Ruling Compendium

Subsection 6(4) of the Minister's Determination, referred to by the ATO, states (emphasis added):

Circumstances

(4) For subsections (1) to (3), the circumstances are that:

(a) the resident has a continuing need for the services mentioned in item 2.1 or 3.8 of Schedule 1 to the Quality of Care Principles; and

(b) the services are supplied, under a written agreement with the supplier, as a package made up of:

(i) the services mentioned in item 2.1 or 3.8 of Schedule 1 to the Quality of Care Principles; and

(ii) other services mentioned in Schedule 1 to the Quality of Care Principles that are needed by the resident; and

(iii) accommodation; and

(c) the charges for services and for accommodation are payable to the same entity.

The Minister's Determination does not impose any additional requirements for residents to have a continuing need for meals but only restates the need for items 2.1 and 3.8 of Schedule 1 to the Quality of Care Principles (Quality of Care Principles), consistent with paragraph 38-25(3)(c).

The continuing need is set out in subparagraph 6(4)(b)(ii) of the Minister's Determination because all services other than items 2.1 or 3.8 of the Quality of Care Principles (that are already specifically mentioned in paragraph 6(4)(a) of the Minister's Determination) must be 'needed' by the resident.

The context sets the interpretation of this 'needed' to take the same meaning as 'continuing need' specifically stated in paragraph 6(4)(a) of the Minister's Determination.

The 'daily meals' requirement in paragraph 38-25(3A)(b) is a service that is also set in this same context and includes the same requirements of 'continuing need'.

In Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41 at [47], the High Court has stated that:

... the task of statutory construction must begin with a consideration of the text itself. Historical considerations and extrinsic materials cannot be relied on to displace the clear meaning of the text. The language which has actually been employed in the text of legislation is the surest guide to legislative intention. The meaning of the text may require consideration of the context, which includes the general purpose and policy of a provision, in particular the mischief it is seeking to remedy.

... aged residents with a level of frailty, disability or medical condition which requires that they receive a range of services to enable them to continue to reside within the retirement village.

We make reference to paragraph 1.26 of the EM (at paragraph 54 in the Addendum) because, in our view, it describes the type of person to whom subsection 38-25(3) applies and supports how it is envisaged that concessional treatment is provided on the basis of need.

If the need for meals could be read into paragraph 38-25(3)(c) as the ATO argues, there are no exceptions allowed for on the words of that paragraph. The ATO seeks to allow for those exceptions on a reasoning that occasional refusal of meals for stated purposes does not alter that a resident has a continuing need for meals. But that reasoning is not to be found in the words of the paragraph.

The requirement for the need for daily meals arises from the kind of services specified under the Minister's Determination made for paragraph 38-25(3)(b), which requires that the services are needed by the recipient. We explain at Issue 1A of this Compendium that we consider, in the wider context of subsection 6(4) of the Minister's Determination, the word 'needed' in subparagraph 6(4)(b)(ii) has the same meaning as 'continuing need'. The requirement for need also arises under paragraph 38-25(3)(a), by way of the special provision for retirement villages in subsection 38-25(3A) to be treated as a 'residential setting' and eligible to receive care services GST-free.

Under the wording of section 38-25, it is a 'operator-driven' requirement. Where an operator provides the meals within the terms of subsection 38-25(3A), what the resident does in terms of refusing meals (and the resident's subjective reasons) is irrelevant.

Refer to the comments about the EM reference and the High Court's statements in Issue 1B of this Compendium.

Paragraph 38-25(3A)(b) imposes that '... there is in force a written agreement under which the operator of the retirement village provides daily meals and heavy laundry services ...'.

It would be more helpful if the proposed changes to the Ruling instead addressed the issues around the meaning of the written agreement in subsection 38-25(3A), including:

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If 'provides' can include 'making available', which the ATO seems to accept in principle (for example, paragraphs 62 and 62A of the draft update) but then limits that meaning by the incorrect reasoning based on a 'resident-needs driven' requirement for meals.

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The effect of a resident declining a meal (regardless of reason). Query why a resident refusing meals should have any different effect in terms of the operator's satisfaction of subsection 38-25(3A) to a resident accepting a meal and (quietly) throwing it out, or why a resident's reasons for refusal of a meal should make any difference to the operator's GST position under subsection 38-25(3A).

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The practicalities of how far an agreement to 'make available' meals (if it can be an accepted meaning of 'provides') may be applied. Whether the permanent availability of an option to take meals is enough, and why/why not. Plus, if and why payment arrangements under such option arrangements (that is, no payment for meals not taken) should make any difference to the operator satisfying subsection 38-25(3A).

Such an approach will require revision of the examples in the draft update currently based on a 'resident-needs driven' meals requirement, largely as outlined in our prior comments.

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the operator must be under a legal obligation

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the operator's obligation arises on election

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there can be a separate written agreement to the resident's contract, and

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the operator's obligation can be satisfied by an external operator as agent for the operator.

The operator's requirements under subsection 38-25(3), including subsection 38-25(3A), are explained in the 3 principles and in our view further explanation is duplication and unnecessary. The circumstances and examples provided in the Addendum of where a resident does not take a meal illustrate our view of whether the resident has a continuing need for daily meals under the provision and what 'generally' means in the context of an operator serving daily meals as explained in paragraph 54A in the Addendum.

More broadly, we would like to seek clarification to whether the supply of accommodation, daily meals and laundry to all of the residents of the apartment would continue to qualify for GST-free treatment if only one of the residents has a continuing need for daily living assistance or nursing services.

If Elizabeth signs up for the provision of daily meals, this does not mean in the circumstances outlined that Elizabeth has a continuing need for those daily meals. If Elizabeth has no continuing need for daily meals and does not receive daily meals, then paragraph 38-25(3)(b) and subsection 38-25(3A) will not be met to enable Elizabeth to receive GST-free care services.

More generally, in circumstances where services are provided to all residents of an apartment but only some of the residents need those services, then the services would not be GST-free.

Even if the definition was to extend to ensuring the resident takes and eats the meals with regularity, we note that to comply within the scenarios provided requires active monitoring and documentation of each resident's meal consumption for record-keeping purposes. This will not be practical and extremely onerous on the operations to manage.

In addition, there will be complexity and uncertainty for both the operator and the resident in the event it is noted that our resident has not taken meals regularly. Under such a circumstance, we would presume that the supply of the daily meals and heavy laundry (previously provided) would not qualify for GST-free treatment and be subject to GST. There will be additional analysis required to determine how far back we would be required to go in adjusting the GST treatment of the daily meals and laundry.

The same issue would arise if the resident then subsequently changes their meal pattern and complies within the scenarios provided. Similarly, the resident would expect that we treat the supply of daily meals and heavy laundry as GST-free supplies and refund the GST back.

It is our understanding that the market segment for serviced apartments is currently considering offering residents the issuance of a meal credit or meal voucher for any missed meals. We submit that it should equally be acceptable that operators can issue a meal credit or a meal voucher for those meals that an absent resident were unable to take, and that it will not prevent subsection 38-25(3A) from being met.

In addition, we request the Commissioner's feedback on whether those meal credits could be taken and used by an absent resident or another person whom they may wish to share a meal with. We submit that the use of meal credits in this way will also not prevent the operator from meeting subsection 38-25(3A).

In order for the supply of accommodation, daily meals and laundry and the daily living assistance or nursing services to qualify for GST-free treatment under subsections 38-25(3) and (4A), we understand that evidence is required that the residents have a need for care services (that is, daily living assistance activities or nursing services) and that there needs to be a supply of such services.

In the scenario that a resident has been assessed as having a continuing need for care services, we submit that a basic package of a minimum 3 hours per week can be offered to residents of a serviced apartment. In that scenario, providing that residents have a continuing need for care, the GST-free requirements will be met.