the RV.

In essence, the terms of Agreement A provide that:

● The Taxpayer grants a licence of a unit and the chattels therein to a prospective resident;

● The possession of the unit is made conditional upon the payment of an incoming contribution;

● During the resident’s occupation of a unit, the resident:

(i) pays regular monthly service fees and regular utility charges assessed against the unit;

(ii) maintains insurance for contents of the unit; and

(i) undertakes responsibility for the maintenance and repairs to the unit.

● The Taxpayer undertakes, among others, to:

(i) ensure that the resident can occupy the unit without interruption or disturbance;

(ii) pay all municipal and other statutory rates and taxes in respect of the unit;

(iii) ensure maintenance and good repair of the common areas; and

(iv) keep insured all buildings and other improvements at the RV.

● Agreement A runs for a considerable number of years however can be terminated on:

(i) the death of the resident;

(ii) termination by resident through written notice;

(iii) resident is considered unfit to reside in the village; or

(iv) breach of agreement by resident

● Upon termination of Agreement A and resale of the residence right in relation to a unit, an outgoing resident is, among others, liable for:

(i) an administrative fee for costs incurred in granting a new residence right;

(ii) a deferred fee;

(iii) costs of refurbishment of the unit; and

(iv) any unpaid service fees payable.

● The outgoing resident or his or her legal personal representative, as the case may be, is entitled to a payment. The payment is equivalent to the incoming contribution payable by a new resident that occupies the unit vacated by the outgoing resident, reduced by certain charges.

● Payment of an outgoing resident’s incoming contribution is made after an incoming contribution is received from a new resident

The incoming contribution under Agreement A is included in the Taxpayer’s assessable income.

Some years ago, the Taxpayer undertook various improvements to the RV and replaced Agreement A with Agreement B to improve the declining business. In addition, Agreement B was considered to be more in line with industry standards.

Agreement B applies to individuals taking up residency subsequent to the introduction of that agreement so that, Agreement A applies to individuals that reside in the RV under the terms of that contract.

The introduction of Agreement B significantly increased the rate of incoming residents into the RV.

Agreement B is governed by and construed under the laws of Victoria being the Retirement Villages Act 1986, the Retirement Villages (Contractual Arrangements) Regulations 2006 and the Retirement Villages (Records and Notices) Regulations 2005 (clause 35).

The following definition of terms used in the Resident Lease is provided at clause 36 of the Resident Lease:

The terms and conditions of Agreement B can be summarised as follows:

● The Taxpayer leases a residence in the RV and its inclusions in consideration of a Loan made by a prospective resident

● The agreement terminates on the earlier of the:

(i) A specified date following a considerable number of years from the date of commencement of Agreement B (Termination Date);

(ii) Termination by the parties under the terms of the agreement

(iii) Termination by court order;

(iv) Termination following repayment of Loan by the Taxpayer

Termination can also result from (i) Death of the resident; or (ii) Notice by either party for breach of Lease by the other party

Interest free loan

● Any deposit or prepayments made by an incoming resident before commencement of the

● Lease will be applied to the Loan;

● The Taxpayer is not required to pay interest on the Loan;

● The loan is repayable by the Taxpayer to an outgoing resident on the earlier of:

(i) The Termination Date;

(ii) A specified number of years following a resident’s right to occupy the residence ceases under the agreement and the resident delivers possession of the residence to the Taxpayer;

(iii) A specified period following receipt of a loan from an new resident (‘New Loan‘) to the Taxpayer in respect of the residence vacated by the outgoing resident; and

(i) A specified period following occupation by a new resident of the residence vacated by the outgoing resident.

Where a new resident has not been found to occupy the premises vacated by an outgoing resident, an amount representing the market value of the premises at the time it is vacated, as agreed by the parties, will be taken to be the New Loan.

On the date the Taxpayer is due to repay a Loan to an outgoing resident:

● the Taxpayer will pay that proportion of the amount by which the New Loan exceeds the Loan; or

● the Taxpayer will be paid that proportion of the amount by an outgoing resident which the Loan exceeds the New Loan.

Amounts payable on a resident’s departure

On the date of repayment by the Taxpayer of a resident’s Loan, the following fees are payable by the resident:

● A fee calculated as a percentage of the New Loan with reference to the period of occupancy;

● A fee representing operating costs incurred by the Taxpayer to provide general services;

● A fixed amount of fee being the resident’s contribution towards maintenance of the RV; and

● Costs, including legal costs, incurred by the Taxpayer in connection with the surrender of the Lease and resale of the Residence right

Relevant legislative provisions

Part IVA of the Income Tax Assessment Act 1936

Section 177A of the Income Tax Assessment Act 1936

Section 177C of the Income Tax Assessment Act 1936

Subsection 177D(1) of the Income Tax Assessment Act 1936

Subsection 177D(2) of the Income Tax Assessment Act 1936

Section 6-5 of the Income Tax Assessment Act 1997

Section 8-1 of the Income Tax Assessment Act 1997

Reasons for Decision

Question 1

Is a payment to an outgoing resident under Agreement A deductible to the Taxpayer?

Detailed Reasoning:

Taxation Ruling TR 2002/14 Income tax: taxation of retirement village operators (TR 2002/14) sets out the Commissioner’s views on the tax obligations of retirement village operators in respect of the grant of occupancy rights. At paragraph 24, TR 2002/14 notes that:

‘It is likely that the label 'licence fee' in commercial retirement village arrangements is a mischaracterisation. Usually, these arrangements involve leases rather than licences and the tax treatment will depend on the proper characterisation of the particular arrangements…’

Licence distinguished from Lease

In Radaich v Smith 1959 101 CLR 209; ALR 1253 (‘the Radaich Case’) the Full Court of the High Court of Australia held that, in determining whether a particular instrument created a lease or a licence the decisive factor is whether the right it conferred was a right to ‘exclusive possession’.

In that case, the respondent, as a licensor, granted by deed to the licensee, for a term of 5 years, the sole and exclusive licence and privilege to supply refreshments to the public at the premises described as a lock-up shop and to carry on the business of a milk bar from those premises. Per Taylor J at (CLR) 217-8:

‘It will be seen that I have treated the question in the case as concluded by the fact that the instrument conferred upon the appellant the right to exclusive possession for the specified term... The instrument either makes a grant of an interest in the land or it does not; if it does a leasehold interest is created and if it does not then nothing more than a licence is given... ‘

The term ‘exclusive possession' is defined in LexisNexis Butterworths, Halsbury's Laws of Australia, Volume 16 (at 24 November 2009), 245 'Leases and Tenancies', at paragraph 245-15 as follows:

'Exclusive possession' is a right which permits the holder to exclude other persons from the property. A lessee having exclusive possession of the demised premises can restrict all persons, including the lessor, from the demised premises, subject to any contrary statutory provision and certain exceptions.’

ATO Interpretative Decision 2009/156 entitled ‘Income Tax: Capital allowances: quasi-ownership right over land - meaning of lease’ provides that in determining whether a lease has been granted, the Courts will look to the substance of the transaction and the conduct of the parties to characterise the rights that have been created. If the substance of the agreement points to an intention to confer a right to exclusive possession, then there will be a lease, regardless of whether it is a fixed term tenancy or a periodic lease.

In the present circumstances, Agreement A constitutes a written agreement between the Taxpayer, as owner and operator of the RV and an incoming resident to the RV.

Pursuant to agreement A, a resident is given possession of a unit and the chattels therein for a considerable number of years. This occurs upon the payment of an incoming contribution under the agreement.

Thereon, the resident pays regular monthly service fees as determined from time to time under the agreement and a regular utility charge assessed against the unit, maintains insurance for contents of the unit and assumes responsibility for the maintenance and repairs to the unit. In return, clause Agreement A entitles the resident to peaceful and uninterrupted occupancy of the unit for the term of the lease.

Furthermore there is no provision in the contract for the residence right to be transferred at the Taxpayer’s direction to another unit in the RV at some other point in time.

In summary, the Taxpayer has admitted the resident to possession of its property in return for the payment of costs associated with the ownership of that property. Further, the resident has entered into possession of the property, to the exclusion of third parties and the Taxpayer, with the consent of the Taxpayer.

Consequently, in light of the rights and obligations created under the agreement, Agreement A creates a leasehold interest and is not merely a licence to occupy a unit.

Section 8-1 of the ITAA 1997

The two positive limbs of the provision under subsection 8-1(1) provide that a taxpayer can deduct from the taxpayer’s assessable income any loss or outgoing to the extent that, the loss or outgoing:

(a) is incurred in gaining or producing the taxpayer’s assessable income, or

(b) is necessarily incurred in carrying on the taxpayer’s a business for the purpose of gaining or producing the taxpayer’s assessable income.

The negative limbs of the provision in subsection 8-1(2) qualify the application of the positive limbs by providing that a taxpayer cannot deduct any loss or outgoing under section 8-1 to the extent that, among others, it is a loss or outgoing of capital, or of a capital nature

Lease surrender payments

Taxation Ruling TR 2005/6 entitled ‘Income tax: lease surrender receipts and payments’ (TR 2005/6) deals with the income tax consequences of lease surrender receipts and payments. The Ruling identifies, among others, the circumstances in which a lease surrender payment by a lessor is deductible under section 8-1 of the ITAA 1997.

At paragraphs 79-83, TR 2005/6 provides that, where a lessor carries on a business that involves entering into and surrendering leases as a normal incident of its business, so that lease surrender payments are a part of the normal ebb and flow of the business, the payment is considered to be made in the course of carrying on the lessor’s business for gaining or producing assessable income. In those circumstances, a lease surrender payment would be an allowable deduction to the lessor under section 8-1 of the ITAA 1997 providing it is not of a capital nature

In respect of retirement village operators, TR 2002/14 states at paragraph 25:

‘... Where at law the amount received (from an incoming resident) is a lease premium, then, having regard to the nature of the business - developing or acquiring a retirement village and putting that to profit by the recurrent granting of leases - the amount received for the grant of a lease, whether it be termed a lease premium or otherwise, is on revenue account and constitutes assessable income of the operator in the year in which it is derived.’(emphasis added)

Further, at paragraph 29, TR 2002/14 distinguishes between a lease premium and a loan as follows:

‘... where an 'interest-free loan' is not repayable unless or until another resident enters into an agreement to occupy the accommodation unit vacated by the outgoing resident, the arrangement is not properly characterised as a loan and will be regarded as a lease premium. The fact that the repayment of the 'loan' is contingent upon a new resident being found, an event that may not happen, means than an essential element of a loan - the obligation to repay - is absent...’

In regards to the deductibility of lease surrender payments paragraph 26 of TR 2002/14 provides that:

‘Where an amount paid by an incoming resident is properly characterised as a lease premium and included in the assessable income of the operator, the amount payable by the operator to the resident upon termination of a lease agreement is an allowable deduction in the year in which the operator becomes liable to make that payment.’

In the present circumstances, an incoming contribution under agreement A is received by the Taxpayer in the ordinary course of carrying on a business of granting and surrendering leases in respect of the RV.

Further, under the terms of Agreement A, the Taxpayer is only required to make a payment to an outgoing resident (or their estate) when a new resident pays an incoming contribution for a residency right to a unit. In this regard, agreement A requires that payment be made within a specified period from date the new incoming contribution is paid to the Taxpayer.

As a result, pursuant to paragraphs 25 and 29 of TR 2002/14, the incoming contribution is not a ‘loan’ and is therefore assessable income of the Taxpayer pursuant to section 6-5 of the ITAA 1997.

Pursuant to paragraph 26 of TR 2002/14, as the incoming contribution under Agreement A is assessable income of the Taxpayer, a repayment of that contribution to an outgoing resident on termination of a lease is considered to be a payment made in the course of carrying on the Taxpayer’s business of gaining or producing assessable income.

Consequently, a payment by the Taxpayer to an outgoing resident under the terms of Agreement A is on revenue account and therefore deducible to the Taxpayer pursuant to section 8-1 of the ITAA 1997.

Question 2

Is the incoming contribution under Agreement B assessable income of the Taxpayer?

Detailed reasoning

TR 2005/6 provides that, subject to the particular circumstances of each case, a lease surrender receipt of a lessor would be assessable income under section 6-5 of the ITAA 1997 if it is received in the course of carrying on a business of granting and surrendering leases. If the receipt for consenting to the surrender of a lease does not constitute assessable income of the lessor within the above concept it would be a capital receipt (paragraphs 67-69 of TR 2005/6).

Paragraph 27 of TR 2002/14 relevantly states:

‘...a proper examination of the relevant documentation may indicate that the amount is fully repayable to the resident (although the village operator may be entitled to set off certain fees and charges against that amount) on termination of the lease. In this situation, the amount is not payable for the grant of a lease. The amount payable by the resident is more properly characterised as a loan. It is a receipt that is capital in nature. The taxation treatment of such amounts will be the same as for amounts known as 'interest-free loans' or 'security deposits'.”

You have contended that the Resident Lease is an interest free loan agreement and have proceeded on that basis.

A standard definition of 'loan' is found in Chitty on Contracts 25th Ed., (1986) Sweet & Maxwell, 541, which defines a loan as:

.’. a contract whereby one person lends or agrees to lend a sum of money to another, in consideration of a promise express or implied to repay that sum on demand, or at a fixed or determinable future time, or conditionally upon an event which is bound to happen, with or without interest.’

In Re Securitibank Ltd (No. 2) 2 NZLR 136 at 167, Richardson J stated that

"... the essence of a loan of money is the payment of a sum on condition that at some future time an equivalent amount will be repaid".

ATO Interpretative Decision (ATO ID) 2006/292 entitled ‘Income Tax: Whether funding provided by a State government to a company under an industry investment incentive scheme is a grant or a loan’ identifies the following key elements in the definition of a ‘loan’ found in Chitty on Contracts:

● a person lends or agrees to lend money to another

● in consideration of a promise to repay that sum

● the repayment is at a fixed or determinable future time

● the repayment can be made with or without interest

● an equivalent amount will be repaid

Agreement B runs for a considerable number of years unless terminated otherwise at the instance of the resident or the Taxpayer.

Pursuant to Agreement B, the Taxpayer receives an incoming contribution that is described as an ‘interest free loan’ from each resident on the commencement of the agreement. The terms of Agreement B provide that the incoming contribution is to be fully repaid by the Taxpayer without interest no later than a specified number of years following termination of a lease. The Taxpayer is alternatively required to repay the incoming contribution, among others, within a specified period after a new resident makes a loan (‘New Loan’) or occupies the vacated residence of the outgoing resident.

In regards to repayment of the incoming contribution under Agreement B within a specified period after a new resident makes a loan (‘New Loan’) or occupies the vacated residence of the outgoing resident, paragraph 29 of TR 2002/14 (quoted elsewhere in this report) provides that an amount described as an interest free loan that is repayable (to an outgoing resident) contingent upon a new resident being found, cannot be properly characterised as a ‘loan’ and will be regarded as an assessable lease premium.

ATO Interpretative Decision ATO ID 2003/170 entitled Income tax: entry payment by retirement village resident - repayment within 12 months contingent on finding new resident’ deals with a situation similar to the present case. In the case of ATO ID 2003/170, an amount paid by a resident upon entry to a retirement village was fully repayable by the village operator within 12 months of the resident’s departure or within 25 days of the receipt by the taxpayer of a new amount for the departing resident’s occupancy right.

It was held that although the repayment of the loan is, for the initial 12 month period, contingent upon a new resident being found, the loan is required to be repaid at the expiry of 12 months regardless of whether a new resident has been found. In these circumstances the amount is not considered to lose its character as a loan and will not be treated as a lease premium.

Similarly, in the present circumstances, one of the terms of repayment under Agreement B requires the Taxpayer to repay the incoming contribution of an outgoing resident in full no later than a specified number of years following termination of a lease. The repayment is a non-contingent obligation of the Taxpayer and has all the characteristics of a loan as previously stated in Chitty on Contract.

Consequently, the incoming contribution payable by a resident under Agreement B is not assessable income of the Taxpayer pursuant to subsection 6-5(2) of the ITAA 1997.

Question 3

Is an amount of departure fee payable by an outgoing resident assessable income of the Taxpayer?

Detailed reasoning

Taxation Ruling TR 2002/14 provides at paragraph 135 that in respect of arrangements where a resident makes an interest-free 'loan' to a retirement village operator in consideration for the grant of a long-term lease, the resident is required to pay a 'deferred management fee', calculated by reference to the period of occupancy. At paragraph 34, TR 2002/14 further provides that an amount of deferred management fees (‘the fees’) payable by an outgoing resident is assessable income of the operator in accordance with paragraphs 39-40. Paragraphs 39-40 of the Ruling provide that:

● the fees are calculated as a percentage of the entry price paid by an outgoing resident or the entry price that is to be paid by a replacement resident;

● the maximum amount charged in respect of the fees is the equivalent of 25% of the relevant entry price;

● the fees are derived by a village operator in the year in which the operator becomes entitled to demand payment of the fees which are ascertained when the lease in question is terminated; and

● where the fees are calculated as a percentage of the entry price that is to be paid by the replacement resident (new resident), the operator becomes entitled to demand payment of the fees when the new resident enters into an occupancy agreement.

In the present circumstances, a departure fee is payable by an outgoing resident under Agreement B. The fee equates to an amount that is a percentage of the New Loan calculated by reference to the period of occupancy of the outgoing resident.

A New Loan, for the purposes of Agreement B, is the entry price (incoming contribution) paid by a new resident to occupy the premises vacated by an outgoing resident. Where a new resident has not been found at the time of departure of the outgoing resident, the agreement provides for a proxy amount, as agreed between the parties, to represent the New Loan. This arrangement ensures that the departure fee can be ascertained at all times when a lease is terminated so that the Taxpayer becomes properly entitled to demand the fee from the outgoing resident on termination of the lease.

It is considered that the calculation of the departure fee and the circumstances in which the fee becomes payable by an outgoing resident, under Agreement B, is consistent with the circumstances described in TR 2002/14 for the payment of the deferred management fee and its calculation.

Consequently, consistent with the tax treatment prescribed in TR 2002/14 in respect of the deferred management fee, an amount of departure fee payable by an outgoing resident to the Taxpayer under the terms of Agreement B is assessable income of the Taxpayer in the income year in which the fee is derived by the Taxpayer for the purposes of subsection 6-5(2) of the ITAA 1997.

Question 4

Does Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) apply to a scheme involving the introduction of Agreement B by the Taxpayer?

Detailed reasoning

The Commissioner may seek to apply the general anti-avoidance provisions in Part IVA of the ITAA 1936 where he is of the opinion that a transaction or part of a transaction constitutes a scheme undertaken for the dominant purpose of obtaining a tax benefit.

Broadly, subsection 177C(1) identifies four types of tax benefit as follows:

● an amount not being included in the taxpayer’s assessable income;

● a deduction being allowable to the taxpayer;

● a capital loss being incurred by the taxpayer;

● a foreign income tax offset being allowable to the taxpayer; and

● a liability to pay withholding tax.

Amendments were made to Part IVA pursuant to the Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Bill 2013 and these amendments apply to schemes that are entered into, or commenced to be carried out, on or after 16 November 2012.

Pursuant to section 177F of the ITAA 1936, the Commissioner may cancel a tax benefit that has been obtained, or would, but for section 177F of the ITAA 1936, be obtained by a taxpayer in connection with a scheme to which Part IVA applies.

However, before the Commissioner can make a determination pursuant to subsection 177F(1) of the ITAA 1936, the requirements of Part IVA must be satisfied. These requirements are contained in section 177D of the ITAA 1936.

Section 177D(1) provides that Part IVA:

‘…applies to a scheme if it would be concluded (having regard to the matters in subsection (2)), that the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme did so for the purpose of:

(a) enabling a taxpayer (a relevant taxpayer) to obtain a tax benefit in connection with the scheme; or...’

The explanatory memorandum accompanying the amendments to Part IVA explains that the question of whether Part IVA applies to a scheme necessarily involves a single, holistic inquiry into whether a person participated in the scheme with a sole or dominant purpose of securing for the taxpayer a particular ‘tax benefit’ in connection with the scheme. The question of whether a tax benefit was obtained in connection with the scheme follows as a subsidiary question.

In the present circumstances, the Taxpayer replaced Agreement A with Agreement B, a contract that was considered to be more in line with industry standards, in an effort to reinvigorate the underperforming business.

It is considered that the Taxpayer entered into a scheme for the purposes of section 177A by introducing Agreement B which is an express arrangement that governs the residency rights of incoming residents to the RV from 1 July 2014.

The question at issue is whether pursuant to section 177D of the ITAA 1936 it could be

concluded that the Taxpayer’s predominant purpose for implementing Agreement B was

to obtain any of the tax benefits identified by section 177C of the ITAA 1936.

The following eight factors in subsection 177D(2) of the ITAA 1936 will be considered in light

of the circumstances surrounding the Taxpayer’s purpose for implementing Agreement B.

(a) the manner in which the scheme was entered into or carried out;

(b) the form and substance of the scheme;

(c) the time at which the scheme was entered into and the length of the period during which the scheme was carried out;

(d) the result in relation to the operation of this Act that, but for this Part, would be achieved by the scheme;

(e) any change in the financial position of the relevant taxpayer that has resulted, will result, or may reasonably be expected to result, from the scheme;

(f) any change in the financial position of any person who has, or has had, any

connection (whether of a business, family or other nature) with the relevant

taxpayer, being a change that has resulted, will result or may reasonably be

expected to result, from the scheme;

(g) any other consequence for the relevant taxpayer, or for any person referred to in subparagraph (f), of the scheme having been entered into or carried out; and

(h) the nature of any connection (whether of a business, family or other nature)

between the relevant taxpayer and any person referred to in subparagraph (f).

The following factors have been noted:

● Agreement A was in use for a number of years following the acquisition of the RV. Agreement A was replaced by Agreement B to revive Taxpayer’s business of operating the RV.

● Agreement A is replaced by Agreement B in a gradual manner so that a residence that is originally leased under Agreement A will continue under that arrangement until the expiry of the term of the agreement.

● There are no material differences between the legal form and economic substance of Agreement B, the scheme, so that the form of the scheme adopted matches the outcome achieved.

● The timing of implementation of Agreement B was the result of a number of events related to the management of the retirement village. The period during which Agreement B will remain as the standard residency contract for the RV, is indefinite.

● The changes to the fiscal outcome for the Taxpayer following the implementation of the scheme can be attributed to the income tax law at the time when Agreement B was implemented. Further, the application of the law to all transactions under Agreement B is set out in Taxation Ruling 2002/14 which deals specifically with the income tax obligations of retirement village operators.

Conclusion

On balance, having regard to the eight criteria in subsection 177D(2), it cannot be objectively concluded that the Taxpayer or any other person entered into a scheme, which involved a change to a resident’s right of occupancy at the RV, from Agreement A to Agreement B, with the sole and dominant purpose of obtaining a tax benefit for the Taxpayer pursuant to section 177D(1) of the ITAA 1936.