Private ruling: GST and Charges for water supplies in a retirement village
Date of advice: 25 November 2016
Published: April 2017

Ruling: Q1: Are you liable for GST when a resident of the RV that you are managing, arranges a) with a supplier of water to pay their water bill directly or b) for you to pay the bill on their behalf. | A1: No, because the payment the resident makes is consideration for an incidental supply to the input taxed lease of the premises by the owner of the Retirement Village.

Relevant facts and circumstances: Entity A (the Owner or entity A) owns a Retirement Village (the Village). Entity A is part of a GST group of which another Entity is the group reporter. The Retirement Village is located in Australia. Entity A operates the village under the loan lease model and enters into residence contracts with the residents. The village is strata titled. The common property is held by a body corporate of which Entity A is the sole member. Upon entering into the lease with the Owner a resident concurrently enters into a Management Contract (Services agreement) with Entity B (you). Your primary role is to manage the Retirement Village pursuant to the provisions of the Retirement Villages Act. You have undertaken to provide services to the residents as set out in the Services Agreement and you charge a fee for those services. Based on your understanding of a ruling from the ATO that was issued to an unrelated party you have been including GST on the service fee you charge residents. The service fee for a resident includes the total expected costs and expenses expected to be incurred by you in managing the retirement village for the year ahead divided between all the residents. One of the items included in the service fee is a charge for water. There are two water meters which measure the supply of water to the village and the Water Company sends you water bills for each unit in the village with the total charges proportionally invoiced to each resident. None of the units has a water meter. You supplied a copy of a sample water bill addressed to one of the residents. The charges on the water bill are set out below with their GST classification as shown on the water bill: ● Water usage (GST free) ● Sewerage disposal (GST free) ● Water service charge (GST free) ● Sewerage service charge (GST free) and ● Waterways and drainage charge (GST free). The Water bill issued by Supplier provides that under the Water Act 1989, the owner of a residential property cannot request the tenant to pay usage charges until the property is separately metered. You propose to arrange that Residents will from now on either: a) pay their Water bill directly to the water company or b) enter into an arrangement for you to pay the bill on their behalf. You will not charge the resident anything for this service. There are other costs included by you in your charge to the resident including costs which may be either GST free, taxable, GST exempt (Division 81 and wages) or supplies by unregistered suppliers which are recovered through the service fee. Management Contract (Service Agreement) Relevant details of the Service agreement, you enter into with the Owner and the residents are set out below: In this contract: ● You are referred to as Association or Manager. ● A reference to the 'Village Manager' is an employee of the Association ● Entity A is referred to as We, us, our Owner and ● The resident is referred to as You Clause X provides that: The Association must enter into a management contract in a similar form to this contract (with such alterations as we may consider reasonably necessary or desirable or as may be required by law) with any person who has become, or will be, entitled to possession of a unit in the Village if asked to do so by us. Clause Y sets out the obligations of the Association: The Association must: a) use best endeavours to ensure that the Association's tenants, employees and invitees or other persons lawfully on Village premises comply with the by-laws relating to the Village; and b) if the Association is required to carry out repairs or replacements to the common facilities and other areas under its control that are funded from maintenance charges, promptly carry out repairs or replacements necessary for the safety or security of Residents; and c) obtain the Resident's consent to enter the Resident's premises unless in an emergency or if a Resident's safety or property is endangered, subject to any other term that enables entry for reasonable cause on reasonable notice; and d) give receipts for payments made by the Resident and keep a record of such payments. Clause Z sets out the Residence charge and other charges You must pay to the Association: a) the Residence Charge calculated in the manner provided in clause 10.4; and b) any other charges due by you under this clause 10, in such manner and from time to time as determined by the Association. Unless otherwise notified the payment must be made by direct debit and you must advise the Association of your bank account details and execute all documents to facilitate a direct debit within 28 days of occupancy of the Unit. Clause XX sets out the application of the Residence Charges: Any amount paid by you as a Residence Charge must be applied by the Association in such manner as its committee determines for the purposes of meeting the costs and expenses of the Association in carrying out its promises under this contract and for any other purpose authorised by the rules of the Association (including, without limitation, the repair, replacement or renewal of any building or structure or any part of them comprised in the Common Property or your Unit, any paths, driveways, fences, lawns, gardens, services on the Common Property or your Unit, and any wall or fences on the boundaries of the land comprising the Village). Clause X and Y set out the requirements in regards to Rates, Taxes and other charges: You acknowledge that you have a responsibility to pay, on or before the due dates for payment, any municipal, water, electricity, gas or sewerage rates or charges or taxes attributable (in whole or in part) to your Unit or any rates or charges or taxes separately charged to your Unit, until the date we repay you your 'Ingoing Contribution' under the Residence Contract. Lease Agreement Under the lease agreement the resident enters into a lease with the Owner of the village. The lease is conditional on the resident entering into the Service Agreement with you. At clause X the resident agrees with the owner that on exit they will pay the following amounts a) the Exit Fee b) all costs of any reinstatement works as contemplated by clause … c) all residence charges and other moneys owed to the Owner d) … e) … Clause X provides that: ● The owner will pay all land tax on the unit ● You, Entity B, are responsible for the payment of all rates, taxes, assessments, insurance and other outgoings you are required to pay under the service agreement and ● The resident must pay any utilities, rates and taxes levied on the unit which are not payable by you. Clause X provides that the resident is required to promise that they will do all things to observe and comply with all the provisions of the service agreement including paying all residence charges.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 9-5, | A New Tax System (Goods and Services Tax) Act 1999 40-35, | A New Tax System (Goods and Services Tax) Act 1999 195 and | A New Tax System (Goods and Services Tax) Act 1999 9-40.

Reasons for decision: Detailed Reasoning - Is the payment of water charges by a resident consideration for a taxable supply?: Section 9-40 provides that you are liable for GST on the taxable supplies that you make. Section 9-5 of the 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 within the indirect tax zone (Australia) and (d) you are registered, or required to be registered. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. In your case you: ● receive service fees from the residents ● are conducting an enterprise of supplying management services for the retirement village ● operate within Australia and ● are registered for GST. Therefore, the service fee you charge to residents will be subject to GST to the extent that this fee is consideration for a taxable supply that you make to the residents. However to the extent the fee: ● is for a supply of water to the residents, or ● is incidental to the supply of the premises by the owner to the residents, it will not be consideration for a taxable supply that you make to the residents. | Detailed Reasoning - To whom is the water being supplied to and who is liable for the other infrastructure charges?: You have advised that there are no individual water meters connected to the units in the Village and that there are only two water meters on the edge of the Village. Therefore the Water Company is the supplier of the water to the Village and the water charges against the property will be paid by residents to the Water Company. Information on the supplies made in retirement villages are dealt with in a number of publications including: ● the Retirement Villages Industry Partnership issues register (Retirement Village Issues Register). ● Goods and Services Tax Ruling GSTR 2012/4 Goods and services tax: GST treatment of fees and charges payable on exit by residents of a retirement village operated on a leasehold or licence basis. (GSTR 2012/4); and ● We will also refer to the principles found in Goods and Services Tax Determination GSTD 2000/10 Goods and services tax: are outgoings payable by a tenant under a commercial property lease part of the consideration for the supply of the premises? (GSTD 2000/10) The following information is extracted and paraphrased from these sources. | Detailed Reasoning - Scheme of the GST Act: Where a retirement village is operated on a leasehold or licence basis, the GST treatment of maintenance fees depends on identifying the supply as specified in contracts in light of the law and elements contained in section 40-35. The concept of residential premises is central to the issue and is defined in section 195-1 to mean 'land or a building that either: 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. The ATO considers that the word 'residence' in the above definition extends to: a. that part of any common area and other appurtenances to the building, and b. the land immediately contiguous to the building, and c. that is predominantly necessary for the use and enjoyment of the building as a place of residence for individuals. By common areas, which are input taxed, we mean paths, driveways, parks, gardens, and communal recreational facilities. The application of the above principles may be addressed by applying the following two questions in relation to determining the GST treatment of maintenance fees: a. To what extent is the supply of the premises, predominantly of 'residential premises'?, and b. To what extent can the maintenance fees be reasonably concluded to be part of a charge by way of lease, hire or licence for the lease of the residential premises. GSTR 2012/4 provides further guidance in relation to retirement village charges. Paragraphs 11 to 13 provide the following principles which have been expressed above. 11. Input taxed supplies to the resident in a lease or licence arrangement may include supplies of: ● residential premises by way of lease or licence; and ● ·services which are integral, ancillary or incidental to the lease or licence ( incidental services ). 12. Incidental services are to be regarded as part of an input taxed or composite supply, the dominant part of which comprises the residential premises provided under the lease or licence. 13. Whether or not a service is incidental to a supply depends on the facts of each case. A service may be regarded as incidental where it is intended to ensure, facilitate or enhance the resident's enjoyment of the lease or licence, but is not provided as an end in itself. The nature of a service is assessed according to its true character rather than simply by reference to a label or description given to it by the parties. The Commissioner's view on the treatment of outgoings paid under a commercial property lease is set out in GSTD 2000/10. Although GSTD 2000/10 deals with commercial property leases the principles can be applied to the lease that the residents enter into in the retirement village in your circumstances. Principles of relevance to your situation are set out in paragraph 1 of the determination. 1. A supply of premises under a commercial property lease together with the services required by the tenant to use the premises will, subject to paragraph 5 of this Determination, be a single supply of real property F1 for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 ('GST Act') and the A New Tax System (Goods and Services Tax Transition) Act 1999 ('Transition Act'). Where a single supply is made the reimbursement or payment of the landlord's outgoings is consideration for the supply of the premises. It is the Commissioner's view that a supply of premises under a lease together with the services required by the tenant to use the premises will be a single supply of real property. The Water Company is responsible to supply water up to the two water meters at the edge of the Village and from there the water flows on through pipes to the various parts of the village. The Water Company also levies the other infrastructure charges set out above against the property Therefore the water is supplied to the Owner not the resident and the other infrastructure charges are levied against the Owner's property. The fact that the residents will pay money directly, or through you, to the Water Company to cover these costs (which are outgoings of the Owner) does not mean the water is supplied to them or the other infrastructure charges are incurred by them. The water is never actually supplied to you or the residents. As Entity A is the owner of the property to which the water is supplied then the charge for water, no matter how the arrangements are structured, is a charge to the Owner. | Detailed Reasoning - Conclusion: We consider that the water is supplied by the Water Company to the Village through the two water meters on the Owner's property and in addition the other infrastructure charges are in fact charges against that property. We consider that the Water, sewerage and drainage charges are infrastructure charges against the land and they are outgoings of the owner of that land. The distribution of water throughout the Village is incidental to the Owner's supply of the residential accommodation by way of lease. In the scenario you have described, the payment of the water and other infrastructure charges is not consideration for a supply that you make to the residents. But rather, it is consideration for various supplies made by the Water Company to the Owner and oncharged to the residents. Therefore the payment made by the residents to the Water Company will not be consideration for a taxable supply that you make to these residents nor will it be consideration for a GST-free supply of water made to them by the Water Company. Rather, the payment is consideration for an input taxed supply of residential premises made by the Owner regardless of the way you structure the payments.