A current GST review being undertaken by the
Australian Tax Office (ATO) could result in a significant increase
in GST imposed on the retirement village
The ATO is currently reviewing its views on how to calculate GST
on the sale of the real property component of retirement villages
and, in particular, the sale of independent living units (ILUs).
The discussion below is general in nature, since the GST treatment
of fees and charges by owners/operators to residents of retirement
villages depends on the exact structure of the operations and is a
Under GST law, the lease or licence of ILUs to residents are
generally input taxed. This means there is ordinarily no GST
charged to residents, however, the owner or operator of the village
is not entitled to claim GST credits on its expenses. Accordingly,
when owners or operators of retirement villages are charged GST, it
is normally a real cost.
Where a retirement village facility is sold to a new owner/
operator, the sale of the ILUs as part of the facility may be
subject to GST on the basis they are 'new residential
premises'. This will generally be the case where an ILU has not
previously been sold and has been leased for less than five
For villages that use the lease/licence model, industry practice
has been to calculate the GST payable on the sale of the ILUs based
on the sale price of the ILUs (normally using the margin scheme).
The sale price is normally significantly lower than the market
value of an unoccupied ILU, since the price excludes the value of
any loans made by residents to the owner/operator of the village
(on the basis that the new owner/operator assumes the liability to
repay the loan to the resident when the resident leaves the ILU).
During a number of recent Tax Office GST audits, the Tax Office has
suggested that the GST liability on the sale of the ILUs should
factor in the liability to repay the loan assumed by the new
This approach would significantly increase the GST liability on
the sale of the ILUs and consequently the cost to the new
owner/operator of purchasing the village (since GST is a real cost
to the new owner/operator). The increased cost is likely to be
passed on to future residents and is of major concern to the
At this stage, the Tax Office is in discussions with industry
bodies regarding the appropriate approach. However, if it
ultimately decides that the new owner/operator's assumption of
the liability to repay loans needs to be factored into the GST
calculation, many owner/operators will have a retrospective GST
liability, often exceeding the total cash price paid for some
Retirement village operators that use the lease/licence model
should seek GST advice as to the appropriate strategic approach
they should adopt.
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This publication is intended as a first point of reference
and should not be relied on as a substitute for professional
advice. Specialist legal advice should always be sought in relation
to any particular circumstances and no liability will be accepted
for any losses incurred by those relying solely on this
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Exemptions or concessions on stamp duty could apply when contemplating the purchase or transfer of NSW real estate.
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