Private ruling: GST and Division 129 adjustments due to changes in extent of creditable purposes
Published: October 2014

Ruling: Q1: Do you the Receiver and Manager for the Trustee for the Trust have a decreasing adjustment as a result of the GST free sale of the retirement village, pursuant to Division 129 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: No. However, pursuant to Division 129 and Division 58 of the GST Act, there will be two adjustments to be made in the client account for the incapacitated entity. There will be a decreasing adjustment in the period ending 30 June 201X and a subsequent increasing adjustment in the final adjustment period of 30 June 201Y provided the number of adjustment periods have not expired for either period.

Relevant facts and circumstances: The Trustee for the Trust (the Trust) is registered for GST. The Trust was part of a group until 31 March 200X. The group reporter reported the supplies and acquisitions of the trust. • up until 28 February 200X Group reporter 1 reported the GST obligations of the Trust. • From 1 March 200X until 31 March 200Y, Group reporter 2 reported the GST obligations of the Trust. • The Trust exited the group on 1 April 200X and began reporting its supplies and acquisitions in its own BAS The Trust constructed a retirement village (RV Villas) in Australia. Construction began in early 200X. You made a number of acquisitions in this construction phase however for the purposes of this ruling your agent advised that you are only considering the acquisitions for construction which exceeded $500,000 and the first relevant acquisition for purposes of Division 129 were made on or after January 200X. The first units were tenanted in 200X and the additional units that were under construction at that time were ready for occupation in 200Y. The units were leased to the residents of the RV under the loan lease model. That is residents paid various fees and amounts of money including an ingoing loan contribution to acquire the right to occupy their unit. The ingoing loan contribution is an amount of money which was generally equivalent to the market value of the unit and was paid over by the resident to the Trust as an interest free loan. This loan is repayable when the resident leaves the retirement village. When a resident leaves the retirement village they pay an amount called a deferred management fee. (DMF). The Trust initially claimed input tax credits on construction of the village because the taxpayer believed they were making GST-free supplies of accommodation pursuant to section 38-25 of the GST Act. These acquisitions were reported firstly in the Group reporter 1, and then in the second group reporter. However, the BAS of these two entities were subsequently revised by the ATO as the independent living units in your retirement village did not meet the definition of serviced apartments for GST purposes. Therefore the relevant acquisitions were not GST free to any extent under the relevant provision. The audit adjustment was in the order of $XX.00. You, the, Receiver and Manager for The Trust (the Trust RM appointed) were appointed on ddmmyyyy and are registered for GST. Your agent advised that: • although the Retirement village may have been held for sale prior to your appointment you consider that the appointment date is the date from which efforts began to sell the retirement village. • you no longer consider that the acquisitions were being applied to make input taxed financial supplies and • You intend to use the apportionment calculations set out in paragraphs 15 to 23 of GSTR 2011/1 at of Goods and Services Tax Ruling On ddmmyyyy, you entered into a contract for sale of RV villas. The village was supplied as a GST-free supply of a going concern and settlement occurred in 201X.

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 9-20, | A New Tax System (Goods and Services Tax) Act 1999 9-40, | A New Tax System (Goods and Services Tax) Act 1999 58-5, | A New Tax System (Goods and Services Tax) Act 1999 58-10, | A New Tax System (Goods and Services Tax) Act 1999 129 and | A New Tax System (Goods and Services Tax) Act 1999 48.

Reasons for decision: Summary: Division 129 provides that when the extent of creditable purpose is changed by later events there may be need to make adjustments to reflect this. In your case the Trust, made a number of acquisitions over a period of time before you were appointed and these were not initially for a creditable purpose as the village was constructed almost solely to make input taxed supplies of the lease of the ILU's. That is initially the acquisitions were held almost entirely for the purpose of making input taxed lease of residential premises. However on ddmmyyyy you, were appointed receiver manager of the Trust. You began holding the Village for sale from this date and in 201X you entered into a contract to sell the retirement village as a GST free going concern. The Village was sold as a GST free going concern and settlement occurred in 201X. Therefore from your appointment the village was being held and applied to make a GST free supply of a going concern. Therefore the acquisitions used in constructing the village were applied to the dual purposes of holding the village for lease and for sale as a GST-free going concern from the date of your appointment. As the extent of creditable purpose had changed for the acquisitions there will be an adjustment for those acquisitions whose adjustment periods have not expired. Please note that we consider each progress payment to be a separate acquisition and the number of adjustment periods in this case is determined under subsection 129-20(3) because the acquisitions do not relate to business finance. You have advised that you are only considering those acquisitions which had X adjustment periods and so none of these had expired at the time of sale. In your case, there was a change in the application of the village in the year ending 30 June 201X because the village was held for sale from 201X and the sale contract was signed in later 201X. Therefore a decreasing adjustment is required under Division 129 in the quarter ending 30 June 201X. Section 129-25 provides that when a thing is disposed of the next tax period that applies to you ending on 30 June is the last adjustment period for the acquisition or importation. The village was sold in late 201X, therefore the last adjustment period would be the tax period 30 June 301Y. As the selling price used in the calculations for the adjustments in the tax periods 30 June 201X and 30 June 201Y remained the same (actual sale price was known as at these dates) and there was additional input taxed supplies from July 201X to late 201X, it is expected that this would lead to an increasing adjustment in the tax period 30 June 201Y. GSTR 2011/1 Goods and services tax: development, lease and disposal of a retirement village tenanted under a loan-lease arrangement (GSTR 2011/1) provides the Commissioners view of how an entity should treat the development, lease and disposal of a retirement village tenanted under a 'loan-lease' arrangement. To calculate the adjustments your agent has advised that you intend to use the apportionment calculations set out in GSTR 2011/1 at paragraphs 15 to 23. Goods and Services Tax Ruling. Paragraph 24 of GSTR 2011/1 provides that the Commissioner considers this methodology a fair and reasonable method for calculating your adjustment. Please note that since the Trust was part of a GST group, section 48-115 may be relevant in the calculation of the adjustment under Division 129. | Detailed Reasoning - Attribution of adjustment: You however are a representative as defined in the GST Act and the Trust is an incapacitated entity as defined. Paragraph 58-10(4)(b) provides that the representative does not have an adjustment where the incapacitated entity provided the consideration before the representative was appointed. As the consideration for the construction of the village was provided by the incapacitated entity, you as the representative, do not have the adjustment. Therefore the adjustments as required under Division 129 are to be made in the BAS of the incapacitated entity, in the quarter ending 30 June 201X and the quarter ending 30 June 201Y.