Private ruling: GST and the supply of real property by lease
Published: February 2012

Ruling: Q1: Is your lease of the Property located in Australia, a taxable supply? | A1: The supply of the Property is a mixed supply made up of an input taxed supply of 'residential premises' and taxable supply of 'commercial areas'. You are required to apportion the lease between the taxable and input taxed portions by using a fair and reasonable method.

Relevant facts and circumstances: You, Entity A are registered for GST. Entity B owned land located in Australia described as Lot X (Lot X). On a specified date Entity B drew up an agreement with Entity C for Entity C to construct a retirement village (RV) on a portion of the land. When the RV was completed, Entity B subdivided Lot X and created a new Lot out of the portion of land that the RV was located on, Lot Y. Entity B then transferred this Lot to you. You are now the owner of Lot Y on which the RV is constructed (the Property). You then leased the Property to Entity D. The commencement date of the lease was ddmmyyyy. The lease was stamped. The Property was leased for an initial term of ZZ years (with a Z year option to renew). You consented to a sub-lease of the Property from entity D to Entity E for a lease term identical with the head lease. Entity E operates the retirement village on the land. You supplied a number of documents and information including a Public Information document (PID), a site plan and the Retirement village registration certificate for the retirement village. The following relevant information is set out below. · The village was registered as a Retirement village scheme under the relevant statutes · The Village consists of independent living units (ILUs) · The village accommodation is supplied under the loan/lease model · At least one of the residents of each unit must be over the age of 65 · Each ILU ranges in size and has the following facilities · Full kitchen · One or two bedrooms depending on the villa · Modern open plan dining/lounge · Bathroom/laundry · Patio and garden area · Communal facilities including the following: · Heated outdoor swimming pool · Bowls green · BBQ entertainment and eating areas · Walking paths · Landscaped gardens including garden features and garden seating · Community centre with library reading/room · Media room · Residents kitchen · Computer room with internet access, workshop, veranda and alfresco seating, · Under cover car parking (user pay and subject to availability) · Hair dressing salon (user pay) · Centre for arranged consultations with health and care professionals · Reception and Administration office. Since the commencement date of the head lease, you have collected GST on the rent payments paid to you by Entity D and remitted these GST payments to the ATO. You advised that this occurred because you and Entity D agreed that the supply was a taxable supply for GST purposes. Entity D now asserts that the rent payments should be input taxed, on the basis that the lease from you is a lease for the supply of residential premises pursuant to section 40-35 of A New Tax System (Goods and Services Act) 1999 (GST ACT).

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 40-35 | A New Tax System (Goods and Services Tax) Act 1999 Section 195-1.

Reasons for decision: Summary: Following the development of the retirement village by Entity A the property was transferred to you. The relevant supply that you make is the supply of the Property (the land together with the improvements on that land) to Entity D. It is this supply that is the subject of this ruling. Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act) provides that an entity makes a taxable supply if: (a) the supply is for consideration (b) the supply is made in the course or furtherance of an enterprise that the entity carries on (c) the supply is connected with Australia and (d) the entity is registered or required to be registered. However, a supply is not a taxable supply to the extent that it is GST-free or input taxed. Your lease of the Property to Entity D satisfies paragraphs 9-5(a) to (d) of the GST Act and is not GST-free under any provision of the GST Act, in your factual situation. The lease to Entity D is of the developed property and commenced after the Village premises were constructed. Therefore, we need to consider whether the supply of the land and the improvements by way of lease is an input taxed supply. | Detailed Reasoning - Input taxed supply: 'Retirement village' is defined in the GST Act. The definition provides that premises will be a retirement villages if: · the premises are residential premises · accommodation in the premises is intended to be for persons who are at least 55 years old, or who are a certain age that is more than 55 years · the premises include communal facilities for use by the residents of the premises · but the following are not retirement villages: · premises used, or intended to be used, for the provision of residential care (within the meaning of the Aged Care Act 1997 ) by an approved provider (within the meaning of that Act); · commercial residential premises. Retirement villages are not commercial residential premises for the purposes of the GST Act as they do not hold themselves out as accommodation for tourist guests or lodgers. In addition you are not using the premises for the provision of residential care within the meaning of the Aged Care Act 1997 . Under section 40-35 of the GST Act a s upply of pr emises that is by way of lease, hire or licence (including a renewal or extension of a lease, hire or licence) is input t axed where: · the supply is of residential pr emises (other than commercial residential premises). However: · the supply is input taxed only to the extent that the premises are to be used predominantly for residential accommodation In your case the lease of the premises meets the definition of a supply and therefore we need to examine whether it is a lease of residential premises used predominantly for residential accommodation. Central to section 40-35 of the GST Act is the concept of residential premises which is defined in section 195-1 to mean 'land or a building that: · is occupied as a residence; or · is intended to be occupied, and is capable of being occupied, as a residence. The Macquarie dictionary defines 'residence' as 'the place, especially the house in which one resides; dwelling place; dwelling'. Therefore, in its ordinary meaning the word could be interpreted as the bare supply of somewhere to live (being a roof over someone's head) or as including the things that normally go with the supply of somewhere to live. 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, in regards to retirement villages we mean: Paths, driveways, parks, gardens, and communal recreational facilities provided they are located within the curtilage of the complex. However it should be noted that the extent to which these facilities are used for commercial activities they are generally taxable . No input tax credits can be claimed for input taxed supplies. Facilities, services or outlets that can not reasonably be expected to be provided as part of residential rent are taxable supplies. Examples of areas not included in rented residential premises within a complex include restaurants and associated dining areas where prepared meals are provided, hairdressing/beauty salons, pharmacy, medical room, nursing station, convenience stores and areas geographically situated away from the residence. Therefore the common areas of your retirement village are included in the definition of residential premises to the extent they are part of the supply of the 'residences'. Based on the information you supplied we would expect that the supply of ILU's and the following facilities would be input taxed. · BBQ entertainment and eating areas · Walking paths · Heated outdoor swimming pool · Bowls green · Landscaped gardens including garden features and garden seating · Community centre with library reading/room · Media room · Residents kitchen · Computer room with internet access, workshop, verandah and alfresco seating, However the supply of the following facilities would be taxable: · Under cover car parking (user pay and subject to availability) · Hair dressing salon (user pay) · Centre for arranged consultations with health and care professionals · Reception and Administration office. · Accordingly, your lease of the property is a mixed supply made up of a taxable portion and an input taxed portion. You are required to apportion the lease between the taxable and input taxed portions. You may choose your own apportionment methodology but the method you choose needs to be fair and reasonable in the circumstances of your leasing enterprise.

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.