Edited version of private advice

Authorisation Number: 1051649539243

Date of advice: 7 April 2020

Ruling

Subject: Supply by sale or lease of accommodation in a retirement village

Question

Is the sale or lease of strata titled apartments in the Development by X GST-free under section 38-260 of the GST Act?

Answer

Yes

This ruling applies for the following period:

X to Y

Relevant facts and circumstances

You are a not-for-profit organisation based in X.

You are an endorsed charity under Division 176 of the GST Act and Division 426 in Schedule 1to the Tax Administration Act 1953.

You are also an endorsed Deductible Gift Recipient.

You have been registered for GST since 1 July 20XX.

You provide a number of charitable services, with a primary focus on aged care. One of your objects as detailed in your Rules of Association is:

To provide caring services for those who are disadvantaged by age, sickness, disability (while encouraging independence and maintaining function and skills), unemployment, poverty, familial or social stresses.

As part of your strategic goal of providing accommodation, care and support to active retirees, you intend to develop a community precinct and apartments on your premises on both sides of X (the Development).

You are at the feasibility stage and as yet have not applied to the relevant authority to seek permission to operate a retirement village in X but will do so where the feasibility study recommends the project is viable to proceed.

The Development

The proposed Development will comprise X apartments.

You generally describe the Development as being meant for retirees, who are at least aged 55 years or older.

The proposed Development will not constitute what could be considered to be an aged care facility for the purposes of the Age Care Act 1976.

The Development is proposed to comprise two buildings on either side of X.

It is proposed to call the village the X Retirement Village and it will have Y levels depending on which part of the Development residents are in.

The construction of the Development has not commenced and detailed floor plans/diagrams of the individual apartments that can be used for marketing purposes have not yet been finalised.

The buildings will be connected by a common Z at the end of X and a paved walkway at the Y intersection.

The Development will consist of:

·         X residential apartments under a strata scheme designed exclusively for aged residents;

·         X apartments designed for Aged or Dependent persons under the liveable Housing Design standards to accommodate people with higher care and mobility needs (W Apartments;

·         a café and community centre (collectively the Café);

·         a communal lounge attached to the Café designated as a Resident's lounge;

·         Communal Courtyards;

·         a Communal Rooftop Terrace; and

·         a multi-purpose room which can be used either for a Gymnasium or Library.

When the Development is completed, it will be managed by a third party management agent on your behalf.

Council Approval

In your application for the development of the site to the City of X, you applied to restrict the residential use to "Aged or Dependent Person's Dwellings" noting that "Aged or Dependent Person's Dwelling" is a standard accommodation use provided for in the Town Planning Scheme (i.e. there is no provision nor opportunity to apply to restrict the site only to "Aged Person's Dwellings").

As approved by the Council of the City of X in Amendment No. X to the City of X Planning Scheme No. X (the Town Planning Scheme), the site is to be developed only for the purposes of "Aged or Dependent Persons' Dwellings, Aged or Dependent Persons' Amenities, aged or dependent persons' care, community welfare activities or services, and other related services."

Schedule 1 to the Town Planning Schemedefines "Aged or Dependent Persons' Dwelling" as:

"... a dwelling, which, by incorporating appropriate provisions for the special needs of aged or dependent persons or both, is designed, and is used, for the permanent accommodation of a person who:

(a)  is aged 55 years or more; or

(b)  has a recognised form of handicap requiring special accommodation;

and may also accommodate the spouse of that person and no more than one other person."

Intention

You intend to market all the apartments only to people over 55 years of age (Aged Persons) by way of sale or lease.

Services

You will not provide care services as part of your accommodation supplies. However, the residents will be able to organise their own assistance with external providers and/or yourself when needed.

You will be able to provide the following services under separate agreements, to support residents living in the Development when and if required:

·         Personal care

·         Domestic assistance

·         Garden maintenance

·         Respite

·         Transport

·         Nursing services

·         Social activities

·         Dementia support and services

·         Nursing care

·         Technology

·         Freshly cooked daily meals

·         Cleaning and laundry

You will engage third parties to perform the day to day operational functions of the retirement village.

The Apartments

As can be seen from the proposed plans and artist's pictorial impression provided, all X apartments will be 3xZ, 2 x Z, 2xZ or 1xZ apartments capable of being occupied as a residence. They will provide the necessary shelter and facilities to sustain human habitation, including but not limited to cooking, shower, and toilet facilities. The only feature which distinguishes the W apartments from the other apartments is that they have been specifically designed to accommodate residents who have a recognised form of handicap.

Facilities

The Café

The Café is intended to be a centralised meeting place for the residents and also for community groups and members of the local community. It will include an alfresco seating area and will be located in the Stage X building on the ground floor.

Adjoining the Café will be an area designated as the 'Residents Lounge' which will be the community centre. The Residents Lounge will include lounge seating and a television. This area will also be available for residents and their guest primarily, as well as the public and community groups.

Although the Café will be located on the ground floor of the Stage X building, residents located in Stage Y will be able to access the Café via the Z at the X end or via the paved walk way at the X intersection which will connect both the Stage X and Y buildings.

Communal Courtyards

Within the Development, an X square metre communal courtyard will be constructed on the first level of each building.

The courtyards will include barbecue facilities and covered and uncovered seating and will only be accessible by residents and their guests.

Communal Rooftop Terrace

There will be a communal rooftop terrace which will include seating and barbecue facilities and will only be accessible by residents and their guests.

Gymnasium/Library

The Development in its current proposed form will include a multi-purpose space in which you will operate either a gym or library which will only be accessible by residents and their guests.

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 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 195-1

Reasons for decision

Detailed reasoning

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you make a taxable supply if:

(a) you make the supply for consideration;

(b) the supply is made in the course or furtherance of an enterprise that you carry on;

(c) the supply is connected with the indirect tax zone (Australia); and

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

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

Section 38-260 of the GST Act states that certain supplies by a charitable retirement village may be GST-free:

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 a retirement village, or a supply of a service related to the supply of accommodation; or

(ii)           a supply of meals.

We will now examine each of these requirements.

In your case you are an endorsed charity and the question is whether you will operate the complex or whether the other entity you intend to engage will manage it in its own right.

Meaning of "operates"

You have advised that you will be engaging third parties to perform some of the day to day operational functions of the retirement village. It is therefore necessary to consider whether it will be 'you' that will operate the village.

There is no definition of the word "operates" in the GST act. Paragraph 1.51 of the Explanatory Memorandum (EM) to the Tax Laws Amendment (Retirement Villages) Bill 2004 (the Bill through which section 38-260 was inserted) states:

1.51 In order that GST-free treatment applies, it is necessary that the

charitable retirement village operator make the supply to a resident of a

retirement village operated by the charity. Accordingly, supplies made by

the charitable retirement village to visitors or staff of the retirement village would not qualify for GST-free treatment.

The specific use of the words the "retirement village operator make the supply to a resident" suggests that it is only the retirement village operator that can be the one operating the village and that those tasks cannot be delegated to other entities.

The Macquarie Dictionary defines the word "operate"

"the state of being in action or of exerting power; action; operation: the agency of Providence. 5. a mode of exerting power; a means of producing effects; instrumentality: by the agency of friends."

The Oxford Dictionary defines the word "operate" as:

verb. 1 with object (of a person) control the functioning of (a machine, process, or system) 'the Prime Minister operates a system of divide and rule' More example sentences. 'A person operating our control system could take it in stride.

Paragraph 1.1 of the EM explains that the aim of the legislative amendment is to:

provide that supplies of accommodation, services related to

accommodation, and meals are GST-free if provided by a

charitable retirement village to a resident of such a retirement village.

In paragraph 3.4 of your submissions you have argued:

...we consider that section 38-260 is part of an overall initiative of Parliament to widen the ambit of supplies by (operators of) charitable retirement villages that may be GST-free. This is because section 38-260 was introduced to complement "the current law" referred in the EM above, that is, section 38-250 (which allows charitable organisations, including retirement villages, to treat their supplies for nominal consideration as GST-free. Our view is that Parliament considered section 38-250 to be insufficient as a concession for charitable retirement villages, and section 38-260 was introduced to address this deficiency."

Section 15AA of the Acts Interpretation Act 1901 (Cth) states:

15AA Interpretation best achieving Act's purpose or object

In interpreting a provision of an Act, the interpretation that would best achieve the purpose or object of the Act (whether or not that purpose or object is expressly stated in the Act) is to be preferred to each other interpretation.

It is our view that the word "operates" in subparagraph 38-260(a) should not be construed narrowly, as to do so would be contrary to the objects of the legislation to extend GST-free status to the supply of retirement village accommodation by an endorsed charity. Even though you may not be the entity doing all the day to day "operating" of the retirement village, we consider the fact that you will have arrangements in place for other entities to perform those functions as your agent to be sufficient to fall within section 38-260. Those arrangements are analogous to the 'Grandma's Flowers' example in paragraph 118 of Goods and Services Tax Ruling 2006/9 (Goods and services tax: supplies) (GSTR 2006/9):

Grandma's flowers

118. The scenario of Grandma's flowers illustrates some of the tripartite propositions.

A enters into a contract with B for B to provide goods to C. A is an individual, B is a florist, the goods are flowers, and C is A's grandmother:

>

In your case you will operate the retirement village. You will have in place contracts with third party entities for the provision of day to day management and running of the premises for the benefit of residents, on your behalf.

Definition of Retirement Village

"Retirement village" is specifically defined under section 195-1 of the GST Act 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.

We consider that all of the apartments the meet the definition of residential premises as set out in section195-1and the Development is not intended to be used for the provision of residential care, nor will it meet the definition of commercial residential premises.

You have argued that accommodation in allthe apartments is intended to be for Aged Persons based on the following:

• X generally describes the Development as being meant for retirees who are broadly at least 55 years or older. In your Annual Report, the Development is described as "Accessible Housing for Local Retirees". You further describe the Development in the following terms:

"X continues to work towards our strategic goal of providing accommodation, care and support to active retirees. We are developing sites on both sides of X (between X and Y Roads) to create a community precinct and apartment lifestyle for local retirees. In this highly anticipated development, we aim to support residents to live well through being connected to high quality care available in their own stylish home. We plan to have an exceptionally picturesque X, café and community centre that supports retirees to keep living well and safely in their own home, whilst remaining linked to the community."

• You have advised that the proposed marketing strategy is designed to target potential residents within the X metropolitan area that are over 55 via metro and local newspapers, online advertising, and outdoor signs in the local area. You will also be using local magazines that have a high demographic profile of over 55s. The marketing strategy will be combination of branding and retail to generate the number of leads that are required to generate the conversion of leads into sales to sell the apartments.

We are of the view, based on the totality of the above, that it is your intention for all X apartments (including the W apartments) form a retirement village as defined in section 195-1 of the GST Act.

Communal Facilities

Goods and Services Tax Ruling GSTR 2007/1: when retirement village premises include communal facilities for use by the residents of the premises (GSTR 2007/1) addresses what may constitute communal facilities for the purposes of the GST definition of retirement village. Per paragraph 19 of GSTR 2007/1, retirement villages 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)."

Further guidance from GSTR 2007/1 on what constitutes communal facilities for the purposes of the GST definition of retirement village is outlined below:

·         Communal facilities must be (but not be solely for) for the common and shared use of the village residents (paragraph 41);

·         Communal facilities should, as its primary purpose, enhance the sense of community among the residents - facilities that are intended for group use by the residents "for recreational, sporting, social, religious, or other similar uses that enhance a sense of community among the residents." (paragraphs 42 and 44);

·         Communal facilities must be:

(i)    within, attached to, or connected to the residential buildings in the retirement village; or

(ii)   constructed on the surrounding land that at least substantially contributes to:

(a) the enjoyment of the residential buildings in the retirement village; or

(b) the fulfilment of the residential buildings' purposes as a residence (paragraph 43);

(iii)  for use by the residents; however, they need not be for the exclusive use of residents (paragraphs 24 and 48).

We consider that when your completed premises are constructed in the manner set out in the facts the Café, multi-purpose room and resident's lounge will, if used in the manner described, meet the definition of communal facilities.

We also consider that based on your description of the property that it is not commercial residential premises as defined in the GST Act nor is it premises used, or intended to be used, for the provision of residential care (within the meaning of the Aged Care Act 1997).

We consider that the X apartments and the communal facilities as described in the facts will meet all the requirements in paragraphs (a) to (e) of the definition of "retirement village" under section 195-1.

Accordingly, we consider that you meet subsection 38-260(a)

The supply is made to a resident of the retirement village

We consider that this requirement will be met as the supplies of accommodation in the apartments will be made to the residents of the Development. Accordingly, we consider that you meet subsection 38-260(b)

The supply is a supply of accommodation in the retirement village

A supply meets the requirement in subsection 38-260(c) if the supply is:

·         The supply of accommodation in the retirement village; or

·         The supply of a service related to the supply of the accommodation; or

·         The supply of meals.

For the purposes of this ruling request, we are considering subsection 38-260(c)(i) being that the supply is the supply of accommodation in the retirement village.

As we have already established that the Development is a retirement village for the purposes of the GST Act, the only other considerations are whether:

·         the sale of an apartment would be considered the supply of accommodation in that retirement village; and/or

·         the lease of an apartment would be considered the supply of accommodation in that retirement village.

As noted in ATO Interpretative Decision ATO ID 2009/103: GST and services related to accommodation in a retirement village operated by an endorsed charitable institution or trustee of a charitable fund that are GST-free (ATO ID 2009/103), the term "accommodation" takes on its ordinary meaning, having regard to context. ATO ID 2009/103 cites the Shorter Oxford English Dictionary, 2002, 5th edition, Oxford University Press, New York, (Shorter Oxford Dictionary) in defining accommodation as:

Room and provision for the reception of people, lodgings; living premises.

Taking into consideration the statutory definition of "retirement village" in the GST Act, the ATO outlines its view of the meaning of "accommodation in a retirement village" in ATO ID 2009/103 as follows (emphasis added):

"In this context, the Commissioner considers that a supply of 'accommodation in a

retirement village' is a supply of residential premises and communal facilities to a resident (if at least of 55 years of age) that has the right to occupy such

premises."

The definition of "accommodation in a retirement village" in ATO ID 2009/103 repeats elements of the definition of "retirement village" in the GST Act, including that:

·         The supply is of residential premises and communal facilities; and

·         The supply is to a resident at least 55 years of age.

These have already been established as being met in our considerations concerning the GST definition of "retirement village" above. We have also established that the residents will have "the right to occupy such premises" as they will have exclusive right of occupancy to the apartments.

We note also that the apartments in the Development should constitute "living premises" for the purposes of the definition of "accommodation" per the Shorter Oxford Dictionary as the premises will be residential premises.

For the above reasons, we consider that the supply of the apartments (be that by sale, or by lease) to the residents in the Development should be considered "the supply of accommodation in the retirement village" for the purposes of subsection 38-260(c)(i) of the GST Act.

The purpose of section 38-260

Although it is our view that the above reasons should be sufficient for the supply of the strata titled apartments in the Development (whether by sale of by lease) to be GST-free under section 38-260, for the avoidance of doubt, we discuss briefly below our view on the purpose and intent of section 38-260.

You have argued that section 38-260 should be interpreted widely so as to include the supply of residential accommodation in a retirement village to be GST-free whether it is supplied by lease or the transfer of title. In Melbourne Apartment Project Pty Ltd (as Trustee for Melbourne Apartment Project) v Commissioner of Taxation FCA 2118 Kerr J, although primarily required to examine the interpretation of section 38-250 of the GST Act, specifically referred to section 38-260 at paragraph 43:

Having regard to the broad definition of "real property" in the GST Act, the conclusion that the expression "supply of accommodation" includes the supply of a freehold interest in land does not involve an artificial approach focused on the rights of occupation and use for accommodation that are inherent in the freehold interest. Rather, the Commissioner makes an artificial distinction between a freehold interest and a leasehold interest. He accepts that the latter is a "supply of accommodation for the purposes of s 38-250(1)(b)(i).

The recipient of the supply of a freehold interest and a leasehold interest in each case acquires a bundle of rights that includes the rights of occupation and use for accommodation. Both supplies fall within the composite expression "supply of accommodation".

His Honour's above rationale, when viewed in conjunction with his comments in paragraph 116 to 118 of the judgement suggest that, for consistency, the supply of accommodation in section 38-260 should be treated the same way as subparagraph 38-250(1)(b).

Conclusion

It is our view that the supply of the X strata titled apartments in the Development, by sale or by way of lease, to potential residents should be GST-free under section 38-260 as the X apartments and the associated communal facilities meet the legislative requirements.