Tax and entry payments
The entry payments received by retirement village operators are commonly referred to as ingoing contributions, interest free loans or refundable deposits.
GST on entry payments
If you provide accommodation in a retirement village, entry payments received will normally not be subject to GST.
Income tax on entry payments
The income tax treatment of ingoing contributions depends on the legal substance of the agreement between you, as the operator, and the resident or village owner and the resident.
If the residency contract is a:
- long-term lease or licence or lease premium, the ingoing contribution is your ordinary income as income from carrying on a business
- loan or lease arrangement or special share or unit class arrangements, the ingoing contribution is treated as receipt of non-assessable capital for income tax purposes.
Take care when considering the income tax treatments of ingoing contribution amounts. The important part is not what you call the arrangement. Instead it is the legal substance of the arrangements; the rights and obligations of each party determines the treatment of the entry payments.
Our main ruling about income tax and retirement villages has more information about income tax and entry payments.
Tax and leased independent living units
This applies to leased independent living units excluding serviced apartments:
GST on leased independent living units
Accommodation
If you provide accommodation in an independent living unit to a resident of a retirement village, GST isn’t charged and you can’t claim GST credits.
Maintenance fees
If you charge residents ongoing maintenance fees for maintenance and services that are integral, ancillary or incidental to the lease, the maintenance fees are for the input taxed supply of the unit. GST isn’t charged and you can’t claim GST credits.
The maintenance fee can incorporate maintenance and upkeep of other taxable or GST-free services. Examples are commercial kitchens, hairdressing salons and on-site medical suites. In that case a portion of the fee may be treated as consideration for a taxable or GST-free supply.
We have helpful industry partnership notes on GST and maintenance fees and input taxed and taxable supplies.
Making both input taxed and other supplies
If you make a mixture of input taxed and other supplies, you will need to determine the extent to which acquisitions relate to the making of supplies that are input taxed. This is called apportionment. It may relate to the maintenance charge or general services charge.
You 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 an input tax credit, subject to all the other normal rules for claiming GST credits. For example, supplies of hairdressing services and upkeep of commercial kitchen are subject to the normal rules and these are considered taxable supplies.
We have helpful industry partnership notes on input taxed and taxable supplies.
Change in use
When 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.
Our rulings about GST adjustments for change in creditable purpose will help you do this.
Compliance issues
We have issued an alert about on-selling services and incorrectly claiming input tax credits.
Also, we recommend you add a review of your GST apportionment calculation as part of your year-end tax compliance check list.
Income tax on independent living units
The following amounts are considered ordinary income:
- amounts received as periodic rent for leasing independent living units
- periodic payments for the upkeep or maintenance of units or communal facilities.
Our main ruling about income tax and retirement villages can help you in calculating these amounts.
Tax on exit payments
GST on exit payments
When a resident leaves an independent living unit, payments received (including deferred management fees) are generally treated as related to the lease of the unit. GST isn’t charged and you can’t claim GST credits. This also applies where an exit payment consists of a capital appreciation or depreciation amount.
We have helpful guidance on GST and exit payments.
Income tax on exit payments
Similar to entry payments, the income tax treatment of exit payment amounts depends on the legal substance of the relationship between you, as the operator, and the resident.
Income tax issues you need to consider include:
- lease or licence or lease premium arrangements
- repayments of interest-free loan arrangements
- tax and deferred management fees
- capital appreciation payments.
Lease or licence or lease premium arrangements
Exit payments for lease or licence or lease premium arrangements are usually calculated by reference to the value of the independent living unit. You can deduct these exit payments under the general deduction provisions.
Repayments of interest-free loan arrangements
Exit payments that are repayments of interest-free loan arrangements are non-deductible payments of capital, similar to any commercial loan repayment.
Tax and deferred management fees
In many retirement village residency contracts there are provisions called deferred management fees. Deferred management fees:
- accrue during the resident’s tenancy
- are payable to you by the exiting resident or their estate at the end of the tenancy.
These amounts are often calculated by reference to the length of the tenancy and to one or both the entry and exit payment amounts.
These deferred management fees are not assessable income as they accrue. They are not derived as business income until there is a collectable debt, which arises at the end of the tenancy. The entire deferred management fee usually is your ordinary income at the end of the tenancy.
Deferred management fees are usually offset against any other payments or repayments. This doesn't change the tax treatment of each individual component. Our main ruling about income tax and retirement villages has more information.
Capital appreciation payments
Some retirement village residency contracts grant the exiting resident a payment that represents some or all of the increase in the market value of their independent living unit during their tenancy. This is commonly called a capital appreciation payment.
You may be able to deduct these capital appreciation payments under the general deduction provisions.
Similar to deferred management fees, capital appreciation payments are usually offset against other obligations of both parties. This also does not affect the tax treatment of each part of the overall payment.
Our main ruling about income tax and retirement villages discusses the tax treatment and our compliance approach on capital growth payments made to exiting residents. We also have additional guidance on making capital growth payments to exiting residents.
Tax and strata titled independent living units
Tax issues for strata titled independent living units include:
GST when selling a new property
You are selling a new residential property if both of the following apply:
- You sell the free-hold title of an independent living unit for the first time since it was constructed.
- It's not been used solely for leasing for at least 5 years.
If you're selling a new property, you're liable for GST and can claim GST credits on acquisitions you make relating to the sale.
GST for later sales
If it's a later sale of the unit (usually made by an existing resident to an incoming resident), GST isn't included in the price and you can't claim GST credits.
Ongoing maintenance fees relating to communal areas
If you charge residents fees that are not related to the strata titled unit and you're registered for GST, or required to be registered, then you:
- are liable for GST on the service you charge
- can claim GST credits on purchases made relating to those services.
We have guidance on GST and communal facilities.
Income tax on strata titled independent living units
The income tax treatments for the sale by the owner or developer of strata title independent living units are governed by the trading stock provisions. Our main ruling about income tax and retirement villages has more information.
Tax and serviced apartments
GST on serviced apartments
Meaning of a serviced apartment
For GST purposes, a serviced apartment in a retirement village is different to a serviced apartment providing short-term rental accommodation. The GST law states that a supply of services is GST-free if the services are provided to one or more aged or disabled people in a residential setting. Where the operator provides meals and heavy laundry, for these to be GST-free there must be 'in force' a written agreement with all residents of the serviced apartment.
Serviced apartments are also different to an independent living unit. For the purposes of the GST law, a detached house, row or terrace house, town house or villa unit are all excluded from being a serviced apartment in a retirement village.
Selling a serviced apartment
If you sell a serviced apartment in a retirement village, GST isn't included in the price and you can claim GST credits when all of the following apply:
- It's designed to be occupied by aged residents who need either assistance in daily living activities or nursing services.
- At least one responsible person in reasonable proximity and continuously on call to provide emergency assistance to the residents.
- It's part of a single complex of apartments and is accessible from a common corridor linking the apartment to the other apartments in the complex.
- There's a communal dining facility in the retirement village for the residents to use.
If you supply a serviced apartment in a retirement village by lease, hire, licence or freehold:
- GST isn't included in the price
- you can claim GST credits if you
- supply it to a resident who needs help with daily living activities or nursing services
- provide necessary care services and other services (such as meals, heavy laundry and cleaning) that meet the GST-free requirements set out below.
Necessary care services and other services
GST isn't charged and you can claim GST credits for necessary care services and other services if both of the following apply:
- The services are all of the following
- provided to an aged or disabled person in a residential setting (which, for these purposes, includes a resident of a service apartment in a retirement village)
- covered by Schedule 1 to the Quality of Care PrinciplesExternal Link (made under section 96-1 of the Aged Care Act 1997)
- daily living activities assistance or nursing services that you provide to the residents in the apartment that require them.
- There is a written agreement to provide all daily meals and heavy laundry services to the resident of the apartment.
See our ruling on GST treatment of care services and accommodation.
Tax and other contributions
In addition to the information on this page, our main ruling about income tax and retirement villages has extensive and detailed guidance on the income tax treatment of various types of contributions received from residents.
GST if you're a charitable retirement village
If you, as operator, are an endorsed charity, the supply is GST-free where you make a supply to a resident of the retirement village of:
- accommodation in the retirement village
- services related to the supply of accommodation
- meals to residents of the retirement village.
The endorsed charity is entitled to claim GST credits for any creditable purchases you make related to these supplies. We have helpful industry partnership notes on GST and maintenance fees and input taxed and taxable supplies, including Scenic retirement village example C.