Edited version of private advice

Authorisation Number: 1052160497476

Date of advice: 28 August 2023

Ruling

Subject: GST - retirement villages

Question 1

Was the sale made by <entity name> (the Partnership) of the Retirement Village Business and the Business Assets as defined in the Business Sale Agreement a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, the sale made by the Partnership of the Retirement Village Business and the Business Assets as defined in the Business Sale Agreement was a taxable supply pursuant to section 9-5 of the GST Act.

Question 2

Was the sale made by the Partnership of the land located at <property address> (the Land) and as described below in the Land Sale Contract entered into on <date> between <entity name> (Vendor) and <entity name> (the Purchaser) a taxable supply pursuant to section 9-5 of the GST Act?

Answer

Yes, the sale of the Land by the Partnership was a taxable supply under section 9-5 of the GST Act to the extent of the following parts:

(1)       Lot <number> in its entirety being vacant land

(2)       Lot <number> - those parts in relation to:

(i)         the independent living units (ILUs) used predominantly for residential accommodation that were new residential premises, including the portion of the communal facilities and other infrastructure that are ancillary or incidental to these ILUs

(ii)        communal facilities and other infrastructure that do not fall within the definition of residential premises

(iii)      the undeveloped vacant land

Question 3

Was the Partnership required, under section 9-15 of the GST Act, to include the repayment benefit (as referred to in Goods and Services Tax Ruling GSTR 2011/1 Goods and services tax: development, lease and disposal of a retirement village tenanted under a 'loan-lease' arrangement (GSTR 2011/1)) in the consideration for the supply of the Land?

Answer

No, although the face value of the ingoing contributions that the purchaser assumes responsibility for repaying, referred to as the repayment benefit, forms part of the consideration for the supply of the Land under section 9-15 of the GST Act, the transitional arrangement set out in GSTR2011/1 is considered applicable and will allow you to adopt an interpretation of GSTR 2004/9 that does not require you to include such ingoing contributions in the consideration for the supply.

Question 4

Is the Partnership entitled to adjustments pursuant to Division 129 of the GST Act on acquisitions made in developing the <estate name> including the acquisition of the Land (development acquisitions)?

Answer

Yes, the Partnership is entitled to adjustments on its acquisitions made in developing the <estate name> under Division 129 of the GST Act where the Partnership:

(i)         has an adjustment under the Division in respect of an adjustment period for the relevant acquisition, and

(ii)        the applicable adjustment periods for the relevant acquisition have not expired

subject to:

•                the relevant acquisition having a GST exclusive value of more than $1,000 (unless the acquisition was related to business finance in which case the acquisition having a GST exclusive value of more than $10,000).

This ruling applies for the following period:

<date> to <date>

The scheme commenced on:

<date>

Relevant facts and circumstances

The expressions 'You/you (or your)', 'the Partnership' and '<entity name>' refer to the same entity and are used interchangeably throughout this ruling.

Documents provided for this ruling

You provided a number of documents for this ruling.

Background facts

<Estate name> is a retirement village (the Estate) situated in <suburb> in <state>. The Estate was an asset of the Partnership.

The Agent for the Partnership is <entity name>.

<Entity name> (known as <entity name> from <date>) was a company that was set up solely to hold the Estate (as distinct from other Partnership assets) in its capacity as the sub-agent (Sub-Agent) for the Agent of the Partnership.

Neither the Agent nor the Sub-Agent had any beneficial interest in the Estate. They acted solely in their capacity as agent or sub-agent of the Partnership. This structure was used to assist in separately identifying and accounting for the income and expenses of the various businesses owned by the Partnership.

Accordingly, the Agent and each Sub-agent of the Partnership has its own separate ABN and lodges its own business activity statements (BAS), reporting income (e.g., deferred management fees, monthly service income) and expenses (e.g., operating expenses) relating to the business that it was set up to act for and on behalf of.

The Partnership

<Entity name> of ABN: <number> (the Partnership) applied for this private ruling on <data> after approximately <number> months of early engagement discussions with the ATO.

The Partnership's ABN has been active from <date> to current date

The Partnership registered for GST from <date> and reports its GST obligations on a quarterly and non-cash basis. Records from the Australian Business Register (ABR) includes:

• The Partnership's current entity name (from <date> to current date) is <entity name>
• The Partnership's previous entity name (from <date> to <date>) was <entity name>
• The Partnership's trading names (from <date> to current date) are:

­   <Entity name> as trustee for <trust name> and <entity name> as trustee for <trust name> and <entity name> as trustee for <trust name>

­   <Fund name>

­   <Entity name>

Note that as mentioned above, the Agent of the Partnership is <entity name> with the ABN <number> who was appointed as an agent of the Partnership under the partnership agreement (known as <fund name> Partnership Agreement) dated <date> (the Partnership Agreement).

<Entity name> previously held the legal name of <entity name>.

<Entity name> was registered for GST from <date> to <date> and had lodged nil BASs.

<Entity name> changed its legal name to <entity name> from <date>.

When the ATO questioned why the Agent's legal name and the Partnership's trading name appeared to be coincidentally identical, your representative advised that it was unsure why that is the case.

Partnership Agreement

The Partnership (<entity name>) trading as <fund name> was formed on <date> to develop and run retirement villages using the loan/lease model across regional states.

The Deed of Accession and Variation dated <date> sets out variations to the original Partnership Agreement dated <date>.

The Parties to the Partnership agreement are the Partners/Owners and <entity name> (referred to as the Company in the Partnership Agreement).

There were a number of relevant clauses from the Partnership Agreement considered.

The Agent

As set out in the Partnership Agreement, <entity name> (ACN <number>) (currently known as <entity name>), was also nominated as the Agent for the Partnership.

The Agent was registered for GST from <date> until <date>.

Management Agreement

The following parties entered into a management agreement:

•                <entity name> (the Agent) and

•                <entity name>

<Entity name> (ABN <number>) will be known as 'the Manager'

The Management Agreement was executed on <date>.

There were a number of relevant clauses and annexures from the Management Agreement considered.

The Sub-Agent

On <date>, a Sub-Agency Deed was entered into between <entity name> (ACN<number>) (the Agent) and <entity name> (ACN<number>) ("the Sub-Agent"). The Sub-Agent subsequently changed its name to <entity name> on <date>.

The Sub-Agent registered for GST from <date> and is currently registered.

A number of relevant clauses from Sub-Agency Deed were considered.

Purchase of the Site

Based on the project recommendation submitted and financial analysis completed by the Manager, a unanimous resolution was passed by the members of their Sub-Committee in <month> <year> to purchase the property located at <property address> (the Site) in the name of the 'Sub-Agent'.

The Site consisting of the following lots was acquired on <date> for $<amount> (exclusive of GST) for the purpose of construction and operation of a retirement village:

• Lot <number> on <plan number>, Certificate of Title volume <number> Folio <number>
• Lot <number> on <plan number>, Certificate of Title Volume <number> Folio <number>

The Site was acquired by the Partnership as a fully taxable supply through the 'sub-agency' of <entity name> (the Sub Agent).

The Site was purchased together with planning approvals in accordance with Planning Permit <number> which allowed for a staged retirement village development comprising of <number> independent living unit (ILUs), resident centre, swimming pool, bowling green and tennis court etc.

When purchased, the Site already had substantial site works completed (for stages <number> of the approved plans) including levelling and benching, under-ground services, nine switchboards and roads including kerbing and guttering laid. Additionally, electricity, sewer and water had also been connected to the site.

At the time the Site was purchased, the Partnership was developing other retirement village estates.

Development of the Estate

In consultation with the local council, it was decided to amend the existing development agreement to vary the density of the Estate from the existing <number> ILUs with no serviced apartments, to the '<style>' development to comprise approximately <number> ILUs plus <number> serviced apartments.

Additionally, no input taxed credits have been claimed in relation to acquisitions associated with the operation of the Estate.

The only taxable supplies reported relate to the following matters:

• Minor reinstatement to resales (ie Repairs and Maintenance which was deducted from the outgoing residents exit entitlement)
• Recharge of electricity supply - this usually occurred if a resident had recently moved in, and the account was in the process of being transferred to their name
• Rent of space in the community centre for a hairdresser and a beauty and nails specialist.
• Supply of goods (recharge of cost of goods)
• Minor variations or changes to ILUs
• Minor repair and maintenance to ILUs or gardens.

Development costs

You provided a spreadsheet which summarises costs associated with the commencement of the development of the Estate as extracted from the special purpose financial statements.

Sale of the Estate

In order to meet conditions of the Partnership's lender, the Partnership was required to sell the Estate.

In anticipation of the Partnership's lender issuing a Deed of Forbearance, the Board agreed to appoint <entity name> as the selling agent for the Estate on <date>. The requirement to sell the Estate formally appeared in the Deed of Forbearance issued by the Partnership's lender in <month> <year>. If the lender had not required the Estate to be sold, the Estate would not have been put on the market. An expression of interest was listed on the market in <month> <year> by <entity name> for the sale.

The following is a description of the Estate at the time it was advertised for sale;

•                The Estate was located on a single title Volume: <number> Folio: <number>, Lot Number>, <plan number> (Lot <number>).

•                Associated with the Estate was a piece of vacant land described as Volume: <number> Folio: <number>, Lot <number>, <plan number> (Lot <number>).

•                Together Lot <number> and Lot <number> (here forth referred to as 'the Land') spanned over an area of approximately <number> hectares.

•                Lot <number> consisted of the following

­   <number> tenanted ILUs under the loan/lease model

­   communal facilities and other infrastructure

­   the remaining undeveloped vacant land

•                The street address of the land is <property address>.

Through the expression of interest process a third-party purchaser was found for the sale of the Estate. The sale to the purchaser was an arm's length transaction.

For the sale of the Estate, two agreements were entered into between the Sub-Agent as agent on behalf of the Vendor and <entity name> ACN<number> as the Purchaser. The agreements are titled

(i)         The business sale agreement <estate name> (Business Sale Agreement), and

(ii)        The contract of sale of land (Land Sale Contract)

Settlement of both the Business Sale Agreement and Land Sale Contract occurred on the same day, that is, <date>.

The Purchaser did not agree for the Partnership to treat the sale of the Estate as the supply of a going concern.

The sale of the Estate includes:

(a)       the sale of the business (Retirement Village Business) and specified assets associated with operating the business (Business Assets)

(b)       the developed land and improvements including the independent living units (ILUs) (with resident liabilities attached) and the community centre

(c)       vacant undeveloped land, and

(d)       all associated infrastructure.

Land Sale Contract

The Land Sale Contract was entered into on <date> between <entity name> (Vendor) and <entity name> (Purchaser) for the sale/purchase of the property located at >property address>.

Settlement occurred on <date>.

The relevant property is described in the table below:

The Land

In the Land Sale Contract, the price was $<amount> with GST $<amount> payable in addition to the price.

At settlement the GST amount of $<amount> was remitted to the Australian Taxation Office. The GST amount had been included in the BAS of the Sub-Agent <entity name> (ABN <number>) for the quarter ended <date>.

The Land was sold subject to the existing leases of the ILUs to residents.

A number of special conditions contained in the Land Sale Contract were considered.

The Land Sale Contract includes a list of <number> ILUs. These <number> ILUs made up the total number of ILUs in the whole of your retirement village at the time of the sale.

All of the <number> ILUs were leased at the time of the sale. Since the completion of construction of these <number> ILUs,

•         <number> of the ILUs were leased for the period of less than 5 years, and

•         <number> of the ILUs were leased for the period of 5 years or more

Aside from the intention to sell that was later formed, since the <number> ILUs first became residential premises, the premises have only been used for making input taxed supplies of residential rent under paragraph 40-35(1)(a).

The amount of resident loans outstanding at settlement was approximately $<amount> million. Of this amount approximately $<amount> million related to the ILUs that were leased for less than 5 years.

All the ILUs were each occupied by a resident or residents at settlement other than ILU <number> which was used as a temporary community centre and estate manager's office from the date it was constructed in <month> <year> until <month> <year>. This has been included in the $<amount> of the ILUs that were leased for the period of less than 5 years.

Business Sale Agreement

On <date> the Business Sale Agreement was entered into between <entity name> (Seller) and <entity name> (Buyer) for the sale/purchase of the Retirement Village Business (trading under the name '<estate name>) and the Business Assets of the <estate name> for $<amount>.

Settlement occurred on <date>.

This sale was not reported for GST purposes as you considered it to be an input taxed supply.

There were a number of clauses from the Business Sale Agreement that were considered.

Other

On 27 April 2011, Goods and Services Tax Ruling GSTR 2011/1 Goods and services tax: development, lease and disposal of a retirement village tenanted under a 'loan-lease' arrangement (GSTR 2011/1) was issued.

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 9-20

A New Tax System (Goods and Services Tax) Act 1999 Section 23-5

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

A New Tax System (Goods and Services Tax) Act 1999 Division 40

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

A New Tax System (Goods and Services Tax) Act 1999 Section 40-65

A New Tax System (Goods and Services Tax) Act 1999 Section 40-75

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

A New Tax System (Goods and Services Tax) Act 1999 Section 129-40

A New Tax System (Goods and Services Tax) Act 1999 Section 129-50

A New Tax System (Goods and Services Tax) Act 1999 Section 129-55

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

Reasons for decision

In the below reasoning, unless otherwise stated,

•      all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act)

•      all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act

•      all reference materials referred to are available on the ATO website ato.gov.au

Question 1

Was the sale made by <entity name> (the Partnership) of the Retirement Village Business and the Business Assets as defined in the Business Sale Agreement a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Detailed reasoning

Section 9-5 provides that you make a taxable supply if:

(a)    you make the supply for consideration; and

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

(c)    the supply is connected with the indirect tax zone, 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.

Divisions 38 and 40 provide for certain supplies to be GST-free and input taxed respectively.

Based on the facts, we consider Divisions 38 and 40 have no application to the supply of the Retirement Village Business and the Business Assets.

Accordingly, the sale of the Retirement Village Business and Business Assets is not a GST-free or an input taxed supply. The sale would be a taxable supply if all the requirements specified in paragraphs 9-5(a), (b), (c) and (d) were satisfied.

Agency relationship

In this case the Business Sale Agreement refers to the Sub-Agent as the Vendor of the Retirement Village Business and the Business Assets and not the Partnership. It is therefore necessary to consider the capacity in which the Sub-Agent makes this supply - as principal in its own capacity or as an agent for the Partnership.

Goods and Services Tax Ruling GSTR 2000/37Goods and services tax: agency relationships and the application of the law (GSTR 2000/37discusses the principal and agency relationship and explains the application of GST legislation to transactions involving these relationships.

Paragraphs 10 to 15 explains the following:

General law and agency relationships

10. An entity may be authorised by another party to do something on that party's behalf. Generally, the authorised entity is called an agent. The party who authorises the agent to act on their behalf is called the principal. For an insurance policy, the authorised entity is often called an insurance broker. The party who authorises an insurance broker to act on their behalf is called the insured (the recipient of the supply). Also, if appropriately authorised, an insurance broker could act as an agent on behalf of the insurer.

11. For commercial law purposes, an agent is a person who is authorised, either expressly or impliedly, by a principal to act for that principal so as to create or affect legal relations between the principal and third parties.

12. The principal is bound by the acts of an agent as a result of the authority given to the agent. In cases of actual authority, the relationship between a principal and an agent is a consensual one so that no party can claim to be a principal's agent unless both parties consent to the creation of the agency.

13. Further, a principal may be bound by the acts of another person if the principal acts in a way that a third party believes that the other person is authorised to act as the principal's agent when this previously has not been the case. The authority for the agent to act for the principal in this circumstance is termed 'ostensible authority'. The principal will be liable for acts of the agent within the scope of the authority that the principal gives to the agent by virtue of his or her conduct and actions.

...

15. When an agent uses his or her authority to act for a principal, then any act done on behalf of that principal is an act of the principal. Also, a principal is not bound by acts that are not within the expressed, implied or ostensible authority conferred on the agent. However, the principal may ratify or confirm an unauthorised dealing.

Paragraph 55 of GSTR 2000/37 further provides:

55. If you are an agent at general law, you are an agent for GST purposes unless Subdivision 153-B applies. Accordingly, if you are an agent (where taxable supplies are made through you), the principal is liable for any GST payable on the supplies. Also, if you are an agent (where creditable acquisitions are made through you), the principal is entitled to any input tax credits

The Sub-Agency Deed provides that the purchase and holding of the Site and the operation of the Estate by the Sub-Agent on the terms contained therein are activities undertaken as an agent for both the Agent and Partnership at all times. Additionally, any right or obligation assumed by the Sub-Agent under the Sub-Agency Deed are also in its capacity as agent and not on its own account unless stated otherwise.

Furthermore, under both the Sub-Agency Deed and the Partnership Agreement, the activities, transactions and contracts entered into by the Agent are also undertaken in the capacity as an agent for and on behalf of the Partnership.

Consequently, as the Sub-Agent acted as an agent for the Partnership, the supply of the Retirement Village Business and Business Assets is made by the Partnership.

Whilst a compliance matter that is separate to the technical matters within this private ruling, it is to be noted that since the date of application for this private ruling, the ATO has on several occasions discussed with the Partnership and/or its representative the issue of which entity should appropriately account for transactions relating to the Estate. From such conversations the ATO understands that the Partnership will review the reporting of transactions relating to the Estate to ensure that they are reported within the correct entity's BAS's.

Based on the relevant facts, we consider the following:

•                The price in relation to the sale as stated in the Business Sale Agreement was $<amount>.

•                The supply was made in the course or furtherance of the retirement village enterprise that the Partnership carried on.

•                Section 9-25 describes the situations in which a supply is connected with the indirect tax zone (Australia). We consider the supply of the Retirement Village Business and Business Assets by the Partnership was connected with Australia under section 9-25.

•                The Partnership was registered for GST at the time of the supply.

In view of the above facts and analysis, we consider all the requirements specified in paragraphs 9-5(a), (b), (c) and (d) were satisfied. This would mean the supply made by the Partnership of the Retirement Village Business and Business Assets under the Business Sale Agreement was a taxable supply and GST was payable. The Partnership was required to report the supply in its BAS for the relevant tax period.

Question 2

Was the sale made by the Partnership of the land located <property address> (the Land) and as described below in the Land Sale Contract entered into on <date> between a <entity name> (Vendor) and <entity name> (the Purchaser) a taxable supply pursuant to section 9-5 of the GST Act?

Detailed reasoning

We note the following factual points some on which we provide our opinion

• The price in relation to the sale as stated in the Land Sale Contract was $<amount> with GST $<amount> payable in addition to the price.
• Whilst the Land Sale Contract provides the price was for the undeveloped land only it is noted that the developed land containing the ILUs, community centre and other infrastructure was also supplied under the same Land Sale Contract.
• In our view objects such as buildings that are fixed to the land by any means other than its own weight are considered to be fixtures which forms part of the land. Title of the fixtures passes with the land and consequently form part of the supply of the land. Your supply of land was a mixed supply of vacant land and developed land containing fixtures such as the ILUs, community centre etc.
• Whilst the Land Sale Contract refers to the Sub-Agent as the Vendor of the Land and not the Partnership, as noted above, the activities undertaken by the Sub-Agent in relation to the Site and Estate are in its capacity as agent for and on behalf of the Partnership. Consequently, the supply of Land is made by the Partnership.
• The supply was made in the course or furtherance of the retirement village enterprise that the Partnership carried on.
• Subsection 9-25(4) provides the situation in which supplies of real property are connected with the indirect tax zone (Australia). We consider the supply of the Land was connected with Australia pursuant to subsection 9-25(4).
• The Partnership was registered for GST at the time of the supply.

In view of the above facts and analysis, we consider the supply of the Land satisfied all the requirements specified under paragraphs 9-5(a), (b), (c) and (d) and would be a taxable supply unless the supply was a GST-free or an input taxed supply.

Division 38 and 40 provide for certain supplies to be GST-free and input taxed respectively.

Based on the facts, we consider Division 38 has no application to the supply of the Land.

Accordingly, it is relevant to consider whether the sale of the Land was an input taxed supply under Division 40. Of relevance for consideration is subdivision 40-C which provides for residential premises.

Relevantly, section 40-65 provides for sales of residential premises:

(1) A sale of * real property is input taxed , but only to the extent that the property is * residential premises to be used predominantly for residential accommodation (regardless of the term of occupation).

(2) However, the sale is not input taxed to the extent that the * residential premises are:

(a) * commercial residential premises; or

(b) * new residential premises other than those used for residential accommodation (regardless of the term of occupation) before 2 December 1998.

Note:

For sales of residential premises that are new residential premises, the recipient of the supply must pay an amount representing the GST on the supply to the Commissioner under section 14-250 in Schedule 1 to the Taxation Administration Act 1953 , and the supplier is entitled to a credit for that payment under section 18-60 in that Schedule.

The definition of the terms 'residential premises', 'commercial residential premises' and 'new residential premises' are extracted below:

Residential premises

Residential premises is defined in section 195-1 of the GST Act as 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.

Guidelines on residential premises are available in Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) which includes the following explanations:

Living accommodation provided by shelter and basic living facilities

...

15. To satisfy the definition of residential premises, premises must provide shelter and basic living facilities. Premises that do not have the physical characteristics to provide these are not residential premises to be used predominantly for residential accommodation.

Vacant land

47. Vacant land is not capable of being occupied as a residence or for residential accommodation as it does not provide shelter and basic living facilities. Vacant land is not residential premises.

Goods and Services Tax Ruling GSTR 2007/1 Goods and services tax: when retirement village premises include communal facilities for use by the residents of the premises (GSTR 2007/1) includes the following:

18. The residential premises of the retirement village include the land on which the residential building(s) is constructed, along with the surrounding land that actually or substantially contributes to the enjoyment of the building(s) or to the fulfilment of its purposes as residence (whether or not on separate titles).

19. 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).

Amongst other things, the supply of a licence over the common areas of a retirement village is considered in Goods and Services Tax Ruling GSTR 2012/4 Goods and service tax: GST treatment of fees and charges payable on exit by residents of a retirement village operated on a leasehold license basis (GSTR 2012/4). Specifically, paragraph 42 provides:

Residential premises

42. Where the supply is by way of lease or licence, and it is not the supply of a serviced apartment covered by subsection 38-25(4A), the operator makes an input taxed supply of residential premises by way of lease or licence over a unit to the resident. In some circumstances, the operator also makes a supply of a licence over the common areas in the village. The common areas licence involves an input taxed supply where the common areas are an ancillary or incidental part of the 'residential premises' made available to the resident under the legal arrangements.

Commercial residential premises

Commercial residential premises is defined in section 195-1 to include:

(a)        a hotel, motel, inn, hostel or boarding house; or

...

(f)        anything similar to * residential premises described in paragraphs (a) to (e)....

Guidance on whether premises are characterised as commercial residential premises is provided in Goods and Services Tax Ruling GSTR 2012/6 Goods and service tax: commercial residential premises (GSTR 2012/6).

Paragraph 11 of GSTR 2012/6 explains that:

The tests to be applied are whether the premises are a hotel, motel, inn, hostel or boarding house for the purposes of paragraph (a), or whether the premises are similar to these types of premises, in the sense that they have a sufficient likeness or resemblance to any of these types of establishments for the purposes of paragraph (f). These tests necessarily raise questions of fact involving matters of impression and degree.

Specifically, paragraph 242 to 245 of GSTR 2012/6 provides:

Retirement village accommodation

242. Retirement villages provide living accommodation in 'communal or semi-communal' facilities.

243. Retirement village living units are residential premises to be used predominantly for residential accommodation based on their physical characteristics. In addition, some of the buildings and facilities that residents can directly enjoy in conjunction with their residency form part of the residential premises. This includes, for example, barbeque areas, gardens, car-parks and driveways.

244. A retirement village may also include parts that are not residential premises to be used predominantly for residential accommodation. This includes, for example, site offices, staff rooms, medical centres, and commercial premises, such as hairdressing salons, golf courses, shops, and restaurants or cafes. These are commercial premises the value of which should be apportioned or treated as separate supplies under the basic rules, depending on the circumstances of their supply.

245. A retirement village does not display sufficient physical, nor operational, features referred to at paragraphs 9 to 42 and 140 to 188 of this Ruling to be characterised as a hotel, motel, inn, hostel or boarding house, nor is it sufficiently similar to these premises for the purposes of paragraph (f) of the definition of commercial residential premises. See Example 1 at paragraph 43 of this Ruling.

Based on the facts, at the time of the supply, there were <number> ILUs in your Estate that were occupied by residents. We consider that those ILUs meet the definition of 'residential premises' as they have the physical characteristics described in paragraph 15 of GSTR 2012/5. Further, the ILUs were used predominantly for residential accommodation.

The common areas/communal facilities such as paths, driveways, parks, gardens and communal recreational facilities located within the curtilage of the Estate that are ancillary or incidental to such ILUs will thus also be considered part of the 'residential premises'. However, to the extent the communal facilities and other infrastructure are used for commercial activities they would not be included in the definition of 'residential premises'.

Additionally, we consider that the ILUs in the Estate were not commercial residential premises.

New residential premises

New residential premises has the meaning given by section 40-75. Guidelines on new residential premises are available in Goods and Services Tax Ruling GSTR 2003/3Goods and services tax: when is a sale of real property a sale of new residential premises? (GSTR 2003/3). The following paragraphs of GSTR 2003/3 are extracted for your information.

24. Subject to subsection 40-75(2), residential premises are new residential premises, as defined in subsection 40-75(1), if they:

(a)       have not previously been sold as residential premises ...; or

(b)       have been created through substantial renovations of a building; or

(c) have been built, or contain a building that has been built, to replace demolished premises on the same land.

89. Residential premises are not new residential premises if the premises have only been used for making input taxed supplies of residential rental under paragraph 40-35(1)(a) for the period of at least 5 years since:

•                the premises first became residential premises, where the premises have not previously been sold as residential premises ...;

•                the premises were last substantially renovated, where the premises have been created through substantial renovations of a building; or

•                the premises were last built, where the premises have been built, or contain a building that has been built, to replace demolished premises on the same land.

Paragraph 89 of GSTR 2003/3 reflects the provisions of subsection 40-75(2).

Further, Goods and Services Tax Ruling GSTR 2009/4 Goods and services tax: new residential premises and adjustments for changes in extent of creditable purpose (GSTR 2009/4) include explanations on the interaction between Division 129 and the '5 year rule' in subsection 40-75(2), which in certain situations may result in residential premises that have been leased for the period of 5 years or more to still be considered as new residential premises. The following paragraphs of GSTR 2009/4 are extracted for your information:

Interaction between Division 129 and the '5 year rule' in subsection 40-75(2)

132. It is considered that the term 'used' in subsection 40-75(2) and the meaning of 'apply' for the purposes of Division 129 should be interpreted consistently. This means that if an entity has applied new residential premises for a creditable purpose in accordance with Division 129, the premises will also have been used other than for making supplies that are input taxed under paragraph 40-35(1)(a) and the requirements for subsection 40-75(2) to apply will not be satisfied.

133. The '5 year rule' in subsection 40-75(2) provides an exception to the meaning of new residential premises in subsection 40-75(1). The '5 year rule' is discussed in paragraphs 89 to 93 of Goods and Services Tax Ruling GSTR 2003/3 Goods and services tax: when is a sale of real property a sale of new residential premises? As discussed in paragraphs 89 and 90 of GSTR 2003/3, subsection 40-75(2) requires that for a period of at least 5 years since the premises became new residential premises, the premises have only been used for making supplies that are input taxed under paragraph 40-35(1)(a). The period must be a 5 year continuous period. However, it can be any continuous period between when the premises would otherwise have become new residential premises and when they are sold. If this requirement is satisfied then the premises will not be new residential premises.

134. 'Used' is an important term in subsection 40-75(2). As noted in paragraph 33 of this Ruling, there is a strong similarity between the meanings of 'use' and 'apply'. That is, the relevant meanings are largely synonymous.

135. Adopting a consistent interpretation for the term 'used' in subsection 40-75(2) and the term 'apply' in Division 129 is consistent with the policy explained in the Revised Explanatory Memorandum to the Taxation Laws Amendment Bill (No. 8) 2000 (the Explanatory Memorandum), which introduced section 40-75, that new residential premises will not be taxable if an entity is not entitled to input tax credits for acquisitions relating to the construction of the premises.

In this case, the Land sold under the Land Sale Contract includes the description summarised in the table below.

Description of the Land

At the time of the sale of the Land by the Partnership:

(i)         Lot <number> consisted wholly of vacant land

(ii)        Lot <number> contained the following parts:

1.         the ILUs used predominantly for residential accommodation that were new residential premises, including the portion of the communal facilities and other infrastructure that are ancillary or incidental to these ILUs. Refer sections 40-65 and 40-75, paragraphs 24 and 89 of GSTR 2003/3, paragraphs 18 and 19 of GSTR 2007/1, paragraph 42 of GSTR 2012/4 and paragraphs 242 and 243 of GSTR 2012/6

2.         the ILUs used predominantly for residential accommodation that were not new residential premises, including the portion of the communal facilities and other infrastructure that are ancillary or incidental to these ILUs. Refer sections 40-65 and 40-75, paragraphs 24 and 89 of GSTR 2003/3, paragraphs 132 to 135 of GSTR 2009/4, paragraphs 18 and 19 of GSTR 2007/1, paragraph 42 of GSTR 2012/4 and paragraphs 242 and 243 of GSTR 2012/6.

3.         the communal facilities and other infrastructure that do not fall within the definition of residential premises. Refer paragraphs 18 and 19 of GSTR 2007/1 and paragraphs 242 to 244 of GSTR 2012/6.

4.         The undeveloped vacant land

In applying the GST Act and the Commissioner's view we determine the following:

1. Lot <number>

1.1 Lot <number> consisted wholly of vacant land, and in accordance with paragraph 47 of GSTR 2012/5, vacant land is not residential premises. Accordingly, subsection 40-65(1) does not apply to treat the supply of Lot <number> as an input taxed supply.

1.2 In relation to the supply of Lot <number> we consider Division 38 did not apply to the facts to make it GST-free.

1.3 The supply of Lot <number> satisfied all the requirements specified in paragraphs 9-5 (a), (b), (c) and (d) in that:

•         the supply was made for consideration

•         the supply was made in the course or furtherance of the Partnership's retirement village enterprise

•         the supply was connected with Australia and

•         the Partnership was registered for GST at the time of the supply.

1.4 Consequently, in view of the above reasonings, the supply of the Land relating to Lot <number> satisfied all the requirements in section 9-5 to be a taxable supply and GST was payable which the Partnership was required to report in its BAS for the relevant tax period.

2.         Lot <number> - the ILUs used predominantly for residential accommodation that were new residential premises, including the portion of the communal facilities and other infrastructure that are ancillary or incidental to these ILUs

2.1      As stated earlier, the ILUs in the Estate had the requisite physical characteristics and thus satisfied the definition of residential premises. Further, the ILUs in the Estate were used predominantly for residential accommodation. Additionally, the portion of the communal facilities and other infrastructure that are ancillary or incidental to the use of the ILUs will be considered part of the residential premises.

You have advised that at the time of the supply, <number> of the <number> ILUs in the Estate were new residential premises for GST purposes as those ILUs had been leased for a period of less than 5 years since completion of construction.

2.2      The same reasoning in 1.3 above would apply to the supply of the Land in relation to the <number> ILUs and in relation to the portion of the communal facilities and other infrastructure that fall within the definition of residential premises, that is, the requirements in paragraphs 9-5(a) to (d) would be satisfied. We also consider Division 38 had no application to the supply to make it GST-free.

2.3      Further, paragraph 40-75(1)(a) would apply to the <number> ILUs, including the portion of the communal facilities and other infrastructure that are ancillary or incidental to the use of these ILUs, as they have not previously been sold as residential premises. Therefore, paragraph 40-65(2)(b) would also apply to treat the supply of such ILUs as not input taxed under subsection 40-65(1).

2.4      Consequently, in view of the above reasonings, the supply of the Land in Lot <number> relating to the <number> ILUs, including the portion of the communal facilities and other infrastructure that are ancillary or incidental to the use of these ILUs, satisfied all the requirements in section 9-5 to be a taxable supply and GST was payable which is required to be reported in the Partnership's BAS for the relevant tax period.

3.         Lot <number> - the ILUs used predominantly for residential accommodation that were not new residential premises, including the portion of the communal facilities and other infrastructure that are ancillary or incidental to these ILUs

3.1      As stated earlier, the ILUs in the Estate had the requisite physical characteristics and thus satisfied the definition of residential premises. Further, the ILUs in the Estate were used predominantly for residential accommodation. Additionally, the portion of the communal facilities and other infrastructure that are ancillary or incidental to the ILUs will be considered part of the residential premises.

You have advised that at the time of the supply, <number> of the ILUs in the Estate were not new residential premises for GST purposes as those ILUs had been exclusively leased for the period of 5 years or more since completion of construction.

3.2      Paragraph 40-75(1)(a) would apply to the <number> ILUs, including the portion of the communal facilities and other infrastructure that are ancillary or incidental to the use of these ILUs, as they have not previously been sold as residential premises, however, paragraph 40-75(2)(a) would also apply to the <number> ILUs which results in them not being treated as new residential premises. Therefore, the supply of the <number> ILUs, including the portion of the communal facilities and other infrastructure that are ancillary or incidental to the use of these ILUs, would be input taxed by virtue of subsection 40-65(1).

4.         Lot <number> - the communal facilities and other infrastructure that do not fall within the definition of residential premises

4.1  The facts state that the developed land and improvements in the Estate included the ILUs, the community centre and all associated infrastructure.

4.2  The Partnership rented a space or spaces in the newly constructed community centre to a hairdresser and a beauty and nails specialist to provide their services. These parts of the communal facilities do not form part of residential premises. The leased part or parts of the new community centre would be considered commercial in nature, particularly where that is the sole use of those areas.

4.3  We consider the supply of the Land in relation to these parts of the communal facilities and other infrastructure would not satisfy Division 38 and 40 to be a GST-free or an input taxed supply. As the supply of such parts would satisfy all the requirements of paragraphs 9-5(a) to (d), the supply was a taxable supply.

4.4  We separately note that ILU <number>was temporarily used as a community centre and estate manager's office. Whilst ILU <number> was temporarily used for such purpose, it has the requisite physical characteristics of residential premises and is distinguishable from those commercially leased parts of the new community centre discussed above. As advised, ILU <number> was leased for the period of less than 5 years and has been included in the <number> ILUs which were treated as new residential premises for GST purposes (refer to the reasoning at 2 above).

5.         Lot <number> - the part of the Land that was undeveloped vacant land

5.1  The supply of the Land in relation to the undeveloped vacant land on Lot <number> was a taxable supply. The reasons for this are the same as that adopted above for the GST treatment of the sale of the vacant land at Lot<number>.

Question 3

Was the Partnership required, under section 9-15 of the GST Act, to include the repayment benefit (as referred to in Goods and Services Tax Ruling GSTR 2011/1 Goods and services tax: development, lease and disposal of a retirement village tenanted under a 'loan-lease' arrangement (GSTR 2011/1)) in the consideration for the supply of the Land?

Detailed reasoning

Section 9-15 provides for consideration and includes the following provisions:

(1) Considerationincludes:

(a) any payment, or any act or forbearance, in connection with a supply of anything; and

(b) any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.

(2) It does not matter whether the payment, act or forbearance was voluntary, or whether it was by the * recipient of the supply.

The Commissioner considers that, where a vendor of a retirement village is relieved of its obligation to repay ingoing contributions received from residents, this repayment benefit is included in the consideration for the sale of the village.

The term 'repayment benefit' is not defined in the GST Act. The Commissioner's view of the term is specifically expressed in Goods and Services Tax Ruling GSTR 2011/1 Goods and services tax: development, lease and disposal of a retirement village tenanted under a 'loan-lease' arrangement (GSTR 2011/1).

GSTR 2011/1 explains that in circumstances outlined in paragraph 6, where a vendor of a retirement village receives a benefit by being effectively relieved of the obligation to repay ingoing contributions received from residents, the benefit associated with not being required to repay ingoing contributions is referred to as the repayment benefit. Paragraph 6 is extracted for your information:

6. This Ruling applies to arrangements that have the following features:

(a) An entity ('the vendor') acquires land and makes acquisitions or importations in order to develop a retirement village.

(b) The vendor enters into residence contracts with incoming residents in relation to a residential unit or apartment in the retirement village (a 'unit').

(c) The unit is, or is intended to be, occupied as a residence or for residential accommodation.

(d) An amount ('ingoing contribution') is paid by the incoming resident to the vendor, to secure the right to reside in the village. The right to reside takes the form of a lease or licence (for convenience, 'lease') of extended duration.

(e) The ingoing contribution is in the form of an interest-free loan. The vendor is contractually obliged to repay the amount of the loan in full when the lease terminates.

(f) The vendor then supplies all or part of the village by way of sale or long-term lease as a taxable supply (or as a GST-free going concern)¹ to another entity (for convenience, 'purchaser') as 'new residential premises' for the purposes of section 40-75.² The vendor may or may not have had the intention to sell the retirement village at the time it was first developed.

(g) The sale arrangement contemplates, either expressly or by implication, that the purchaser will repay ingoing contributions outstanding at the time of sale.

Based on the facts, we are of the view that the Partnership's circumstances are similar to the arrangements as set out in paragraph 6 of GSTR 2011/1. Accordingly, the guidelines in GSTR 2011/1 are relevant.

Further, GSTR 2011/1 states:

Consideration for the sale of a tenanted retirement village

10. The repayment benefit is included in the consideration for the supply of the village under the inclusive definition in section 9-15.

11. The repayment benefit is consideration which is 'expressed as an amount of money' within paragraph 9-75(1)(a). The 'amount' of money is the face value of the ingoing contributions received by the vendor which the purchaser effectively assumes responsibility for repaying.

Accordingly, the Partnership would be required under section 9-15 to include the repayment benefit in the consideration for the supply of the Land.

Transitional arrangements

However, as stated in paragraph 30 of GSTR 2011/1, pre-existing arrangements for the development of a retirement village covered by paragraph 6 of GSTR 2011/1 may be subject to transitional administrative treatment. The transitional arrangements provide that where an entity meets certain conditions, they can access the transitional administrative treatment to exclude the value of the ingoing loan contributions from the calculation of the consideration for the sale of the RV.

The following paragraphs in GSTR 2011/1 are relevant;

31. Goods and Services Tax Ruling GSTR 2004/9 sets out the Commissioner's views on the application of the GST Act where some or all of an entity's liabilities are imposed on or effectively assumed by the purchaser of the entity's enterprise. The Commissioner has reviewed the application of the principles in GSTR 2004/9 to retirement village arrangements and published an Addendum to GSTR 2004/9, which takes effect from the date of issue of this Ruling.

32. The Commissioner accepts that, prior to the issue of the Addendum to GSTR 2004/9, a reasonable interpretation of that Ruling was that liabilities to repay ingoing contributions which the purchaser of a retirement village became exposed to as a result of statute would not be included in the vendor's consideration for the supply of the village.

33. Accordingly, the vendor of a retirement village can apply the interpretation in paragraph 32 of this Ruling to the supply of a village which occurs before the date of issue of this Ruling.

34. Furthermore, the vendor of a retirement village will be permitted to apply the interpretation in paragraph 32 of this Ruling where it can be objectively determined that before the date of issue of this Ruling, the vendor became commercially committed to construct and develop a retirement village in accordance with the arrangement in this Ruling.

35. Eligibility for this transitional arrangement is based on commitment to the construction and development of the village. It does not require the vendor to establish that it was commercially committed to selling the village before the issue of this Ruling.

36. For the purposes of paragraph 34 of this Ruling, an entity will be commercially committed before the date of issue of this Ruling where, before that time, they have incurred, or become legally required to incur, significant financial costs for the purposes of entering into or carrying out an arrangement covered by this Ruling. An entity will only be considered to have incurred significant financial costs for these purposes where they have evidence which establishes an objective intention to enter into or carry out an arrangement of the relevant kind at the time the expenditure was incurred.

37. Accordingly, the transitional arrangements will not apply merely because an entity has purchased or contracted to purchase land, purchased an option over land or incurred costs in commissioning a feasibility study. Additional factors would be necessary in such cases in order to demonstrate that the taxpayer's commercial commitment relates to an arrangement covered by this Ruling. Such factors may include business plans, zoning approvals, development agreement approvals, or finance approvals which evidence an objective intention to enter into an arrangement of the relevant kind at the time the expenditure was incurred.

38. The transitional arrangements in paragraphs 33 and 34 of this Ruling do not apply if the vendor determines the extent of their creditable purpose and application using an output based indirect method ^[8] which effectively recognises ingoing contributions as an economic benefit associated with the taxable or GST-free supply of the village.

39. The use of another method of apportionment will not affect an entity's entitlement to apply the transitional arrangements in paragraphs 33 and 34 of this Ruling.

Application to this case

Based on the facts, we consider that you were commercially committed to develop and construct the Estate before <date>. Further, you confirmed that you have not used an output based indirect method to work out the extent of creditable purpose of your acquisitions, for the purpose of claiming input tax credits (you did not claim any input tax credits associated with the acquisition of the Site, development, construction, and operation of the Estate) that recognises the ingoing contributions as an economic benefit associated with the supplies of the Estate. Therefore, we consider the transitional arrangements in GSTR 2011/1 may be applied. Although the face value of the ingoing contributions that the purchaser assumes responsibility for repaying, referred to as the repayment benefit, forms part of the consideration for the supply of the Land under section 9-15 of the GST Act, application of the transitional arrangements will allow you to adopt an interpretation of GSTR 2004/9 that does not require you to include such ingoing contributions in the consideration for the supply.

Question 4

Is the Partnership entitled to adjustments pursuant to Division 129 of the GST Act on acquisitions made in developing the <estate name> including the acquisition of the Land (development acquisitions)?

Detailed reasoning

After an acquisition or importation is made, the extent to which it is actually applied or used for a creditable purpose may be different from the intended use. Adjustments for changes in the extent of creditable purpose are provided for in Division 129.

An adjustment under Division 129 arises for an acquisition in an adjustment period where:

• there is a difference between the actual application and the planned (or intended) application of the thing for a creditable purpose, or
• there is a difference between the actual application of the thing up to the end of one adjustment period and the actual application of the thing up to the end of the previous adjustment period

These adjustments are made in a tax period called an adjustment period.

The methodology for determining if you have adjustment is contained in section 129-40, which provides that:

(1) This is how to work out whether you have an increasing adjustment or a decreasing adjustment under this Division, for an adjustment period, for an acquisition or importation:

Table 1: How to work out whether you have an increasing adjustment or a decreasing adjustment under this Division, for an adjustment period, for an acquisition or importation

(2) Actual applications and intended or former applications are to be expressed as percentages.

Section 129-20 provides for adjustments in relation to things in tax periods that are adjustment periods, with the number of periods being determined by the GST-exclusive value of the acquisition, as per the following table for acquisitions or importations that do not relate to business finance (refer to subsection 129-20(3)):

Table 2: Adjustments in relation to things in tax periods that are adjustment periods, with the number of periods being determined by the GST-exclusive value of the acquisition.

However, an adjustment cannot arise under Division 129 for an acquisition (that does not relate to business finance) unless the acquisition had a GST-exclusive value of more than $1,000.

Relevantly Goods and Services Tax Ruling GSTR 2009/4: new residential premises and adjustments for changes in extent of creditable purpose (GSTR 2009/4) provides guidance on how to determine the extent to which an acquisition made in constructing new residential premises is applied for a creditable purpose where the new residential premises are being held for sale as part of an entity's enterprise, but prior to their sale the new residential premises are leased for a period of time.

Paragraphs 81 to 127 of GSTR 2009/4 provides that if an entity is required to apportion its creditable purpose it must do so by applying a method that is fair and reasonable in the circumstances. The Ruling provides guidance and examples of fair and reasonable methods of apportionment in various circumstances. Fair and reasonable methods of apportionment consider the different applications of the premises up to the end of the relevant adjustment periods. Time-based apportionment is also required where the premises have been applied for a creditable purpose for only part of the relevant period.

Specifically, paragraph 81A provides;

Goods and Services Tax Ruling GSTR 2011/1 Goods and services tax: development, lease and disposal of a retirement village tenanted under a 'loan lease' arrangement, considers how to determine the extent to which input tax credits are available for acquisitions or importations made by a developer to construct or develop a village that has the features set out in the class of arrangement described in that Ruling. GSTR 2011/1 must be considered when determining a fair and reasonable method of apportionment in relation to the arrangements covered by that Ruling....

As determined above, based on the facts, we are of the view that the Partnership's circumstances are similar to the arrangements as set out in paragraph 6 of GSTR 2011/1. Accordingly, the guidelines in GSTR 2011/1 are also relevant for the purposes of determining the extent of creditable purpose when considering the application of Division 129.

Paragraphs 22 and 23 of GSTR 2011/1 discuss a fair and reasonable method of adjustment and state:

22. Where the vendor did not initially intend to sell the village but forms that intention while the village remains new residential premises, adjustments will be required under Division 129 to reflect a change in the application of the vendor's acquisitions when an adjustment period occurs.

23. Where the method in paragraph 15 of this Ruling is used for apportionment, the same method must be used for the purposes of Division 129 to calculate the extent of creditable purpose based on the actual application of the things acquired. An apportionment method used to calculate an adjustment that does not reflect the apportionment method used to calculate the input tax credit entitlement is not a fair and reasonable basis of apportionment.

In relation to the sale of a tenanted retirement village, paragraph 15 GSTR 2011/1details a formula that the Commissioner accepts as a fair and reasonable method of calculating the extent of the developer's creditable purpose for development acquisitions:

Total value of economic benefits reasonably expected to be obtained from making input tax supplies ÷ Total value of economic benefits reasonably expected to be obtained in respect of the arrangement

Paragraph 16 to 19 of GSTR 2011/1 explains the values included in the numerator of the fraction. This includes, amongst other things, the benefit to the vendor of having access to the ingoing contribution amounts interest-free. Paragraph 88 to 91 of GSTR 2011/1 provide further discussion on values that are reasonably expected to be received by the vendor from making input taxed supplies (such as deferred management fees, maintenance fees, service fees, capital replacement charges, rent etc). It is important to note that whether an amount is covered by paragraph 19 of GSTR 2011/1 and included in the numerator, depends on its true character, determined in accordance with the residence agreement, rather than the label given to it.

Paragraph 20 of GSTR 2011/1 lists the following items to include in the denominator of the fraction:

(a)  the value of economic benefits reasonably expected to be obtained from input taxed supplies, referred to in paragraph 16 of GSTR 2011/1;

(b)  the face value of ingoing contributions reasonably expected to be included in consideration for the supply of the village in accordance with paragraphs 10 and 11 of GSTR 2011/1 (repayment benefit);

(c)   the amount of money and the value of other assets reasonably expected to be received by the vendor on sale of the village; and

(d)  the value of any other economic benefits reasonably expected to be received from the arrangement.

Paragraph 25 to 26 of GSTR 2011/1 provides that a method of apportionment other than that set out in paragraphs 15 to 23 of that ruling can be applied where it provides a reasonable basis of apportionment or adjustment however an output based indirect method which disregards the benefit of having interest-free loans would not be considered to be fair and reasonable. Under our self-assessment regime taxpayers are able to determine what is a fair and reasonable method of apportionment given their circumstances.

Transitional arrangements, input tax credits and Division 129 adjustments

As previously discussed in Question 3 above, pre-existing arrangements for the development of a retirement village may be subject to transitional administrative treatment.

Paragraphs 40 to 45 of GSTR 2011/1 discuss input tax credits under the transitional arrangements. These paragraphs state:

40. It has not previously been the Commissioner's administrative practice to require retirement village operators to reduce their extent of creditable purpose by reference to the benefit associated with the interest-free use of borrowed money.

41. Accordingly, an operator will be permitted to apply a method of apportionment or adjustment which does not take into account the benefit associated with the interest-free use of money where:

(a) it can be objectively determined that before the date of this Ruling, the vendor became commercially committed to construct and develop a retirement village in accordance with the arrangement in this Ruling; and

(b)  that method is otherwise fair and reasonable.

42. Eligibility for this transitional arrangement is based on commitment to the construction and development of the village. It does not require the vendor to establish that it was commercially committed to selling the village before the issue of this Ruling.

43. This transitional treatment only applies to a vendor to the extent that they determine creditable purpose by reference to an output based indirect method of apportionment and adjustment.

44. The principles contained in the transitional arrangements should be applied consistently for any subsequent adjustments required for changes in the extent of creditable purpose under Division 129.

45. The use of the transitional arrangement relating to the interest-free use of money in paragraph 41 of this Ruling is not dependent on the use of the transitional arrangements for consideration for the supply of the village in paragraphs 33 and 34 of this Ruling.

Application to this case

The Partnership's planned use of the Estate was originally to make input taxed supplies. In accordance with this planned use, the Partnership did not claim input tax credits on the acquisition of the land purchase or the construction of the ILUs, infrastructure or the community centre.

Change in creditable purpose

The purpose for which the Estate was held changed from that of making input taxed supplies (leasing of ILUs), to a dual purpose of making input taxed supplies and of making a taxable supply of the village, as determined above. Based on the facts provided this change occurred on <date> when the Board agreed to appoint <entity name> as the selling agent for the Estate

Consequently, the acquisitions of the land and other development acquisitions were applied to the dual purpose of holding the Estate for lease (input taxed) and for sale from <date> until the day the Estate was sold on <date>. As the extent of creditable purpose changed for the acquisitions there will be an adjustment under Division 129 for those acquisitions that have an applicable adjustment period.

Furthermore, paragraph 64 of GSTR 2009/4 provides that:

64. While it is necessary to look at the application of the 'thing' into which the individual acquisitions have been incorporated, it is the individual acquisitions that are subject to adjustments under Division 129. Also, section 156-20 provides that for the purposes of Division 129 an acquisition by an entity that accounts otherwise than on a cash basis that is made:

(a)  for a period or on a progressive basis; and

(b)  for consideration that is to be provided on a progressive or periodic basis;

is treated as if each progressive or periodic component of the acquisition were a separate acquisition.

As such, each progressive or periodic component of the acquisitions you make that are subject to section 156-20 (including those for which you have made progress payments) will be treated as a separate acquisition, and the number of adjustment periods for each of those separate acquisitions in this case is determined under subsection 129-20(3) because the acquisitions do not relate to business finance.

Division 129 adjustment - acquisition of the Land

The Partnership reports GST on a quarterly basis and acquired the Land in <month> <year> for $<amount> exclusive of GST. Based on its GST-exclusive amount there were ten adjustment periods in relation to the acquisition of the Land. As the acquisition of the Land was made in the <month> <year> quarter tax period, the first adjustment period ended on <date>. (That is, the tax period that ends on 30 June and commences at least 12 months after the end of the tax period to which the land acquisition was attributed). The tenth and final adjustment period ended on <date>.

As the change for which the Estate was held occurred prior to the end of the tenth and final adjustment period, the Partnership may have an adjustment under Division 129 (depending on the outcome when applying the method statement in section 129-40 discussed above) in the tax period ending <date> in relation to the acquisition of the land.

GSTR 2011/1 must be considered when determining a fair and reasonable method of apportionment in relation to the arrangements covered by that Ruling. As discussed above paragraph 15 GSTR 2011/1details a formula that the Commissioner accepts as a fair and reasonable method of calculating the extent of the developer's creditable purpose for development acquisitions. Adoption of the method contemplated at paragraph 15 of GSTR 2011/1 is not mandatory as under the self-assessment regime taxpayers are able to determine extent of creditable purpose of their acquisitions using methods other than that contemplated at paragraph 15. However, any method adopted by a taxpayer to determine extent of creditable purpose would still need to be one that is fair and reasonable in the circumstances.

Where you determine extent of creditable purpose based on the formula contained in paragraph 15 of GSTR 2011/1, and you are eligible to apply the transitional arrangements discussed in GSTR 2011/1, at paragraphs 40 to 45 and elect to apply the transitional arrangements, you may exclude from the calculation of the numerator and denominator of the formula at paragraph 15, the value of the benefit associated with the interest-free use of the ingoing contributions. Correspondingly, you may also exclude from the calculation of the denominator the value of the repayment benefit (face value of the ingoing contributions) as this will not form part of the consideration on the sale of the retirement village.

However, as the Land was applied for a dual purpose for only part of the adjustment period ending <date> (that is, from <date> until <date>), the method adopted to determine extent of creditable purpose must reflect the dual purpose for that part of the adjustment period. Where the formula contained in paragraph 15 of GSTR 2011/1 is adopted, modification to the method to reflect the fact that the premises have been applied for a creditable purpose for only part of the adjustment period, out of the entire ownership period, is needed. The measure of time used should be appropriate for the circumstances of each case. For example, using either days or months may be appropriate to provide a fair and reasonable basis of apportionment depending on the circumstances.

The tax period ending <date> is the final adjustment period in relation to the acquisition of the Land.

Division 129 adjustments - development acquisitions which does not include the acquisition of the Land

Division 129 adjustments will also arise in respect of development acquisitions (other than the Land) where the application of such acquisitions has changed, and providing that the applicable adjustment periods for such development acquisitions have not expired. The principles contained in GSTR 2011/1 regarding determining the extent of creditable purpose as discussed above will also apply in respect of such development acquisitions of yours.

Provided that adjustment periods have not expired for each of such development acquisitions, you may have an adjustment in respect of each of such acquisitions pursuant to Division 129 in the period ending <date>.

Where you determine extent of creditable purpose based on the formula contained in paragraph 15 of GSTR 2011/1, and you are eligible to apply the transitional arrangement discussed at paragraphs 40 to 45 and elect to apply the transitional arrangements, you may exclude from the calculation of the numerator and denominator of the formula at paragraph 15, the value of the benefit associated with the interest-free use of the ingoing contributions. Correspondingly, you may also exclude from the calculation of the denominator the repayment benefit (face value of the ingoing contributions).

However, as such development acquisitions were applied for a dual purpose for only part of the adjustment period ending <date> (that is, from <date> until <date>), the method adopted to determine extent of creditable purpose must reflect this dual purpose for that part of the adjustment period. Where the formula contained in paragraph 15 of GSTR 2011/1 is adopted, modification to the method to reflect the fact that the premises have been applied for a creditable purpose for only part of the adjustment period, out of the entire ownership period, is needed. The measure of time used should be appropriate for the circumstances of each case.

Furthermore, section 129-25 provides that when a thing is disposed of, the next tax period applying to you that ends on the 30 June is the last adjustment period for the acquisition or importation.

As the Estate was sold on <date>, providing the applicable adjustment periods have not expired for any development acquisitions (other than the Land), your last adjustment period in respect of such acquisitions would be the period ending <date>.