Article by David Stavropoulos and Robyn
The ATO has tentatively accepted that GST is only payable on the
cash consideration paid for the purchase of a retirement village.
Previously the ATO viewed GST as payable on the cash consideration
and other consideration, such as the liabilities the purchaser
takes on as part of the purchase.
Residents of retirement villages are usually tenants and not
owners. Often retirement villages are set up as a lease and loan
arrangement. A tenant will loan an amount of money equal to the
value of the property to the owner and in return will have a lease
to live in the property and a right to a return of some or all of
the loan when they vacate.
A difficulty arises when the retirement village is sold for the
first time. The first sale is often a taxable supply of new
residential premises. Therefore, GST will be payable on the cash
and non-cash consideration given for the supply. The purchaser of a
retirement village generally assumes the liability to repay the
residents' loans when they vacate and this technically
constitutes non-cash consideration, increasing the GST liability on
Goods and Services Tax Ruling (GSTR 2004/9)
deals with situations where a purchaser takes over liabilities of a
vendor. The ruling excludes liabilities imposed by statute from the
purchase price for GST purposes. Fortunately for the purchasers of
retirement villages, the assumption of the liability to repay
residents is imposed by statute across most States and Territories
of Australia. In a recent letter sent to industry participants, the
ATO has acknowledged that the statute exception in GSTR 2004/9 may
be interpreted to mean that GST is not payable on the
purchaser's assumption of liability to repay the residents'
The ATO has given purchasers of retirement villages a further
assurance. Even if the ATO changes its position on this issue,
leaving some purchasers who relied on GSTR 2004/9 with a shortfall,
those purchasers will not be liable for the shortfall.
However, it is not all good news for purchasers of retirement
villages. The ATO has warned taxpayers to apply the treatment of
the non-cash consideration consistently. Where taxpayers have
ignored the relevant liabilities and taken advantage of reduced GST
payable on sale, they cannot also take account of the liabilities
for the purposes of determining input tax credit entitlements.
The ATO is still considering its position. A draft public ruling
is due out early next year.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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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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