Private ruling: GST and sale of retirement village
Published: June 2012

Ruling: Q1: Is the sale of your retirement village located at a specified address (the Village) an input taxed supply under section 40-65 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), where all ILUs within the Village have been held for greater than 5 years from first occupancy? | A1: The sale of the Village will be a mixed supply, with taxable and non-taxable parts. That is: · the sale of that part of the Village which can reasonably be characterised as commercial premises (for example, site offices, staff rooms, medical centres, and commercial premises, such as hairdressing salons, pharmacy, golf courses, shops, and restaurants or cafes) will be a taxable supply and GST will be payable. This is provided all the requirements of a taxable supply under section 9-5 of the GST Act are satisfied. · the sale of that part of Village relating to the ILUs (including other buildings and facilities that can reasonably be characterised to form part of the ILUs) that have not been used only for making input taxed supplies of residential rental under paragraph 40-35(1)(a) of the GST Act for the continuous period of at least 5 years since becoming new residential premises will be a taxable supply (where all the requirements of a taxable supply under section 9-5 are satisfied) and GST will be payable. · the sale of that part of Village relating to the ILUs (including other buildings and facilities that can reasonably be characterised to form part of the ILUs) that have only been used for making input taxed supplies of residential rental under paragraph 40-35(1)(a) of the GST Act for the continuous period of at least 5 years since becoming new residential premises will be an input taxed supply under section 40-65 and GST will not be payable. | Q2: Is the sale of the Village a taxable supply under section 9-5 of the GST Act, where all ILUs within the Village have been occupied for less than 5 years from first occupancy? | A2: Yes. In the circumstances specified, the sale of the Village will be a taxable supply under section 9-5 of the GST Act. | Q3: Where the answer to question 2 is 'yes', will the transitional provisions in paragraph 34 of GSTR 2011/1 apply to the taxable supply of the Village such that you would be entitled to rely on GSTR 2004/9 and not be required to include the face value of the loans in the 'consideration' for the sale of the Village? | A3: Yes, although the face value of the ingoing contributions (that the purchaser assumes responsibility for repaying) forms part of the consideration for the supply of the Village under section 9-15 of the GST Act, the transitional administrative treatment will allow you to adopt an interpretation of GSTR 2004/9 such that ingoing contributions would not be included in the consideration for the supply.

Relevant facts and circumstances: You are a private Australian resident company. You act as the Trustee for the ABC Trust and are registered for GST. Under a contract entered into and settled, you purchased the development site for the Village, together with existing planning approvals to develop a retirement village and nursing home. At the time of the purchase, the earth works and retaining walls for stage 1 of the development had been partially completed. You are in the process of developing, with an intention to operate on an ongoing basis, a retirement village to be known as the Village, consisting of approximately a specified number (subject to change) independent living units (ILUs). Your reference to the Village includes the property as a whole comprising the retirement village complex, including the ILUs. You have incurred expenditure in undertaking feasibility studies, obtaining finance approvals, executive approvals and other approvals in relation to the development of the Village. You have undertaken due diligence with respect to confirming the continued existence and longevity of market demand for ILUs within the broader catchment of the proposed retirement village site. You obtained an independent valuation report based on the use of the land as a retirement village. You lodged a successful application to amend the permit to develop the Village under the Planning and Environmental Act 1987 whereby the plans were modified. You have continued to develop the Village and incurred significant additional costs. This includes the commencement of civil works, preparation of draft legal documentation to give effect to the loan/lease arrangements with incoming residents, obtaining tax and accounting advice. The Village is to be operated under lease/loan arrangements. You provided a copy each of the 3 separate pro forma agreements proposed to be entered into with residents. The 3 agreements are: Agreement to Lease (Incomplete Dwellings), Loan Agreement and Lease Agreement. You have always intended to develop and hold the Village for lease. You have not claimed the GST included in the development costs incurred to date. You have not used, and do not plan to use, an output based indirect method. At the time of the sale of the Village in the situation outlined in question 1, all the ILUs within the Village will have been used solely for making input taxed supplies by way of lease since they were first occupied (ie when each ILU first became residential premises).

Relevant legislative provisions: The A New Tax System (Goods and Services Tax) Act 1999 Section 9-5 | The A New Tax System (Goods and Services Tax) Act 1999 Section 9-15 | The A New Tax System (Goods and Services Tax) Act 1999 Division 38 | The A New Tax System (Goods and Services Tax) Act 1999 Subdivision 38-J | The A New Tax System (Goods and Services Tax) Act 1999 Division 40 | The A New Tax System (Goods and Services Tax) Act 1999 Subdivision 40-C | The A New Tax System (Goods and Services Tax) Act 1999 paragraph 40-35 | The A New Tax System (Goods and Services Tax) Act 1999 Section 40-65 | The A New Tax System (Goods and Services Tax) Act 1999 Section 40-75 | The A New Tax System (Goods and Services Tax) Act 1999 Section 195-1

Reasons for decision: Summary: Is the sale of the village an input taxed supply under section 40-65 of the GST Act, where all ILUs within the village have been held from first occupancy? Section 9-5 provides that you make a taxable supply if: · you make a supply for *consideration · the supply is made in the course or furtherance of an *enterprise that you carry on · the supply is connected with Australia · you are *registered, or *required to be registered, for GST. However, the supply is not a taxable supply to the extent that it is a *GST-free or *input taxed supply. | Detailed Reasoning - Note: the terms marked with an asterisk are defined in section 195-1.: Divisions 38 and 40 provide for GST-free and input taxed supplies respectively. In relation to the GST-free provisions in Division 38, of relevance may be subdivision 38-J regarding supplies of going concern. However, your submission does not make reference to the sale of the Village being made under this situation. Accordingly, subdivision 38-J will not be addressed in this ruling. In relation to the input taxed provisions in Division 40, subdivision 40-C on residential premises is relevant to your query. Section 40-65 provides: · 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). However, the sale is not input taxed to the extent that the *residential premises are: *commercial residential premises; or *new residential premises other than those used for residential accommodation (regardless of the term of occupation) before 2 December 1998. 'Residential premises' is defined in section 195-1 to mean 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. Draft Goods and Services Tax Ruling GSTR 2012/D1 Goods and services tax: residential premises and commercial residential premises (GSTR 2012/D1) explains: 278. ...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. This is consistent with the discussion of land supplied with a building. 110 279. 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 the supply. In this instance, your submission relates to the sale of the Village in the situation where all ILUs within the Village have been held for greater than 5 years from first occupancy. Accordingly, under this situation, we consider your supply of those parts of the Village that can reasonably be characterised as commercial premises will be a taxable supply, and GST will be payable. Under the same situation, we consider the ILUs (including other buildings and facilities that can reasonably be characterised to form part of the ILUs) are residential premises to be used predominantly for residential accommodation, and your supply in relation to this part of the Village will be input taxed and GST will not be payable. This is provided the ILUs are not new residential premises to be excluded from being input taxed under paragraph 40-65(2)(b). The meaning of 'new residential premises' in section 40-75 generally states: (1) * Residential premises are new residential premises if they: (a) have not previously been sold as residential premises (other than * commercial residential premises ) and have not previously been the subject of a * long-term lease ; 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. Paragraphs (b) and (c) have effect subject to paragraph (a). (2) However, the * residential premises are not new residential premises if, for the period of at least 5 years since: (a) if paragraph (1)(a) applies (and neither paragraph (1)(b) nor paragraph (1)(c) applies) - the premises first became residential premises; or (b) if paragraph (1)(b) applies - the premises were last * substantially renovated ; or (c) if paragraph (1)(c) applies - the premises were last built; the premises have only been used for making supplies that are * input taxed because of paragraph 40-35(1)(a) . Paragraph 89 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? (GSTR 2003/3) states that 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 becoming new residential premises. This requirement is satisfied where the only supplies of the premises were by way of lease, hire or licence (i.e. residential rental) for any continuous period of at least 5 years between when the premises would otherwise have become new residential premises and when they are sold. You submit that, in the instance, all ILUs will have only been used solely for making input taxed supplies by way of lease for at least 5 years since they were first occupied. Accordingly, we consider that where the Village is sold, the part of the Village comprising the ILUs (and other buildings and facilities that can be reasonably characterised to form part of the ILUs) will not be new residential premises under paragraphs 40-75(2)(c), and will therefore be an input taxed supply. This is provided each of the ILUs were leased continuously for at least 5 years. As the sale of the Village in this instance will contain separately identifiable taxable and non-taxable parts that need to be individually recognised, the sale will be a mixed supply. | Detailed Reasoning - In summary, the sale of the Village will be a mixed supply including taxable and non-taxable parts. That is:: the sale of that part of the Village which can reasonably be characterised as commercial premises (for example, site offices, staff rooms, medical centres, and commercial premises, such as hairdressing salons, pharmacy, golf courses, shops, and restaurants or cafes) will be a taxable supply (where all the requirements of section 9-5 of the GST Act are satisfied) and GST will be payable. the sale of that part of the Village relating to the ILUs (including other buildings and facilities that can reasonably be characterised to form part of the ILUs) that have not been used only for making input taxed supplies of residential rental under paragraph 40-35(1)(a) of the GST Act for the continuous period of at least 5 years since becoming new residential premises will be a taxable supply (where all the requirements of section 9-5 are satisfied) and GST will be payable. the sale of that part of the Village relating to the ILUs (including other buildings and facilities that can reasonably be characterised to form part of the ILUs) that have only been used for making input taxed supplies of residential rental under paragraph 40-35(1)(a) of the GST Act for the continuous period of at least 5 years since becoming new residential premises will be an input taxed supply under section 40-65 and GST will not be payable. For additional information, Goods and Services Tax Ruling GSTR 2001/8 'Goods and services tax: apportioning the consideration for a supply that includes taxable and non-taxable parts' provides guidelines on apportionment. | Detailed Reasoning - Question 2: Is the sale of the village a taxable supply under section 9-5 of the GST Act, where all ILUs have been occupied for less than 5 years from first occupancy? | Detailed Reasoning - Answer:: Please refer to the 'reasons for decision' provided earlier in this ruling in relation to question 1, which are also applicable to this question (question 2). However, in this question your submission specifically refers to the situation where all ILUs within the Village have been occupied for less than 5 years from first occupancy at the time of the sale of the Village. Under the circumstances, we consider the ILUs will be new residential premises within the meaning of section 40-75. Accordingly, your sale of the Village, including the ILUs and the commercial part of the Village will be a taxable supply (where all the requirements of section 9-5 are satisfied), in which case GST will be payable on the sale. | Detailed Reasoning - Question 3: Where the answer to question 2 is 'yes', will the transitional provisions in paragraph 34 of GSTR 2011/1 apply to the taxable supply of the Village such that you would be entitled to rely on GSTR 2004/9 and not be required to include the face value of the loans in the 'consideration' for the sale of the Village? Section 9-15 provides for 'consideration' and includes: (1) Consideration includes: (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. 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) which issued 27 April 2011 considers the 'consideration' for a taxable or GST-free supply of a retirement village for the purposes of section 9-15 and subsection 9-75(1). Paragraph 6 of GSTR 2011/1 states: 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. GSTR 2011/1 states that where the sale arrangement contemplates, either expressly or by implication, that the purchaser will repay ingoing contributions outstanding at the time of sale, the vendor of a retirement village receives a benefit (by being effectively relieved of their obligation to repay ingoing contributions received from residents). Under these circumstances, it is the Commissioner's view that the benefit is to be included in the consideration for the supply of the village under the inclusive definition of 'consideration' in section 9-15. That is, the face value of the ingoing contributions received by the vendor which the purchaser effectively assumes responsibility for repaying will form part of the sale price of the village. We consider the arrangements in paragraph 6 apply to your situation and accordingly, the consideration for your sale of the Village will include the ingoing contributions that you received from the residents. However, transitional administrative treatment may apply to exclude the face value of the ingoing contributions from being part of the sale consideration where there are pre-existing arrangements for the development of a retirement village covered by paragraph 6 of GSTR 2011 and certain other circumstances. The following paragraphs in GSTR 2011/1 are relevant: 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. 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. 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. 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. 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. 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. 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. | Detailed Reasoning - Your submission includes the following:: You have incurred expenditure in undertaking feasibility studies, obtaining finance approvals, executive approvals and other approvals in relation to the development of the Village. You have undertaken due diligence with respect to confirming the continued existence and longevity of market demand for ILUs within the broader catchment of the proposed retirement village site. You obtained an independent valuation report based on the use of the land as a retirement village. Under a contract entered into you purchased the development site for the Village together with existing planning approvals to develop a retirement village and nursing home. At the time of the purchase, the earth works and retaining walls for stage 1 of the development had been partially completed. You lodged a successful application to amend the permit to develop the Village under the Planning and Environmental Act 1987 whereby the existing nursing home component of the permit was deleted and replaced with additional ILUs. You have continued to develop the Village and incurred significant additional costs. This includes the commencement of civil works, preparation of draft legal documentation to give effect to the loan/lease arrangements with incoming residents, obtaining tax and accounting advice. The Village is to be operated under lease/loan arrangements. You provided a copy each of the 3 separate pro forma agreements proposed to be entered into with residents. The 3 agreements are: Agreement to Lease (Incomplete Dwellings), Loan Agreement and Lease Agreement. You have always intended to develop and hold the Village for lease. You have not claimed the GST included in the development costs incurred to date. You have not used, and do not plan to use, an output based indirect method. Based on the above facts, we consider the pre-existing arrangements for the development of the Village are covered by paragraph 6 of GSTR 2011/1. Although you do not have any current plan to sell the Village once constructed, paragraphs 34 and 35 of GSTR 2011/1 explain that for the transitional administrative treatment to apply, it is only a requirement that you are commercially committed before the issue of GSTR 2011/1 to the construction and development of the Village. GSTR 2011/1 issued on 27 April 2011. The facts indicate that before this date you have incurred significant financial costs. Accordingly, the Commissioner is satisfied that you were commercially committed to the construction and development of the Village before 27 April 2011. Further, you confirmed that you have not used, and do not plan to use, an output based indirect method to work out input tax credits. Under the circumstances, where you sell the Village, the transitional administrative treatment will be available to allow you to adopt an interpretation of GSTR 2004/9 that does not require you to include the face value of the ingoing contributions as part of the consideration for the supply, where the supply is taxable or GST-free.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Note: Unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). | All reference materials used in this ruling are available on the Australian Taxation Office (ATO) website www.ato.gov.au