Private ruling: GST and the supply of accommodation and services in a Retirement Village
Published: March 2014

Ruling: Q1: Will you make GST-free supplies of accommodation, under section 38-260 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when you lease the new units in the Village? | A1: Yes | Q2: Will you be entitled to input tax credits on the costs of building the new units in the village and the on-going costs of operating the Village? | A2: Yes | Q3: Do the retirement village premises include the communal facilities for use by the residents of the premises? | A3: Yes

Relevant facts and circumstances: You, Entity A, are an incorporated charitable institution that manages and administers a number of retirement villages, including a retirement village the subject of this ruling. You are registered for Goods and Services Tax (GST). You have been endorsed by the ATO as an income tax exempt charity. The Village is the first retirement village to be owned and developed by you. The Village is also managed by you. There are XX independent living units (ILU) at the village and a communal club house with common grounds on-site. Each ILU has a bedroom(s), kitchen, lounge, laundry, bathroom and garage. The Village has a communal club house, in a separate building, which has facilities such as a dining room, a theatre room, a gym with a pool and a snooker room. This is available for use by all residents of the village for no additional charges. You also provide maintenance services of the common areas including gardens and lawns, minor maintenance and plumbing services to units. Upon entering the village, the resident receives a right of XX years occupancy. Alternatively, the resident may terminate their occupancy, at which point the right of occupancy is sold to the next resident. A resident must be over 55 years of age. When a resident departs, the right of occupancy is on-sold. The departing resident receives the sale proceeds less a deferred management fee. The residents pay a monthly maintenance fee to cover communal costs being council and water rates, building insurance, common property maintenance, external maintenance and administration costs. You are currently treating the supply of accommodation as GST-free. You pay GST on the acquisitions that you make. This includes lawn mowing, building maintenance and building insurance. The ILU's at the Village will not be used for the provision of residential care by a provider within the meaning of the Aged Care Act 1997 (Aged Care Act). There is a separate building/facility that provides aged care facilities. The aged care facility is also owned and operated by you. You have provided the following additional information in support of your application: • Disclosure Booklet for the Village. The Disclosure booklet provides prospective residents with full information about: v The village and the facilities available; v The basis on which a resident may acquire accommodation in the Village; and v The way the Village operates. The following relevant information is included in this document: Section 1- General Information Statement Clause X Criteria to be met to become a Resident of the Village The Organisation will only accept an offer made by a prospective Resident to become a Resident of the Village under a Residence Contract (Lease) if the prospective resident satisfies the following criteria: (a) The prospective Resident is over the age of 55 years and is not engaged in full time employment. Clause X Type of accommodation The residential units in the Village are self-contained. The units are suitable only for Residents who are able to maintain themselves independently, or with the assistance of a "Carer' supplied by the Resident. Section 2 Information Statement (Form 1) Clause X Costs and scope of obligations All residents are required to pay a Maintenance Fee of $_ per calendar month (payable in advance), which comprises the Maintenance Fund (The Maintenance Fee is exclusive of GST). The main purpose of the Maintenance Fund is to cover the direct costs of running the Village, which costs are common to all Residents. The fee is calculated by apportioning the total budgeted expenditure of the Village equally between the number of Units in the Village. Clause X Amenities and services The Organisation effects the maintenance of the Common Property the maintenance and upkeep of the front garden of the Unit and Common property gardens and lawns and generally administers and manages the Village. Residents are required to pay Maintenance Fees (which are paid into the Maintenance Fund) to meet these charges (see paragraph 4). Clause X Refund of deposit The village has already been constructed. Annexure 1 Village Plan • Residence Contract (Lease) Relevant Clauses Grant of lease The organisation lease to, and the Resident takes on lease, the Unit for approval of 60 years form the Commencement date unless terminated prior to that date… 3.1 Nature of occupation Subject to clause XX of this Residence Contract (Lease), the Resident will have the exclusive right to occupy the Unit for 60 years upon and subject to the conditions of this residence Contract (Lease). No freehold title to any property (including the Unit) will be obtained by the Resident under this Residence Contract (Lease) 5.1 Payment of Maintenance Fee (a) The Resident agrees to pay to the organisation, the Maintenance Fee to the Organisation…. 5.2 Maintenance Fund (a) … (b) The Maintenance Fund will be applied by the Organisation to pay the operating costs of the Village including local government rates, water rates, Water Corporation annual sewerage service charges, building insurance, Common Property maintenance (which includes painting of the outside of the Unit even though the Unit does not form part of the Common Property), Common Property electricity, maintenance and upkeep of the front garden of the Unit and the other units and Common property gardens and lawns, and administration costs relating to the management of the Village. (c) … Residents' Ongoing Costs Each residence contributes a proportion of the village operating costs. This is called the Maintenance Fee and is apportioned equally for each residence. Some components of the village operating costs are described below and a more comprehensive list is provided in the residence contract: a) Grounds Maintenance b) Building structural maintenance and external painting c) Clubhouse maintenance d) Staff wages e) Energy costs to common areas f) Rubbish removal g) Administration h) Insurances for buildings, public liability and workers compensation i) Bore expenses and water usage in common areas Retirement Village Floor Plan of Clubhouse Ground Floor includes: v Reception v Office v Theatre Room v Library v Computer room v Dining Room v Kitchen v Residents Workshop v Gymnasium v Pool First Floor includes: v Foyer v Snooker area v Lounge Area v Bar v Balcony v Lift • The website outlines the Services provides by the Village and includes: v Personal Care v Laundry v Meals v Religious Service v Social Activities Visiting Services Available v Podiatry v Occupational therapy v Physiotherapy v Pharmacy service v Hairdressing

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 11-5 | A New tax System (Goods and Services Tax) Act 1999 Section 38-260 | A New tax System (Goods and Services Tax) Act 1999 Section 195-1

Reasons for decision: Summary: Will you make GST-free supplies of accommodation, under section 38-260 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when you lease the new units in the Village? Section 38-260 of the GST Act provides that: A supply is GST-free if: (a) the supplier is an *endorsed charity that operates a *retirement village; and (b) the supply is made to a resident of the retirement village; and (c) the supply is: (i) a supply of accommodation in the retirement village, or a supply of a service related to the supply of the accommodation; or (ii)a supply of meals. Each of these requirements of section 38-260 will be examined in turn. | Detailed Reasoning - Supplier is an endorsed charity [paragraph 38-260(a)]: The term "endorsed charity" is defined in Section 195-1 as an entity that is endorsed as a charity under subsection 176-1(1). This subsection states: (1) The Commissioner must endorse an entity as a charity if: (a) the entity is entitled to be endorsed as a charity (see subsection (2)); and (b) the entity has applied for that endorsement in accordance with Division 426 in Schedule 1 to the Taxation Administration Act 1953. You are an endorsed charity and the Australian Business Register shows that you are endorsed to access the charity tax concessions. Consequently, this requirement is met. | Detailed Reasoning - Supplier operates a retirement village [paragraph 38-260(b)]: You are the operator of a retirement village. This is reflected in the Disclosure Booklet, which states that the village is owned and managed by Entity A. Further, the Residence Contract (Lease), which is entered into directly with you by the Resident, states that you are the manager and administering body of the retirement village and outlines the mutual promises between the parties to the Lease. However, for the purposes of section 38-260, it is also necessary to determine whether your premises meet the definition of retirement village for the purposes of the GST Act. Retirement village is defined in section 195-1 and states that premises are a retirement village if: (a) the premises are *residential premises; and (b) accommodation in the premises is intended to be for persons who are at least 55 years, and (c) the premises include communal facilities for use by the residents of the premises; but the following are not retirement villages: (d) 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); (e) *commercial residential premises. | Detailed Reasoning - (a) Residential premises: Residential premises are defined in section 195-1 as land or a building that is occupied, intended to be occupied and is capable of being occupied, as a residence or as residential accommodation. Goods and Services Tax Ruling, Goods and services tax: residential premises (GSTR 2012/5) provides guidance on what is residential premises. The principles in GSTR 2012/5 are relevant to this case. Paragraph 9 of GSTR 2012/5 explains that it is the physical characteristics that mark premises out as a residence and in turn, these characteristics determine the premises suitability and capability for residential accommodation. Paragraph 15 of GSTR 2012/5 outlines that premises must provide shelter and basic living facilities to satisfy the definition of residential premises. Premises that do not have the physical characteristics to provide these are not residential premises to be used predominantly for residential accommodation. Paragraph 20 provides further that the premises must be fit for human habitation in order to be suitable for, and capable of, being occupied as a residence or for residential accommodation. On the basis of the facts provided, we consider that the ILU's are residential premises. | Detailed Reasoning - (b) Intended for persons aged at least, or over, 55 years: You have advised that residents must be over 55 years of age when entering the village. Clause X of Section 1 - General Information Statement, contained in the Pre-contractual disclosure booklet, confirms that the prospective resident must be over the age of 55 years and not engaged in full time employment to become a resident of the Village under the Residence Contract (Lease). Consequently, the ILU's satisfy this requirement. | Detailed Reasoning - (c) Communal facilities: Paragraph 22 of Goods and Services Tax Ruling, Goods and services tax: when retirement village premises include communal facilities for use by the residents of the premises (GSTR 2007/1) explains that communal facilities, in the retirement village context, are those facilities that are intended and capable of group use by the residents for recreational, sporting, social, religious or other similar uses that enhance a sense of community among the residents. This is determined by an objective assessment of the primary function or purpose of the facilities as evidenced by their physical characteristics. Paragraph 23 goes on to say that this requirement is satisfied where one or more of these communal facilities are within, attached to, or connected to the residential buildings, or constructed on the surrounding land that actually or substantially contributes to the enjoyment of the buildings or to the fulfilment of its purposes as a residence and are in a practical sense accessible to and able to be used by the residents. These facilities do not, however, have to be for the exclusive use of the residents. The Village Marketing Brochures state that the Communal Club House has a number of floors. The Ground Floor comprises a reception, office, theatre room, library, computer room, dining room, kitchen, resident's workshop, gymnasium and pool. The first floor includes a foyer, snooker area, lounge area, bar and balcony. These facilities are available for use by all residents of the village for no additional charges. Therefore, this requirement is met. | Detailed Reasoning - (d) Not used for, or intended to be used for, the provision of residential care under the Aged Care Act 1997 by an approved provider under that Act: You advised that you do not provide residential care, under the Aged Care Act 1997, within the village. Although an aged care facility does exist at the same location, it does not form part of the village. Therefore this requirement is met. | Detailed Reasoning - (e) Not commercial residential: The definition of 'commercial residential premises' in section 195-1 includes the following: (a) a hotel, motel, inn, hostel or boarding house; ... (f) Anything similar to residential premises described in paragraphs (a) to (e) Paragraph 11 of Goods and Services Tax Ruling, Goods and services tax: commercial residential premises (GSTR 2012/6) provides that the tests to be applied (in determining whether the premises are commercial residential premises) are whether the premises are a hotel, motel, inn, hostel or boarding house for the purposes of paragraph (a), or whether the premises are similar to these types of premises, in the sense that they have sufficient likeness or resemblance to any of these types of establishments for the purposes of paragraph (f). Paragraph 12 of GSTR 2012/6 outlines common characteristics of operating hotels, motels, inns, hostels and boarding houses that are relevant, though not determinative, to characterising premises as commercial residential premises. These characteristics include: • Multiple occupancy • Holding out to the public • Occupants have the status of guests Although the Village has some characteristics in common with a hostel or boarding house, it also has several factors that weigh against it being sufficiently similar to these for it to be considered to be commercial residential premises. These include the lease itself and the rights and responsibilities of the parties to the lease. The overall impression of the village is that it is not commercial residential premises. As all of the above requirements are met, your premises meet the GST definition of a retirement village. We have determined that you are an endorsed charity that operates a retirement village. Next we need to consider whether the remaining conditions of section 38-260 are met. | Detailed Reasoning - Is the supply made to a resident of the retirement village? [paragraph 38-260(b)]: Where the supply is made to a resident of the Village, then this requirement will be met. However, supplies made to friends or guests of residents, or to persons who are not residents of the village will not meet this requirement and will not be GST-free under section 38-260. For example, meals provided to friends or guests of the Village will be subject to GST. | Detailed Reasoning - Is the supply a supply of accommodation in the retirement village? [paragraph 38-260(c)(i)]: Accommodation is defined in the Shorter Oxford English Dictionary , 2002, 5 th edn, Oxford University Press, New York, as a Room and provision for the reception of people, lodgings; living premises. In the context of a retirement village, we consider that a supply of accommodation in a retirement village is a supply of residential premises, which a resident (if at least of 55 years of age) has the right to occupy (pursuant to a Residence Agreement), and communal facilities As outlined in GSTR 2007/1, at paragraph 23, in the context of a retirement village, communal facilities include the following types of facilities: a library, a dining room, a recreation room, a chapel, an equipped gymnasium and outdoor recreational and leisure facilities such as a tennis court, a swimming pool or a barbeque area. The ILU's within the village are residential premises that form part of the retirement village. The supply of accommodation in the ILU's (including access to the communal facilities) which a resident of the village has the right to occupy pursuant to a residence agreement, would satisfy this requirement. | Detailed Reasoning - Is the supply a supply of a service related to the supply of accommodation?: To determine whether a supply is related to the supply of the accommodation, it is necessary to refer to the meaning of accommodation and what this includes in the context of a retirement village. Services that are within the scope of residential care (such as personal care or nursing services) are not related to either residential premises or communal facilities. Accordingly, services akin to residential care services cannot be a service related to the supply of accommodation in a retirement village and would not qualify for GST-free treatment under section 38-260. Where a person, who is a resident of the Village, has a right to occupy the Village under the terms of a residency agreement, then it must be determined what services are related to the supply of the residential premises and communal facilities under that agreement. The meaning of the phrase 'related to' and similar phrases has been considered by the courts in a number of cases across a broad range of legislation. While the courts have said that the words are of wide import, they have also made it clear that the context determines the scope of such phrases. For example, in Hatfield v Health Insurance Commission (1987) 15 FCR 487 at 491 Davies J stated that: Expressions such as 'relating to', 'in relation to', 'in connection with' and 'in respect of' are commonly found in legislation but invariably raise problems of statutory interpretation. They are terms which fluctuate in operation from statute to statute... The terms may have a very wide operation but do not usually carry the widest possible ambit, for they are subject to the context in which they are used, to the words with which they are associated and to the object or purpose of the statutory provision in which they appear… In the Federal Court decision of HP Mercantile Pty Ltd v Commissioner of Taxation (2005) 143 FCR 553, Hill J (at paragraph 35 and 44, with whom Allsop and Stone JJ agreed) stated that: 35…It was common ground that the words ``relates to'' are wide words signifying some connection between two subject matters. The connection or association signified by the words may be direct or indirect, substantial or real. It must be relevant and usually a remote connection would not suffice. The sufficiency of the connection or association will be a matter for judgment which will depend, among other things, upon the subject matter of the enquiry, the legislative history, and the facts of the case. Put simply, the degree of relationship implied by the necessity to find a relationship will depend upon the context in which the words are found… 44.It is clear, both having regard to the modern principles of interpretation as enunciated by the High Court in cases such as CIC Insurance Limited v Bankstown Football Club Limited (1997) 9 ANZ Insurance Cases 61-348; (1997) 187 CLR 384 and s 15AA of the Acts Interpretation Act 1901 (Cth) that the Court will prefer an interpretation of a statute which would give effect to the legislative purpose, as opposed to one that would not. This requires the Court to identify that purpose, both by reference to the language of the statute itself and also any extrinsic material which the Court is authorised to take into account. To ascertain the purpose and intent of section 38-260, consideration must be given to the Explanatory Memorandum accompanying the Tax Laws Amendment (Retirement Villages) Bill 2004 (EM). Relevantly, paragraphs 1.51 and 1.52 of the EM provide as follows: 1.51 In order that GST-free treatment applies, it is necessary that the charitable retirement village operator make (sic) the supply to a resident of a retirement village operated by the charity. Accordingly, supplies made by the charitable retirement village to visitors or staff of the retirement village would not qualify for GST-free treatment. 1.52 The range of supplies to which GST-free treatment applies, includes the supply of accommodation in a charitable retirement village, services related to the supply of the accommodation and meals. This would include, for example, the supply of accommodation in an independent living unit or serviced apartment, property maintenance fees and gardening services and meals and beverages According to the examples provided in paragraph 1.52 of the EM, we consider that a service is related to the supply of the accommodation if: (a) the service is to do with to the maintenance of the residential premises or communal facilities, and (b) the service is provided pursuant to the Residence Agreement between the charitable retirement village operator and a resident. Prior to entry into a retirement village, residents usually sign a Residence Agreement(Lease) with the operator specifying, among other things, the residential premises provided, communal facilities included and obligations of the operator and resident. We consider the fact that a service is provided pursuant to the Residence Agreement, establishes the relationship between the services provided and the residential premises and communal facilities that comprise the retirement village accommodation. Consequently, the services that are GST-free under subparagraph 38-260(c)(i) will include common property maintenance (including the painting of the outside of an ILU), maintenance and upkeep of the front gardens of the ILU's and common property gardens and lawns. The supply of these services by you to residents of the village, will be GST-free as they are included in the Residence Contract (Lease) between you and a resident. The following are examples of services that are not for the maintenance of the residential premises or communal facilities. They would not be GST-free under subparagraph 38-260(c)(i) even if provided pursuant to the Residence Agreement: • Personal Care • Laundry • Social Activities • Podiatry • Occupational therapy • Physiotherapy • Pharmacy Service • Hairdressing | Detailed Reasoning - Conclusion: The supply of accommodation and meals to the residents of the ILU's of the Village will be GST- free under section 38-260. Further, the supply of services that are related to the maintenance of the residential premises (including the communal areas) will be GST-free under section 38-260. | Detailed Reasoning - Will you be entitled to input tax credits on the costs of building the new units in the village and the on-going costs of operating the Village.: The GST Act provides that you may claim input tax credits for any creditable acquisitions that you make. Section 11-5 provides that you make a creditable acquisition if: • you acquire anything solely or partly for a creditable purpose; and • the supply of the thing to you is a taxable supply; and • you provide, or are liable to provide consideration for the supply; and • you are registered, or required to be registered for GST. Section 11-15 of the GST Act states that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, you do not acquire a thing for a creditable purpose to the extent that: • the acquisition relates to making supplies that would be input taxed; or • the acquisition is of a private or domestic nature. Consequently, to the extent that your acquisitions (which may include construction costs, services and meals) relate to making GST-free supplies (or taxable supplies), they will not be precluded from being made for a creditable purpose. Provided that the remaining conditions of a creditable acquisition are met, then you will be entitled to claim input tax credits for acquisitions that relate to the construction and operation of the Village. | Detailed Reasoning - Do the retirement village premises comprising the Village include the communal facilities for use by the residents of the premises?: Yes, as per the discussion in Question 1.

Reasons for decision: In this ruling, please note: | • All legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) unless otherwise specified. | • All terms marked by an *asterisk are defined terms in the GST Act. | • For completeness we note that the Aged Care Facility is a separate and distinct facility which does not form part of the retirement village to which this ruling is applicable.