Issue
Does a deferred management fee form part of the consideration under section 9-15 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act) for an input taxed supply of residential premises, when the entity, an owner-operator of a retirement village, receives a deferred management fee resulting from the supply of an outgoing resident's lease?
Decision
Yes, to the extent that it can reasonably be characterised as part of a rental charge, a deferred management fee does form part of the consideration under section 9-15 of the GST Act for an input taxed supply of residential premises when the entity receives a deferred management fee resulting from the supply of an outgoing resident's lease.
Facts
The entity is a retirement village owner-operator. It is not an endorsed charitable institution or an endorsed trustee of a charitable fund. The entity is registered for goods and services tax (GST).
The entity leases self-care apartments to residents of the retirement village.
Under the lease arrangement, the resident pays a lump sum on entry, which gives the resident the right to occupy the residential premises.
The lease of the apartment to the residents is an input taxed supply of residential premises under paragraph 40-35(1)(a) of the GST Act.
On termination or surrender of the lease, when the entity enters into a lease of the apartment with a new resident, the entity pays an amount to the outgoing resident (or their personal representative). This amount is equal to the lump sum paid by the incoming resident less a deferred management fee, which the entity retains. It is considered that the deferred management fee is a payment to the entity in connection with the lease of the residential premises to the outgoing resident. The lease of the residential premises is an input taxed supply under paragraph 40-35(1)(a) of the GST Act.
Reasons for Decision
The meaning of consideration is discussed in section 9-15 of the GST Act. Under paragraph 9-15(1)(a) of the GST Act, consideration includes any payment in connection with a supply of anything.
On termination or surrender of the lease, when the entity enters into a lease of the apartment with a new resident, the entity pays an amount to the outgoing resident (or personal representative). This amount is equal to the lump sum paid by the incoming resident less a deferred management fee, which the entity retains. It is considered that this fee is a payment to the entity in connection with the lease of the residential premises to the outgoing resident. The lease of the residential premises is an input taxed supply under section 40-35 of the GST Act.
Therefore, to the extent that it can reasonably be characterised as part of a rental charge, a deferred management fee does form part of the consideration under section 9-15 of the GST Act for an input taxed supply of residential premises when the entity receives a deferred management fee resulting from the supply of an outgoing resident's lease. Note - As the entity is not an endorsed charitable institution or an endorsed trustee of a charitable fund the supply of the self-care apartment to a resident in the retirement village is not GST-free under section 38-260 of the GST Act.