GST and the supply of a residential care facility by way of a lease

Is an entity, a property developer, making an input taxed supply of residential premises to be used predominantly for residential accommodation under section 40-35 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it leases premises to an entity that operates a residential care service (operator) where the premises have been designed and constructed or modified to meet the regulatory requirements of the Commonwealth under the Aged Care Act 1997 and associated Principles for suitability as a facility to provide residential care?

No. The entity is not making an input taxed supply under section 40-35 of the GST Act as the premises are not residential premises to be used predominantly for residential accommodation. The lease will be a taxable supply where the requirements of section 9-5 of the GST Act are satisfied.

The entity is a property developer that owns land and buildings that have been designed and constructed or modified for suitability as a facility for the provision of residential care (personal care or nursing care or both). The residential care service operated from the facility includes both what is commonly known as a low care hostel and a nursing home (high care).

The entity leases the land and buildings for consideration to the operator. The operator supplies high and low level residential care and accommodation from the premises. The premises have been fitted, furnished and equipped for the provision of that care. Meals, cleaning and other accommodation related services are also provided in addition to appropriate staffing to meet the personal and nursing care needs of the frail and / or disabled persons residing at the facility.

The operator is an Approved Provider of residential care in accordance with the requirements in Division 8 of the Aged Care Act 1997 . The premises have also received certification as a residential care service from the relevant Commonwealth agency.

The facility meets all of the regulatory requirements of the relevant building legislation in the State in which it operates, including the applicable provisions of the Building Code of Australia for facilities of this type.

The facility includes rooms, private living areas and separate meal, living and entertainment areas, administration areas, and service and support areas.

The facility has physical characteristics distinct from a retirement village which for GST purposes is residential premises.

The entity is registered for GST.

Subsection 40-35(1) of the GST Act states that a supply by way of lease, hire or licence of residential premises is input taxed. Paragraph 40-35(2)(a) of the GST Act further states that the supply is input taxed only to the extent that the premises are to be used predominantly for residential accommodation (regardless of the term of occupation).

The term 'residential premises' is defined in section 195-1 of the GST Act to mean land or a building that: (a) is occupied as a residence or for residential accommodation; or (b) 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.

Paragraph 25 of Goods and Services Tax Ruling GSTR 2000/20 states that this definition requires that land must have a building affixed to it and that the building must have the physical characteristics that enable it to be occupied or be capable of occupation as a residence or for residential accommodation.

Paragraphs 20 and 26 of GSTR 2000/20 indicate that the physical characteristics common to residential premises that provide accommodation are: • the premises provide sleeping accommodation and the basic facilities for daily living, even if for a short term • the premises may be in any form including detached or semidetached buildings, strata-title apartments, single rooms or suites of rooms within larger premises.

In part, the physical characteristics of the residential care facility are consistent with residential premises that provide accommodation. That is, the facility has single rooms within the premises which are suitable for accommodation and it has the basic facilities for daily living in the form of separate meal, living and entertainment areas.

However, it does not follow that all premises which exhibit such characteristics are necessarily residential premises to be used predominantly for residential accommodation. Paragraphs 20 and 26 of GSTR 2000/20 provide a general description of the physical characteristics necessary for premises to be considered residential premises to be used predominantly for residential accommodation.

Although the facility has, in part, physical characteristics common to premises that provide residential accommodation, it also has physical characteristics which reflect suitability for the purpose of providing care to persons with a condition of frailty and / or disability.

Overall, the physical characteristics that reflect suitability for the provision of care prevail over those which reflect suitability for the provision of residential accommodation. The physical characteristics are such that it is clear that any suitability for the provision of accommodation (which is a necessary component of residential care) as an end in itself is ancillary to the suitability for the provision of care.

Further, the nature of the regulatory regime of the Commonwealth is such that the premises would not be approved for use as a residential care facility, with its consequent requirement for significant care services, unless it had, overall, the design characteristics which make it suitable for that purpose. In the absence of any evidence to the contrary, the suitability of the premises under the regulatory regime of the Commonwealth for use as a residential care service can be accepted as evidence that the physical characteristics of the premises are such that they are not residential premises to be used predominantly for residential accommodation for the purposes of the GST Act.

In particular, the physical characteristics of such premises are driven by the significant care needs of the residents. Accordingly, the facilities are not designed for independent living due to the significant care needs of residents, many of whom have restrictions on personal mobility, including being bed ridden.

The residential care facility, therefore, is not residential premises to be used predominantly for residential accommodation. The supply of the premises by way of lease by the property developer is not an input taxed supply under section 40-35 of the GST Act.

The supply of the lease of the residential care facility will be a taxable supply where the requirements of section 9-5 of the GST Act are met.

Note (1) - the view in this ATO ID does not apply to retirement villages. A retirement village (regulated under State or Territory legislation) that caters for aged residents may be contrasted with a low care hostel or a high care nursing home which has a significantly greater care component for residents. Broadly, the concept of a retirement village involves accommodation for residents who have much less dependence on others for their daily living, nursing or medical needs, although many retirement villages do offer such services as an additional feature.

A residential care service may be part of a retirement village complex recognising the concept of 'ageing in place' so that elderly residents can move to a low care hostel and then a high care nursing home in the future as their care needs become more significant.

Note (2) - facilities that operate on the same basis as low care hostels and high care nursing homes may also be regulated, and in some cases funded, under State or Territory laws. These facilities may similarly have physical characteristics which reflect suitability for the purpose of providing care to persons with a condition of frailty and / or disability (such that they would not be regarded as residential premises to be used predominantly for residential accommodation).