FocusOn - Retirement villages and GST

On 14 December 2004, the Federal Parliament passed legislation affecting the GST treatment of retirement villages. The legislation covers two areas: serviced apartments in retirement villages and retirement villages operated by charities.

Serviced Apartments

Accommodation and care services were previously GST free if:

	provided to an aged person in a residential setting
	the Aged Care minister had determined in writing that the services were of a kind covered by Schedule 1 to the Quality of Care Principles
	the services included and were only provided to people requiring the services set out in items 2.1 or 3.8 of that Schedule

There has been some concern that “residential setting” does not extend to serviced apartments in retirement villages. To address this issue, the GST Act was amended to state that services to a resident of a retirement village are provided in a residential setting if both of the following apply:

	they are provided to resident of a serviced apartment in a retirement village
	there is a written agreement under which the operator of the retirement village provides daily meals and heavy laundry services to all the residents of the serviced apartment.

Generally the operator must provide all daily meals for the resident. However, it is sufficient if they provide lunch and dinner and also supply breakfast provisions.

The Aged Care Minister can determine in writing the level of care services required and the way in which those services are to be assessed. If this occurs, services provided to a resident of a serviced apartment will not be taken to be in a residential setting unless the Aged Care Secretary has assessed the resident as requiring those levels of care services. To date, the Aged Care Minister has made no such determinations. The Aged Care Minister can restrict the determination to a specified class of residents, such as new residents of serviced apartments only.

Retirement Village

“Retirement village” has been defined to be:

	premises that are residential premises
	intended for people who are at least 55 years or older and
	include communal facilities for use by the residents of the premises

Accommodation can be GST free regardless of whether the serviced apartment is provided by way of lease, licence, sale or excluded security.

Serviced Apartment

A serviced apartment is an apartment that is designed to be occupied by aged residents who require the services set out in items 2.1 or 3.8 of Schedule 1 of the Quality of Care Principles. It must be part of a single complex and accessible from a common corridor linking it to other apartments in the complex. A responsible person who is continuously on call to render emergency assistance must be located near the serviced apartments. Finally there must be a communal dining facility used by residents of apartments in the retirement village.

Claiming Input Tax Credits

The legislation is retrospectively effective from 1 July 2000. If an organisation has not previously claimed input tax credits to which it is now entitled, they can be claimed in the December 2004 Business Activity Statement.

Charities

Supplies of accommodation in retirement villages are generally input taxed if the residents do not require services of a kind covered by Schedule 1 to the Quality of Care Principles. Non-accommodation supplies are generally taxable supplies and subject to GST. However, under previous legislation, charities could treat supplies as GST free under the non-commercial supply test if:

	accommodation – the consideration for the supply is less than 75% of market value or 50% of cost
	other – the consideration for the supply is less than 50% of market value or 50% of cost

The Parliament decided to extend this GST free treatment for charities to all supplies to residents of retirement villages of:

	accommodation
	accommodation related services (such as property maintenance fees and gardening services) and
	meals

This applies regardless of the amount of consideration charged for the supplies. However, supplies that do not fall within the above categories will only be GST free if they meet the non-commercial supply test.

The new rules apply from 14 December 2004. These rules are a significant concession for charities enabling them to claim back most, if not all, of their future input tax credits on their retirement villages, including building and renovations.

With regard to input tax credits previously disallowed because the charity failed to meet the non-commercial supply test, it may be possible to apply the change in creditable purpose rules to claim at least a part of the credits on purchases in excess of $1,000. Although the new legislation addresses the issue of change in creditable purpose for serviced apartments, there is no detail provided on the operation of these rules for retirement villages operated by charities. Therefore further clarification will be needed by the Taxation Office.

Published : 15 December 2004