What is a retirement village
A retirement village is accommodation:
- intended for people aged 55 years or older
- that may be independent living units, serviced apartments, care facilities or a combination of these
- providing services and communal facilities to residents
- operated by government, commercial businesses or as a charitable retirement village by a charitable body.
Retirement villages don't include residential care as defined in aged care legislation or commercial residential property.
Types of occupancy arrangements
Retirement village contracts aren't the same as ordinary residential property contracts. A retirement village contract is normally terminated on the death of a resident or when the resident leaves the village, for example, to go to an aged care facility.
Retirement villages offer several different contractual arrangements to residents. The most common types of contracts are:
- long-term leases or licences
- periodic leases
- long-term loan leases or licences
- special share or unit classes
- strata title schemes
- purple titles (tenancy in common).
Long-term leases or licences
A long-term lease in a retirement village will typically be a lease or licence to live in a retirement village for a period of more than 49 years.
The lease doesn't amount to ownership of the unit or part of the property but is registered on the title deeds of the retirement village.
The contracts are commonly known as lease premium arrangements.
Entry
Commonly in a leasehold situation, an incoming resident pays an entry contribution close to the market value of the dwelling. In return they're given:
- a long-term lease on that unit
- the right to use the communal facilities in the retirement village.
Upkeep
The residents pay for the upkeep of the communal facilities. This may occur on a continuing basis through a regular fee or levy. The communal facilities remain your property as the operator of the retirement village.
Termination
Depending on the contractual agreements, on termination of the lease the outgoing resident or beneficiaries may be entitled to a lease termination payment. This might be higher than the entry contribution due to capital growth (if there is any entitlement to capital growth or appreciation). Deferred management, refurbishment and other fees (commonly referred to as exit fees) are charged either on the incoming or outgoing price of the dwelling.
Periodic leases
Another form of lease is the prepaid or periodic rental lease, where a resident pays a period of rent in advance.
Entry
Residents with this kind of lease pay a fortnightly or monthly instalment that includes rent and a service fee. The rent is usually calculated in line with government pensions and rent assistance payments. Entry may be subject to a means test for the incoming resident.
Termination
If the lease is terminated before the stipulated years are up, the resident may get a refund for the time remaining.
Long-term loan leases or licences
Entry
As the operator, you offer the resident the right to live in a village, subject to the resident making an interest-free loan approximately equal to the market value of the independent living unit. In return, the resident is given:
- a licence to occupy a unit within the village and
- the right to share in the use of the communal facilities in the village.
Upkeep
The residents pay for the upkeep of the communal facilities, on a continuing basis, through a regular fee or levy.
Termination
On termination of the licence, you refund the loan to the resident or nominated beneficiary. The amount repayable may be reduced by the retention of part of the loan amount as an exit fee.
Special share or unit classes
Entry
As the village operator, you issue the incoming resident with a special class of share in a company or unit in a trust. They have rights attached to it to occupy a unit, often for 99 years. The resident pays an amount approximately equal to the market value of the unit to acquire the share.
Upkeep
The residents may pay for the upkeep of the communal facilities, on a continuing basis, through a regular fee or levy.
Termination
When the resident leaves the retirement village, the share or unit is redeemed or bought back by the operator.
Strata title schemes
Entry
Residents with strata title to their units are owners and have a separate certificate of title. They may either:
- share as tenants-in-common in the ownership of the communal facilities or
- be granted rights to the use of communal facilities.
Upkeep
The residents may pay for the upkeep of the communal facilities, on a continuing basis, through a regular fee or levy.
Termination
When the resident leaves the retirement village, the tax consequences depend on the resident's personal circumstances.
Purple titles (tenancy in common)
Entry
Each resident purchases an equal undivided share or 'purple title' in the retirement village. This means every co-owner would have an equal interest in every unit in the village. A resident would then be granted an exclusive use of one of the units in the village. In this way, each resident can occupy a residence to the exclusion of the other co-owners of the village. They don't own the unit, but they do own a share in the whole property.
Upkeep
The residents may pay for the upkeep of the communal facilities, on a continuing basis through a regular fee or levy.
Termination
When the resident leaves the retirement village, the tax consequences depend on the residents personal circumstances.
Tax obligations for your retirement village
Learn about how GST and income tax apply when:
- acquiring or constructing a retirement village
- operating a retirement village, including selling individual units or apartments
- selling a retirement village.