ATO ID 2001/635: GST and leases of independent living units in retirement villages
Date of decision: 21 August 2001
Business line: Indirect Tax

Issue
Is the entity, an owner-operator of a retirement village, making an input taxed supply under paragraph 40-35(1)(a) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it supplies an independent living unit in the retirement village to a resident by way of a lease that is greater than 50 years?

Decision
Yes, the entity is making an input taxed supply under paragraph 40-35(1)(a) of the GST Act when it supplies an independent living unit in the retirement village to a resident by way of a lease that is greater than 50 years.

Facts
The entity is an owner-operator of a retirement village. It is not an endorsed charitable institution or an endorsed trustee of a charitable fund. The entity leases an independent living unit to a resident of the retirement village. The lease document provides for the grant of a lease of the premises to the resident for more than 50 years. The lease cannot be assigned but can be terminated or surrendered when the resident leaves the retirement village. Pursuant to discussions with members of the Retirement Village industry it has been revealed that the average duration of a retirement village lease is approximately 12 years. The entity is registered for goods and services tax (GST).

Reasons for decision
Summary: Under paragraph 40-35(1)(a) of the GST Act, a supply of residential premises (other than commercial residential premises or a supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises), by way of lease is input taxed. The independent living unit is not commercial residential premises as it does not fall within the meaning of commercial residential premises as defined in section 195-1 of the GST Act. The unit is residential premises as defined in section 195-1 as it is occupied as a residence. The entity is making a supply of residential premises to the resident of the retirement village by way of lease. However, pursuant to paragraph 40-35(2)(b) of the GST Act the supply is not input taxed if it is made by way of a long-term lease. The term 'long-term lease' is defined in section 195-1 of the GST Act. It provides that a supply by way of lease (including a renewal or extension of a lease) for at least 50 years is a long-term lease if: Pursuant to discussions with members of the Retirement Village industry it has been revealed that the average duration of a retirement village lease is approximately 12 years. Accordingly, at the time of the parties entering into the lease agreement, it is not reasonable to expect that the lease will continue for at least 50 years. Consequently, the lease is not a long-term lease as defined in section 195-1 of the GST Act and paragraph 40-35(2)(b) of the GST Act does not apply. Therefore, the entity is making an input taxed supply under paragraph 40-35(1)(a) of the GST Act when it supplies the independent living unit by way of a lease that is granted for a period greater than 50 years.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 38-260 paragraph 40-35(1)(a) paragraph 40-35(2)(b) section 195-1
Related ATO interpretative decisions: ATO ID 2001/634 | ATO ID 2001/636
Subject references: Goods & Services Tax GST residential premises GST residential rents GST retirement villages