Issue
Does a monthly maintenance fee consisting of components that can be reasonably characterised as part of the rental charge, form part of the consideration for an input taxed supply under paragraph 40-35(1)(a) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when the entity, an owner-operator of a retirement village, leases an independent living unit to a resident?
Decision
Yes, the monthly maintenance fee consisting of components that can be reasonably characterised as part of the rental charge, does form part of the consideration for an input taxed supply under paragraph 40-35(1)(a) of the GST Act, when the entity leases an independent living unit to a resident.
Facts
The entity is an owner-operator of a non-freehold and non-strata titled retirement village. The entity is not an endorsed charitable institution or an endorsed trustee of a charitable fund. The entity leases an independent living unit to a resident of the retirement village. The resident is not receiving services referred to in paragraph 38-25(3)(c) of the GST Act being daily living activities assistance or nursing services as prescribed by that paragraph.
The lease of the independent living unit to the resident is an input taxed supply of residential premises under paragraph 40-35(1)(a) of the GST Act.
As part of the lease agreement between the entity and the resident, the resident pays a monthly maintenance fee to the entity.
The monthly maintenance fee covers the entity's costs in relation to the upkeep of the communal paths, driveways, parks, swimming pools and gardens within the retirement village complex.
The entity is registered for goods and services tax (GST).
Reasons for Decision
Under paragraph 9-15(1)(a) of the GST Act, any payment in connection with the supply of anything is consideration.
Under the lease the entity is responsible for the upkeep of the communal paths, driveways, parks, swimming pools and gardens of the retirement village. In return for this, it receives a monthly payment from the resident. Therefore, the entity is receiving consideration for a supply.
As stated in the facts, the supply of the independent living unit by way of lease is an input taxed supply of residential premises. Accordingly, the issue is whether the payment of the monthly maintenance fee forms part of the consideration for the supply of residential premises.
The extent to which resident's monthly maintenance fees are input taxed depends on whether the components of these fees can be reasonably characterised as part of a rental charge.
Under section 195-1 of the GST Act, residential premises is defined to mean land or a building that: • is occupied as a residence or for residential accomodation; or • is intended to be occupied and is capable of being occupied as a residence, or for residential accommodation;
(regardless of the term of the occupation or intended occupation) and includes a floating home.
The term 'residence' is central to the above definition. It is considered that the term 'residence' includes the building in which one resides and extends to include: • that part of any common area and other appurtenances to the building; • the land immediately contiguous to the building; and • that which is predominantly necessary for the use and enjoyment of the building as a place of residence for individuals.
Therefore, for retirement villages, residential premises include common areas such as paths, driveways, parks, swimming pools and gardens.
Areas not included in residential premises within a complex include restaurants and associated dining areas where prepared meals are provided, hairdressing/beauty salon, pharmacy, medical room, nursing station, convenience stores and areas geographically situated away from the residence.
Therefore, the monthly maintenance fee, which covers the entity's costs in relation to the upkeep of the communal paths, driveways, parks, swimming pools and gardens within the retirement village complex can be reasonably characterised as part of the rental charge. These services are incidental to the supply of the residential premises in the retirement village by way of lease to the resident. Accordingly, the monthly maintenance fee is consideration for an input taxed supply of residential premises under paragraph 40-35(1)(a) of the GST Act. Note 1: Where part of the monthly maintenance fee relates to the supply of other services such as a resident's personal laundry, cleaning, meals, bus services etc, that part of the maintenance fee is not consideration for an input taxed supply. However, where the retirement village operator is a charitable institution or a trustee of a charitable fund, the supply of these services, whether part of the monthly maintenance fee or not, may be GST-free under sections 38-250 or 38-260 of the GST Act Note 2: Where the retirement village operator is an endorsed charitable institution or an endorsed trustee of a charitable fund, a supply of building and garden maintenance services (which are considered to be related to the supply of accommodation in a retirement village) may be GST-free under section 38-260 of the GST Act. See ATO ID 2009/103. However, a supply of laundry, personal care, hairdressing and bus services (which are not considered to be related to the supply of accommodation in a retirement village) is not GST-free under section 38-260 of the GST Act. See ATO ID 2009/104. Note 3: Where the retirement village operator is an endorsed charitable institution or an endorsed trustee of a charitable fund, the supply of these services such as a resident's personal laundry, cleaning, meals, bus services etc, whether part of the monthly maintenance fee or not, may be GST-free under sections 38-250 or 38-260 of the GST Act