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ATO Interpretative Decision

ATO ID 2001/635

Goods and Services Tax
GST and leases of independent living units in retirement villages

Attention This ATO ID has been amended by removing an unnecessary paragraph following the Note
FOI status: may be released
Status of this decision: Amendments have been made to section 105-55 of Schedule 1 to the Taxation Administration Act 1953 (TAA) which apply with effect from 1 July 2008. From this date, the time limit on refunds in section 105-55 of Schedule 1 to the TAA apply to entitlements to refunds which arise because of reductions in positive net amounts unless a valid notification was made before 1 July 2008 under subitem 16(2) of Schedule 2 to the Tax Laws Amendment (2008 Measures No. 3) Act 2008. This decision is based on the law as it existed prior to the amendments to section 105-55 of Schedule 1 to the TAA.

CautionCAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.


Issue

Is the entity, an owner-operator of a retirement village, making an input taxed supply under paragraph 40-35(1)(a) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it supplies an independent living unit in the retirement village to a resident by way of a lease that is greater than 50 years?

Decision

Yes, the entity is making an input taxed supply under paragraph 40-35(1)(a) of the GST Act when it supplies an independent living unit in the retirement village to a resident by way of a lease that is greater than 50 years.

Facts

The entity is an owner-operator of a retirement village. It is not an endorsed charitable institution or an endorsed trustee of a charitable fund. The entity leases an independent living unit to a resident of the retirement village.

The lease document provides for the grant of a lease of the premises to the resident for more than 50 years. The lease cannot be assigned but can be terminated or surrendered when the resident leaves the retirement village.

Pursuant to discussions with members of the Retirement Village industry it has been revealed that the average duration of a retirement village lease is approximately 12 years.

The entity is registered for goods and services tax (GST).

Reasons for Decision

Under paragraph 40-35(1)(a) of the GST Act, a supply of residential premises (other than commercial residential premises or a supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises), by way of lease is input taxed.

The independent living unit is not commercial residential premises as it does not fall within the meaning of commercial residential premises as defined in section 195-1 of the GST Act. The unit is residential premises as defined in section 195-1 as it is occupied as a residence. The entity is making a supply of residential premises to the resident of the retirement village by way of lease.

However, pursuant to paragraph 40-35(2)(b) of the GST Act the supply is not input taxed if it is made by way of a long-term lease.

The term 'long-term lease' is defined in section 195-1 of the GST Act. It provides that a supply by way of lease (including a renewal or extension of a lease) for at least 50 years is a long-term lease if:

·
 at the time of the lease, or the renewal or extension of the lease, it was reasonable to expect that it would continue for at least 50 years; and
·
 unless the supplier is an Australian government agency - the terms of the lease, or the renewal or extension of the lease, as they apply to the recipient are substantially the same as those under which the supplier held the premises.

Pursuant to discussions with members of the Retirement Village industry it has been revealed that the average duration of a retirement village lease is approximately 12 years. Accordingly, at the time of the parties entering into the lease agreement, it is not reasonable to expect that the lease will continue for at least 50 years.

Consequently, the lease is not a long-term lease as defined in section 195-1 of the GST Act and paragraph 40-35(2)(b) of the GST Act does not apply.

Therefore, the entity is making an input taxed supply under paragraph 40-35(1)(a) of the GST Act when it supplies the independent living unit by way of a lease that is granted for a period greater than 50 years.

Note - As the entity is not an endorsed charitable institution or an endorsed trustee of a charitable fund, the supply of the independent living unit in the retirement village to a resident by way of a lease is not GST-free under section 38-260 of the GST Act.

Date of decision: 21 August 2001

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 38-260
   paragraph 40-35(1)(a)
   paragraph 40-35(2)(b)
   section 195-1

Related ATO Interpretative Decisions
ATO ID 2001/634
ATO ID 2001/636

Keywords
Goods & Services Tax
GST residential premises
GST residential rents
GST retirement villages

Date of publication: 29 November 2001

ISSN: 1445-2782

 


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