GST issues registers
Retirement villages industry partnership
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Retirement Villages Industry Partnership - Green Acres - example A
The application of GST to the operations of a retirement village - input taxed and taxable supplies
This is an example of a method that may help you to determine the extent of creditable purpose of your acquisitions for the purpose of claiming input tax credits.
You will have to review your methodology if the application of creditable purpose differs from the extent of your intended or planned use.
For source of ATO view, refer to paragraphs 142 to 153 of GSTR 2006/4 - Goods and services tax: determining the extent of creditable purpose for claiming input tax credits and for making adjustments for changes in extent of creditable purpose.
Example - Green Acres
| Step 1 | Work out the budget for the year. |
| Step 2 | Allocation of direct expenses. |
| Step 3 | Determine which direct expenses are input taxed. |
| Step 4 | Determine which direct expenses are taxable supplies. Calculate the input tax credit available to you. |
| Step 5 | The indirect expenses now have to be apportioned between the input taxed and the taxable supplies in order to determine the input tax credit that can be claimed. |
| Step 6 | Calculate the GST paid on apportionable expenses and determine the input tax credit available. Determine the part of the apportionable expenses attributable to residential premises (input taxed) supplies and the part attributable to taxable supplies. |
| Step 7 | Work out the overall charges including GST. The direct expenses and apportionable expenses attributable to the supply of residential premises are input taxed which means that no GST is charged but any GST paid by the operator is passed on. Taxable supplies will have GST charged on them. |
| Step 8 | GST input tax credits to be claimed. |
Green Acres is a privately funded residential retirement village offering some 200 villa or town house style accommodation. Each home is fully self-contained and has either two or three bedrooms and garages. The village is set in extensive landscaped gardens with a swimming pool and a bowls green. Other facilities include an on-site restaurant, communal lounges and libraries and a bus which is used both for trips to the local city centre and for excursions. The village employs people to organise on-site activities and day trips, drive the bus, maintain the grounds, run the kitchen and for administration.
Green Acres provides both input taxed supplies (residential premises) and taxable supplies (the restaurant, village bus and activities).
Since Green Acres makes both input taxed supplies and taxable supplies it will need to adopt an appropriate basis for determining the extent of creditable purpose for its acquisitions. Where the extent of creditable purpose is less than 100%, Green Acres needs to apportion the total purpose between that which is creditable (taxable supplies) and that which is not (input taxed supplies).
The apportionment methodology used in this example is consistent with GSTR 2006/4 and, in particular paragraphs 101-103, 116-119, and 148-150 which discuss input based methods of apportionment. This example uses an input based method of apportionment. However, the most appropriate method of apportioning input tax credits depends upon the particular circumstances of each case.
In Green Acres, the expenses of the bus, the activities and the expenses of the restaurant are included in the maintenance fees charged to the residents. This is not necessarily the case with other retirement villages. Expenses have been allocated to those services directly attributable to input taxed supplies (in this case, residential premises) and those directly attributable to taxable supplies. In the example below, the direct expenses attributable to residential premises are 70% of the total. The indirect expenses have therefore been apportioned 70:30.
Accordingly, 30% of the GST paid on the apportionable expenses (indirect expenses) is available as an input tax credit whilst 100% of the GST paid on the direct expenses of providing taxable supplies is also available. However, acquisitions (both direct and indirect) in connection with the supply of residential premises do not give rise to input tax credits since the supply of residential premises is input taxed and is not, therefore, for a creditable purpose.
Budget for Green Acres
Work out the budget for the year.
| Budget | GST-inclusive expense |
| General upkeep and maintenance | 176,000 |
| Activity expenses | 26,400 |
| Kitchen expenses | 20,900 |
| Village bus expenses | 17,600 |
| Insurance | 67,100 |
| Electricity and gas | 61,600 |
| Rates and taxes | 93,500 |
| Office and Administration expenses | 113,300 |
| Wages | 473,000 |
| Sinking fund | 50,000 |
| Total | 1,099,400 |
Green Acres is an example for illustrative purposes only. It is intended to give general guidance and outline broad principles but it is not intended to be a prescriptive document. It does not represent the Commissioner's view as to how GST will apply in all cases. Each case should be treated on its own merits and according to the circumstances surrounding its operations.
Allocation of direct expenses.
Analysis of expenses.
In Green Acres there are two categories of direct expenses. First are those direct expenses attributable to the supply of residential premises (input taxed supplies). Second are those for on-site and off-site activities, a restaurant and a village bus (taxable supplies). Expenses that are obviously related and conveniently traceable are allocated to these supplies.
Indirect expenses are those expenses that cannot be allocated. Where such supplies and services are used for both input taxed purposes and taxable purposes, these expenses are apportionable expenses for the purposes of determining the input tax credits to be claimed.
Examples of direct expenses attributable to input taxed supplies:
| Swimming pool chemicals | maintenance of communal areas that are part of the supply of residential premises. |
| Building materials and hardware | purchases, recorded as, for use solely in the maintenance of villas. |
Examples of direct expenses attributable to taxable supplies:
| Fruit, meat and vegetables | used for provision of meals in the restaurant. |
| Tyres and oil for village bus | expenses incurred directly in the course of providing a bus service. |
Examples of indirect expenses:
| Risk insurance | covers the operator's exposure to risk whilst people are using the grounds, the restaurant or the bus. |
| Electricity | the operators receive a single bill for electricity supply for the gardens, the kitchens and the offices. |
| Telephone and fax expenses | expenses incurred by the village administration for a range of purposes in connection with the upkeep of the grounds, the ordering of supplies for the kitchens, the organisation of activities and so forth. |
Some expenses, for instance, wages may be easily allocated to the various services provided. Green Acres is able to allocate its wages bill to both direct expenses and indirect expenses on the following basis:
| Gardeners and maintenance men | Direct expense in the course of supply of residential premises. |
| Cooks | Direct expense in connection with the kitchen and restaurant. |
| Activities officer | Direct expense in connection with the activities programme provided the village. |
| Bus driver | Direct expense in connection with the bus service offered by the village. |
| Office Manager and assistant | Indirect expenses which relate to the administration of the residence, the activities, the bus and the kitchen and restaurant. These will have to be apportioned across the taxable supplies and the input taxed supplies. |
Budgeted amounts assigned to pools of expenses
Direct expenses
| Residential - input taxed | GST-inclusive expense |
| Upkeep of communal grounds | 59,400 |
| Maintenance of the units and villas | 75,900 |
| Bowls green contractor | 13,200 |
| Swimming pool contractor | 27,500 |
| Wages - upkeep | 252,000 |
| Total | 428,000 |
| Non- residential - taxable | GST-inclusive expense |
| Activity expenses | 26,400 |
| Kitchen expenses | 20,900 |
| Village bus expenses | 17,600 |
| Wages - activities, kitchen, bus | 119,200 |
| Total | 184,100 |
Indirect expenses to be apportioned
| Accountancy | 11,000 |
| Administration | 37,400 |
| Insurance | 67,100 |
| Electricity and gas | 61,600 |
| Rates and taxes | 93,500 |
| Printing, and stationery | 7,700 |
| Telephone and postage | 5,500 |
| Motor car expenses | 51,700 |
| Wages - administration | 101,800 |
| Sinking fund | 50,000 |
| Total | 487,300 |
| Grand total | 1,099,400 |
Determine which direct expenses are input taxed.
Direct expenses - residential (input taxed)
| Service or supply | Actual GST-inclusive expense | GST-exclusive expense | GST paid input taxed | Input credit available |
| Upkeep of the communal grounds | 59,400 | 54,000 | 5,400 | 0 |
| Maintenance of the units and villas | 75,900 | 69,000 | 6,900 | 0 |
| Bowls green contractor | 13,200 | 12,000 | 1,200 | 0 |
| Swimming pool contractor | 27,500 | 25,000 | 2,500 | 0 |
| Wages - upkeep | 252,000 | 252,000 | 0 | 0 |
| Total | 428,000* | 412,999† | 16,000‡ | 0 |
* The residents will be charged this amount. See step 7(i).
† The total GST- exclusive price paid for direct residential inputs. In this example, this expense has been used to determine the portion the GST credits available on the indirect expenses. See step 5.
‡ GST is payable on the purchase of goods and services but is not available as an input tax credit as the purchases are in respect of the supply of residential premises which is input taxed.
Determine which direct expenses are taxable supplies. Calculate the input tax credit available to you.
Direct expenses - non-residential (taxable supply)
| Service or supply | Actual GST-inclusive expense | GST-exclusive expense | GST paid input taxed | Input credit available |
| Activity expenses | 26,400 | 24,000 | 0 | 2,400 |
| Kitchen expenses | 20,900 | 19,000 | 0 | 1,900 |
| Village bus expenses | 17,600 | 16,000 | 0 | 1,600 |
| Wages - activities, kitchen, bus | 119,200 | 119,200 | 0 | 0 |
| Total | 184,100 | 178,200* | 0 | 5,900† |
* The total GST-exclusive price paid for direct non-residential inputs. See step 7 (iii). In this example, this expense has been used to determine the portion the GST credits available on the indirect expenses. See step 5.
† This amount is available as an input tax credit. See step 8.
The indirect expenses now have to be apportioned between the input taxed and the taxable supplies in order to determine the input tax credit that can be claimed.
Proportion of expenses used for taxable purposes
| Direct residential expenses | $412,000 | 70%* |
| Direct non-residential expenses | $178,200 | 30%* |
| Total | $590,200 | 100% |
* Example only - this figure will vary according to individual facts of each case.
The 70% is used in making a residential premises supply. As this is input taxed, input tax credits cannot be claimed
The 30% is now used to calculate the input tax credits allowable on the apportionable expenses.
Apportioning input tax credits and creditable purpose
Division 11 of the Act allows a taxpayer to claim his input tax credits in the proportion that the supply of a thing was for a creditable purpose. Creditable purpose means simply the extent to which the thing was actually used in carrying on an enterprise. However, things acquired for making supplies that are input taxed, such as residential accommodation, are not acquired for creditable purposes.
Some expenses are acquired for both creditable purposes and input taxed purposes. The input tax credits attaching to these expenses must, therefore, be apportioned according to the extent that the goods and services purchased are used for a creditable purpose in order to claim the correct input tax credit.
The preferred manner of apportionment is to assess the actual or direct use of the acquisition for a creditable purpose - for example, by time spent, distance travelled, area used. However, this may not be possible for many overhead expenses. Ruling GSTR 2000/15 discusses a number of different methods for apportioning. There is no one single correct method. This example uses an input based method whereby it is assumed that the overheads can be allocated in the same proportion as the direct expenses were incurred, see also para 94(i) of the ruling. The basis adopted will depend upon the individual circumstances but should be 'fair and reasonable'.
Calculation of input tax credit:
GST-inclusive expense × one-eleventh × 30% = input tax credit
Calculate the GST paid on apportionable expenses and determine the input tax credit available. Determine the part of the apportionable expenses attributable to residential premises (input taxed) supplies and the part attributable to taxable supplies.
Apportionable expenses
| Service or supply | Actual GST-inclusive expense | GST-exclusive expenses | GST input taxed (70%) | Input credit available (30%) |
| Accountancy | 11,000 | 10,000 | 700 | 300 |
| Administration | 37,400 | 34,000 | 2,380 | 1,020 |
| Insurance | 67,100 | 61,000 | 4,270 | 1,830 |
| Electricity and gas | 61,600 | 56,000 | 3,920 | 1,680 |
| Rates and taxes | 93,500 | 93,500 | 0 | 0 |
| Printing and stationery | 7,700 | 7,000 | 490 | 210 |
| Telephone and postage | 5,500 | 5,000 | 350 | 150 |
| Motor car expenses | 51,700 | 47,000 | 3,290 | 1,410 |
| Wages - administration | 101,800 | 101,800 | 0 | 0 |
| Sinking fund | 50,000 | 50,000 | 0 | 0 |
| Total | 487,300 | 465,300* | 15,400† | 6,600‡ |
* The apportionable expenses are now allocated thus:
A.
$465,300 × 70% = $325,710 allocated to residential accommodation (input taxed).
The
input taxed supply
actually cost $325,710 + $15,400† = $341,110 so this is the expense to be charged to the residents. See step 7 (ii).
B.
$465,300 × 30% = $139,590 allocated to non-residential taxable supplies.
This portion of the expenses represents a
taxable supply.
GST will apply when this amount is charged to the residents. See step 7.
† This amount is the input taxed amount of GST paid on the indirect expenses. It cannot be claimed as an input tax credit but can be passed on.
‡ This amount is available as an input tax credit. See step 8.
Work out the overall charges including GST. The direct expenses and apportionable expenses attributable to the supply of residential premises are input taxed which means that no GST is charged but any GST paid by the operator is passed on. Taxable supplies will have GST charged on them.
| Expenses brought forward | |
| (i) Direct expenses - residential (step 3) | 428,000 |
| (ii) Apportionable expenses - residential (step 6) | 341,110 |
| Total of (i) and (ii) | 769,110 |
| (iii) Direct expenses - taxable (step 4) | 178,200 |
| (iv) Apportionable expenses - taxable (step 6) | 139,590 |
| Total of (iii) and (iv) | 317,790 |
| GST on taxable supplies* | 31,779 |
| Total charge | 1,118,679 |
* Total taxable supplies are $178,200 + $139,590 = $317,790
GST payable = $317,790 × 10% = $31,779.
Charges to residents
| Annual levy per resident unit | *$5,593 |
| Weekly levy | 108 |
* $1,118,679 200 units
GST input tax credits to be claimed.
Direct taxable supplies - from step 4 - $5,900
Indirect expenses - from step 6 - $6,600
Total input tax credit available -$12,500
Reconciliation of expenses
| Expenses incurred including GST | $1,099,400 |
| less Input tax credits claimed | $12,500 |
| Equals | $1,086,900 |
| plus GST charged to residents | $31,779 |
| Total amount to be collected | $1,118,679 |
© AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA
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