If you purchase an operating retirement village as a GST-free supply going concern, you will have an increasing adjustment for GST if you plan to make input taxed supplies through the village. An example is if you lease accommodation to residents of the retirement village.The increasing adjustment is worked out as:10% of the sale price × proportion of non-creditable use.The input taxed supplies you make are a non-creditable use. The sale price will include the value of any resident loans (also known as in-going contributions) if you take on the repayment obligation to the residents. If the proportion of non-creditable use changes over time, you may need to make additional increasing or decreasing adjustments on your BAS.Example: operating retirement village as a GST-free going concernWren Pty Ltd (Wren) acquires an established operating retirement village, that makes input taxed supplies of accommodation, as a supply of a going concern.The village also leases out small retail spaces to a café, hairdresser and doctor which make up 1% of the taxable supplies made by the village. The acquisition price was $1.2 million, with the acquisition also including Wren taking on the repayment obligation for in-going resident contributions with a value of $10.5 million.As Wren will continue to supply input taxed accommodation in the independent living units, Wren uses the village for a non-creditable use and will have an increasing adjustment.The sale price will be $1.2 million plus the value of the residents’ in-going contributions of $10.5 million. The non-creditable use will be 99% (as 1% will be taxable leases). The additional GST payable by the purchaser will be:10% × 11.7m (1.2m+10.5m) sale price × 99% (non-creditable use) = $1.158m.End of exampleFor more information, see:Retirement villages and taxSale of a business as a going concernSelling a going concernGoods and Services Tax Ruling GSTR 2002/5 when is a 'supply of a going concern' GST-free?Keep up to dateWe have tailored communication channels for medium, large and multinational businesses, to keep you up to date with updates and changes you need to know.Read more articles in our online Business bulletins newsroom.Subscribe to our free:fortnightly Business bulletins email newsletterExternal Linkemail notifications about new and updated information on our website – you can choose to receive updates relevant to your situation. Choose the 'Business and organisations' category to ensure your subscription includes notifications for more Business bulletins newsroom articles like this one.
Brief
On December 2023, the Australian Taxation Office (ATO) issued an update regarding Purchasing a retirement village as a GST-free going concern. The ATO stated that if a business acquires an operating retirement village as a supply of a going concern, it will have an increasing adjustment for GST if input taxed supplies are made through the village.
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Purpose
The Australian Taxation Office (ATO) has provided guidance on the tax implications of purchasing an operating retirement village as a GST-free supply going concern. This update aims to inform businesses and individuals about the increasing adjustment for GST that may be required when making input taxed supplies through the village.
Effects on Industry
The acquisition of an operating retirement village as a GST-free supply going concern can have significant tax implications for businesses, particularly those that make input taxed supplies through the village. The increasing adjustment for GST can result in additional tax liabilities, which must be accounted for on the Business Activity Statement (BAS). This update affects industries related to aged care and retirement living, as well as businesses that provide services such as leasing accommodation or retail spaces within the village.
Relevant Stakeholders
This update is relevant to businesses and individuals who purchase an operating retirement village as a GST-free supply going concern. It also affects those who make input taxed supplies through the village, including providers of accommodation, retail spaces, and other services. Businesses that lease out small retail spaces or provide services within the village must take note of this update.
Next Steps
Businesses that have acquired an operating retirement village as a GST-free supply going concern must calculate the increasing adjustment for GST on their BAS. This calculation takes into account the sale price of the village, including any in-going resident contributions, and the proportion of non-creditable use. Businesses may need to make additional adjustments over time if the proportion of non-creditable use changes.
Any Other Relevant Information
The ATO provides guidance on related topics, such as the tax implications of selling a business as a going concern and the rules surrounding GST-free supplies. Businesses can also find information on retirement villages and tax, as well as Goods and Services Tax Ruling GSTR 2002/5, which outlines when a ‘supply of a going concern’ is GST-free. The ATO offers communication channels for businesses to stay up-to-date with updates and changes relevant to their situation.
