Tax when acquiring a retirement village
How GST and income tax apply depends on whether you are:
- purchasing a new or established retirement village
- acquiring a retirement village through shares or units.
Purchasing a new or established retirement village
If you acquire a new or established retirement village, there may be taxable, GST-free and input tax supplies. As a purchaser, you will need to determine whether you are eligible to claim any GST credits on the acquisition.
You can't claim GST credits for some purchases, including those:
- with a private or domestic purpose
- for making an input-taxed supply (such as those associated with providing residential accommodation)
- for real property purchased under the margin scheme
- where the time limit for claiming a GST credit for the purchase has ended.
Purchasing a retirement village as a going concern
If you purchase a retirement village as a GST-free supply of a going concern, you will have an increasing adjustment for GST if you plan to make input taxed supplies through the village. An example is if you lease accommodation to residents of the retirement village.
If your purchase it as a GST-free supply of a going concern, you may later have to make increasing or decreasing adjustments if the proportion of input-taxed, GST-free and taxable supplies you make through the retirement village changes over time.
Our rulings about GST adjustments for change in creditable purpose will help you do this. We also have:
- guidance on GST-free supply of a going concern
- guidance on loan-lease arrangements
- guidance on GST and buying or selling.
Acquiring a retirement village through shares or units
You may acquire ownership of a retirement village through shares in a company or units in a trust that owns the retirement village (for example, a company or trust). If so:
- the supply to you of those shares or units will be an input taxed supply (meaning there is no GST included in the price you pay)
- you generally can't claim GST credits for the GST included in the price you paid for anything you purchased to make those supplies.
We have helpful rulings about GST on supplies and acquisitions.
Constructing a retirement village
As a retirement village operator, you may:
- construct a retirement village yourselves
- contract a builder to construct a retirement village on your behalf.
Your decisions during the acquisition and construction stage may affect your ongoing GST and income tax obligations as the retirement village operator.
GST included in price
When constructing a retirement village, you will make acquisitions that may include GST in the price, such as land, materials and services.
Claiming GST credits
The extent to which you can claim GST credits for these acquisitions will depend on the supplies you intend to make.
Generally, if you lease accommodation to residents, you're making input taxed supplies. Therefore, you can't claim GST credits on acquisitions made to construct a retirement village.
Some GST credits may be available if you:
- intend to make other GST-free or taxable supplies as part of a retirement village operation, such as providing
- residential care in a serviced apartment
- commercial operations such as restaurant or medical suites
- are an endorsed charity.
As the operator, you'll need to determine the extent to which acquisitions related to making those supplies require apportionment.
Methods to identify, capture and report GST
You'll need to apply an appropriate methodology to identify, capture and report GST on acquisitions that don't relate to input taxed supplies. This is because you can claim this GST on your BAS as a GST credit, subject to all the other normal rules for claiming GST credits.
If your retirement village is under a loan-lease arrangement, we detail the apportionment methodology you must use in our guidance on loan-lease arrangements.
GST and change in the use of the retirement village
If there’s been a change in the use of the retirement village from your original intention, it’s called a change in creditable purpose. You may need to make a GST adjustment on your BAS if your actual use of the retirement village is different to your intended use. We have useful rulings about GST adjustments for change in creditable purpose.
Income tax when constructing a retirement village
If you're an operator who develops and constructs a retirement village for the purpose of carrying on a business, you're acquiring profit-yielding assets. These costs are capital in nature.
Construction costs are likely to be capital works and you may be able to claim deductions for these costs, subject to capital works deductions provisions. We have guidance on income tax deductions for capital expenditure.