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Tax Laws Amendment (Retirement Villages) Bill 2004

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2004

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

tax laws amendment (retirement villages) bill 2004

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

(Circulated by authority of the

Treasurer, the Hon Peter Costello MP)

 



T able of contents

Glossary                                                                                                               1

General outline and financial impact............................................................ 3

Chapter 1            Goods and services tax treatment of

retirement villages................................................................ 5

Index                                                                                                                  19



The following abbreviations and acronyms are used throughout this explanatory memorandum.

Abbreviation

Definition

Commissioner

Commissioner of Taxation

GST

goods and services tax

GST Act

A New Tax System (Goods and Services Tax) Act 1999

TAA 1953

Taxation Administration Act 1953

 



Goods and services tax treatment of retirement villages

Residents of serviced apartments in retirement villages

Schedule 1 to this bill amends the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) to ensure that supplies of certain services and accommodation to residents of serviced apartments in retirement villages are GST-free where the resident requires ‘daily living activities assistance’ or ‘nursing services’.

Date of effect :  1 July 2000.

Proposal announced :  This measure was announced in the

Minister for Revenue and Assistant Treasurer’s Press Release No. 004 of 13 August 2004.

Financial impact :  The cost of this measure is estimated to be as follows:

2004-2005

2005-2006

2006-2007

2007-2008

$47 million

$11 million

$12 million

$13 million

Compliance cost impact :  It is not considered that there will be a significant compliance cost impact from this measure. These amendments to the law will allow some operators to claim refunds for overpaid goods and services tax (GST).

Residents of charitable retirement villages

Schedule 1 to this bill also amends the GST Act to ensure that supplies of accommodation, accommodation related services and meals by a charitable operator of a retirement village to a resident of that retirement village are GST-free.

Date of effect :  Royal Assent.

Proposal announced :  This measure was announced in the

Minister for Revenue and Assistant Treasurer’s Press Release No. 004 of 13 August 2004.

Financial impact :  There is no significant financial impact from these amendments.

Compliance cost impact :  There is not expected to be any significant compliance cost impact.

 



Outline of chapter

1.1         Schedule 1 to this bill amends the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) to:

·          ensure that supplies of care services and accommodation are GST-free when supplied to residents of serviced apartments of retirement villages that require and receive daily living activities assistance or nursing services; and

·          provide that supplies of accommodation, services related to accommodation, and meals are GST-free if provided by a charitable retirement village to a resident of such a retirement village.

Context of amendments

1.2         These amendments remove the existing uncertainty concerning the application of the GST Act to supplies of care services and accommodation to residents of serviced apartments in retirement villages.

1.3         These amendments also ensure that charitable retirement villages can provide GST-free accommodation, accommodation related services and meals in accordance with current practice.

1.4         The Minister for Revenue and Assistant Treasurer announced this measure in Press Release No. 004 on 13 August 2004.

Summary of new law

1.5         This bill will amend the GST Act to ensure that the following supplies are GST-free:

·          supplies of certain care related services to residents of serviced apartments in retirement villages; and

·          supplies of accommodation when supplied to residents of serviced apartments in retirement villages in the course of providing those care services.

1.6         This bill will also amend the GST Act so that the Aged Care Minister (defined in the Dictionary as the Minister administering the Aged Care Act 1997 ) may determine in writing:

·          the level of care services that residents of serviced apartments must require in order to qualify for GST-free treatment; and

·          the process by which the level of care services are to be assessed, and by whom.

1.7         This bill will also ensure that charitable retirement villages can provide GST-free accommodation, accommodation related services and meals to residents of such retirement villages.

Comparison of key features of new law and current law

New law

Current law

Serviced apartments

Supplies of certain care services (those listed in Schedule 1 of the Quality of Care Principles ) and accommodation to residents of serviced apartments in retirement villages are GST-free where the residents require daily living activities assistance or nursing services.

The supply of accommodation and certain services to one or more aged or disabled persons in a privately funded residential setting is GST-free. Only those services that are referred to in Schedule 1 of the Quality of Care Principles can qualify for GST-free treatment .

In addition the Aged Care Minister may determine in writing:

·           the level of care services that residents of serviced apartments must require in order to qualify; and

·          the process by which the level of care services are to be assessed, and by whom.

 

The GST-free treatment only extends to services supplied to people who require and receive:

·          daily living activities assistance specified in the Quality of Care Principles such as assistance with bathing, hygiene, walking, feeding or communication; or

·          nursing services specified in the Quality of Care Principles such as pain management, special feeding, tube management or oxygen therapy.

 

 

Charitable retirement villages

The current law will continue to apply. In addition, charitable retirement villages can provide GST-free accommodation, accommodation related services, and meals to residents of such retirement villages.

 

The following supplies made by a charitable institution, a trustee of a charitable fund, a gift-deductible entity or a government school are GST-free.

·          Supplies of accommodation if the consideration for the supply is less than 75% of:

-          the GST-inclusive market value of the supply; or

-          the cost to the supplier of providing the accommodation.

·          Supplies other than accommodation if the consideration for the supply is less than:

-          50% of the GST-inclusive market value of the supply; or

-          75% of the consideration provided for acquiring the thing supplied.

Detailed explanation of new law

Serviced apartments

1.8         Section 38-25 of the GST Act provides that supplies of certain services and accommodation are GST-free. Generally, these services consist of services covered by Schedule 1 of the Quality of Care Principles made under section 96-1 of the Aged Care Act 1997 .

1.9         Without these amendments it is unclear whether supplies of certain care services and accommodation to residents of serviced apartments in retirement villages fall within the existing subsection 38-25(3), and are thus GST-free, as originally intended. In particular, it is unclear whether serviced apartments in retirement villages are a ‘residential setting’.

1.10       This bill ensures that services provided to a resident of a retirement village are taken to be provided in a ‘residential setting’ if:

·          they are a resident of a ‘serviced apartment’ in a ‘retirement village’; and

·          there is a written agreement under which the operator of the retirement village provides daily meals and heavy laundry services to all the residents of the serviced apartment.

[Schedule 1, item 2, subsection 38-25(3A)]

1.11       The effect of this amendment will be to bring residents of serviced apartments in retirement villages within the operation of subsection 38-25(3) of the GST Act.

1.12       A serviced apartment resident might enter into arrangements for the retirement village operator to supply them with breakfast each day but the resident may cook their own lunch and dinner. This would not be considered the provision of daily meals. It would normally be expected that the retirement village operator would supply all of the daily meals for the resident. This test would also be met if, in addition to providing lunch and dinner, provisions for breakfast were also supplied by the operator.

1.13       In contrast, a resident of a serviced apartment might be absent from a retirement village on a particular day and rather than having meals provided by the retirement village operator, instead has a meal at a relative’s residence. It is not intended that this would result in GST-free treatment being denied under subsection 38-25(3).

1.14       This bill does not seek to reduce the existing scope of operation of the term ‘residential setting’ as it appears in existing paragraph 38-25(3)(a).

1.15       To provide greater clarity as to which services will qualify for GST-free treatment, and to ensure that they are provided to people who require those services, services provided to a resident of a serviced apartment in a retirement village will not be taken to be provided in a ‘residential setting’ if:

·          the Aged Care Minister has made a determination under new paragraph 38-25(3B)(a); and

·          the Aged Care Secretary has not made an assessment or has assessed the person as not meeting the requirements set out in that determination.

[Schedule 1, item 2, subsection 38-25(3B)]

1.16       The Aged Care Minister will have the power to determine, in writing, the level of care services that residents of serviced apartments in retirement villages must require in order to qualify to receive those care services and related care services GST-free [Schedule 1, item 2, subparagraph 38-25(3B)(a)(i)] . The Aged Care Minister will also have the power to determine, in writing, the way in which the level of care services required by residents of serviced apartments in retirement villages are to be assessed, including specifying who may carry out the assessment process [Schedule 1, item 2, subparagraph 38-25(3B)(a)(ii)] . Such a determination will be a disallowable instrument for the purposes of section 46A of the Acts Interpretation Act 1901 .

1.17       A determination made by the Aged Care Minister for the purposes of new paragraph 38-25(3B)(a) may be restricted to a specified class of residents of serviced apartments in retirement villages. This would allow the Aged Care Minister to only require that any assessment process apply to new entrants to serviced apartments, with existing residents qualifying under the existing test in the law. This flexibility exists to avoid significant backlogs occurring if an assessment process were introduced that is significantly different from current arrangements. [Schedule 1, item 2, subsection 38-25(3C)]

1.18       The existing subsection 38-25(4) provides that supplies of accommodation are GST-free when made to a person in the course of making GST-free supplies of services under subsections 38-25(1), (2) or (3). However, it is unclear whether this extends to the supply of a serviced apartment in a retirement village.

1.19       This bill ensures that supplies to a person consisting of a serviced apartment in a retirement village are GST-free to the person if at that time they require daily living activities assistance or nursing services. However, if the Aged Care Minister has made a determination that applies to the person, then the supply will only be GST-free if the Aged Care Secretary has assessed the person as needing the required level of care services. This will apply regardless of whether the supply is:

·          a supply of ‘residential premises’ (as currently defined in the Dictionary) by way of lease, hire or licence;

·          a sale of ‘real property’ (as currently defined in the Dictionary); or

·          a supply of an ‘excluded security’ (within the meaning of the Corporations Act 2001 ) in respect of which the right to participate in a retirement village scheme (within the meaning of that Act) entitles the person to use or occupy a serviced apartment in a retirement village.

[Schedule 1, item 3, subsection 38-25(4A)]

1.20       The Aged Care Secretary will have the power to delegate his or her powers under paragraph 38-25(3B)(b) to:

·          a person to whom the Secretary has delegated functions under subsection 96-2(5) of the Aged Care Act 1997 ; or

·          a person who falls within a class of persons who are to carry out the assessment process as specified by the Aged Care Minister in the determination made for the purposes of new paragraph 38-25(3B)(a).

For example, the Secretary may delegate the power to assess a person as requiring the specified level of care services to members of an Aged Care Assessment Team. [Schedule 1, item 8, section 177-11]

1.21       The Dictionary within section 195-1 of the GST Act has been amended to include a definition of ‘Aged Care Secretary’. The ‘Aged Care Secretary’ means the Secretary of the Department that administers the Aged Care Act 1997 . [Schedule 1, item 9, section 195-1]

1.22       The Dictionary within section 195-1 of the GST Act has been amended to include definitions of ‘retirement village’ and ‘serviced apartment’.

1.23       Premises satisfy the definition of ‘retirement village’ if:

·          the premises are ‘residential premises’ (as currently defined in the Dictionary);

·          accommodation in the premises is intended for people who are at least 55 years old or older; and

·          the premises include communal facilities for use by the residents of the premises.

1.24       However, premises will not be a ‘retirement village’ if:

·          they are used, or intended to be used, for the provision of residential care (within the meaning of the Aged Care Act 1997 ) by an approved provider as defined in that Act; or

·          they are ‘commercial residential premises’ (as currently defined in the Dictionary).

[Schedule 1, item 11, section 195-1]

1.25       Retirement villages broadly contain two categories of accommodation. Firstly, independent living units which are designed for occupants who are capable of living independently without the need for care services or other regular services including the provision of meals and heavy laundry by the retirement village operators.

1.26       The second category of accommodation in retirement villages is the serviced apartment. Such apartments are designed for 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.

1.27       A resident who is capable of living independently without assistance may choose to live in a serviced apartment. However, they would not qualify for GST-free treatment under the concession.

1.28       A ‘serviced apartment’ is an apartment that is designed to be occupied by aged residents who require either or both of the following:

·          item 2.1 (daily living activities assistance) of Part 2 of Schedule 1 of the Quality of Care Principles ; and

·          item 3.8 (nursing services) of Part 3 of Schedule 1 of the Quality of Care Principles .

[Schedule 1, item 12, section 195-1, paragraph (a), definition of ‘serviced apartment’]

1.29       A serviced apartment must be designed so that a resident with the full range of daily living activities assistance and nursing services care needs can occupy it. However, a particular resident of a serviced apartment may qualify to receive a supply of the accommodation and related care services GST-free despite requiring only one of the specified daily living or nursing care services in the relevant determination. [Schedule 1, item 12, section 195-1, paragraph (a), definition of ‘serviced apartment’]

1.30       A responsible person located near the serviced apartment must be continuously on call to render emergency assistance to the residents of the apartment. This test reflects that personnel will be available to provide first aid or to arrange other mobility, nursing or medical assistance to residents of serviced apartments. [Schedule 1, item 12, section 195-1, paragraph (b), definition of ‘serviced apartment’]

1.31       Serviced apartment accommodation is generally higher density accommodation than independent living units. Accordingly, serviced apartments must be part of a single complex of apartments that all meet the necessary conditions to qualify as serviced apartments. The serviced apartments need to be accessible from a common corridor (with or without linking lifts) connecting the apartment to the other apartments in that building. [Schedule 1, item 12, section 195-1, paragraph (c), definition of ‘serviced apartment’]

1.32       The retirement village in which the serviced apartment is located must have a communal dining facility that is used by the residents of apartments in the retirement village. [Schedule 1, item 12, section 195-1, paragraph (d), definition of ‘serviced apartment’]

1.33       Reflecting the higher density house arrangements for serviced apartments, dwellings such as detached houses, row houses, terrace houses, town houses and villa units cannot be serviced apartments. [Schedule 1, item 12, section 195-1]

Attributing input tax credits

1.34       The amendments made by this bill will ensure that supplies of certain care services and accommodation to residents of serviced apartments in retirement villages are GST-free. Suppliers of such services and accommodation may have made acquisitions or importations that were either not creditable acquisitions or creditable importations, or were only partly creditable, because they were making supplies that were input taxed.

1.35       As the amendments will apply in relation to net amounts for tax periods starting on or after 1 July 2000, these acquisitions and importations may now be creditable acquisitions or creditable importations, or solely for a creditable purpose.

1.36       This bill ensures that:

·          if you become entitled to an input tax credit as a result of the amendments in this bill; and

·          the input tax credits that you become entitled to are for acquisitions or importations made before Royal Assent of this bill,

then to the extent that you would have attributed the input tax credit to a tax period ending before Royal Assent, you may choose to attribute it to the first tax period ending after that time. [Schedule 1, item 15, subitem 15(1)]

1.37       This rule has effect despite sections 29-10 and 29-15 of the GST Act, and section 36 of the Taxation Administration 1953 (TAA 1953). This will ensure that such suppliers remain entitled to input tax credits even though they would ordinarily be attributed to a tax period more that four years prior to this bill receiving Royal Assent. This is achieved by allowing suppliers to attribute those input tax credits to a tax period within four years of that time. [Schedule 1, item 15, subitem 15(3)]

1.38       However, the provision will not apply for the purposes of working out adjustment periods for the purposes of Division 129 of the GST Act. This will ensure that Division 129 is capable of applying where there is a change in the extent of creditable purpose of an acquisition or importation. [Schedule 1, item 15, subitem 15(2)]

Time limit on refunds - application of section 36 of the TAA 1953

1.39       The amendments made by this bill will ensure that supplies of certain care services and accommodation to residents of serviced apartments in retirement villages are GST-free. Suppliers of such services and accommodation may have treated such supplies as taxable supplies, and remitted GST to the Commissioner of Taxation (Commissioner).

1.40       As the amendments will apply in relation to net amounts for tax periods starting on or after 1 July 2000, these supplies may now be GST-free. These suppliers will have remitted an amount of money that is not legally payable as GST. In some cases, revising their GST return to remove this amount will result in the supplier being entitled to a refund under section 35-5 of the GST Act for that tax period. However, section 36 of the TAA 1953 will remove any entitlement to a refund if the supplier has not notified the Commissioner of their entitlement within four years after the end of that tax period.

1.41       This bill ensures that section 36 of the TAA 1953 does not prevent a refund being payable under section 35-5 of the GST Act in respect of a tax period to the extent that:

·          before Royal Assent, GST on a taxable supply was attributable to that tax period; and

·          because of the amendments to the GST Act made by this bill, the supply is no longer a taxable supply.

[Schedule 1, item 16]

Settlement of claims under insurance policies - application of section 78-50 of the GST Act

1.42       Division 78 of the GST Act contains special rules that apply in respect of insurance policies. In particular, section 78-50 of the GST Act deems the settlement of a claim under an insurance policy to be for a taxable supply if:

·          the entity that paid the premium for the insurance policy was entitled to an input tax credit; and

·          at the time of making the claim under the insurance policy, did not inform the insurer of that entitlement or understated that entitlement.

1.43       Suppliers of care services and accommodation to residents of serviced apartments in retirement villages may have purchased insurance for their business. Some suppliers may have made a claim under their insurance policy and in doing so, informed their insurer of their input tax credit entitlement for the premium calculated on the basis that they were not making GST-free supplies of care services and accommodation to those residents.

1.44       As the amendments will apply in relation to net amounts for tax periods starting on or after 1 July 2000, the acquisition of the insurance policy may now be a creditable acquisition, or solely for a creditable purpose, and thus affect the supplier’s input tax credit entitlement for their insurance policy. As a result, suppliers who have informed their insurer of their input tax credit entitlement when making a claim under their insurance policy will have understated their entitlement, and will be liable for GST under section 78-50 of the GST Act.

1.45       This bill ensures that section 78-50 of the GST Act does not apply to a payment or supply made in settlement of a claim under an insurance policy where:

·          the entity that paid all or part of the premium for the insurance policy had informed their insurer of their input tax credit entitlement at or before the time a claim was first made under the insurance policy;

·          in informing their insurer, the entity did not at that time understate the extent of their input tax credit entitlement; and

·          because of the amendments made by this bill, they have understated their entitlement to an input tax credit.

[Schedule 1, item 17]

Application of the Aged Care Minister’s determinations relating to paragraph 38-25(3)(b) of the GST Act

1.46       The Aged Care Minister may determine under paragraph 38-25(3)(b) of the GST Act that particular services are of a kind covered by Schedule 1 of the Quality of Care Principles . Under the determination currently in force, services are of a kind covered by Schedule 1 of the Quality of Care Principles if they are supplied in certain circumstances. These include the requirement that the requisite care services and accommodation are supplied as a package under a written agreement with the supplier, and that the charges for services and accommodation are payable to the same entity.

1.47       In some cases, a person will acquire a serviced apartment in a retirement village (whether by way of lease, hire or licence, or by sale, or by acquisition of certain securities) from an entity other than the entity supplying the requisite care services. The requirements under the current determination may have the effect of treating those care services as being taxable and in turn, may prevent the supply of that serviced apartment from being GST-free as intended.

1.48       This bill ensures that any requirement in the Aged Care Minister’s determination that:

·          accommodation be included in a package of services; and

·          charges for services and for accommodation be paid to the same entity,

does not apply to certain supplies.

1.49       The relevant supplies are those which are:

·          made to a resident of a serviced apartment in a retirement village; and

·          connected with a supply by lease, hire, licence, or right to occupy a serviced apartment in a retirement village.

[Schedule 1, item 18]

Charitable retirement villages

1.50       This bill provides GST-free treatment for particular supplies made by charitable institutions or trustees of charitable funds that operate retirement villages [Schedule 1, item 5, paragraph 38-260(a)] . However, charitable institutions and trustees of charitable funds that operate retirement villages may also qualify for GST-free treatment under existing concessions under the GST Act such as:

·          non-commercial supplies;

·          supplies of second-hand goods; and

·          conducting raffles and bingo.

1.51       In order that GST-free treatment applies, it is necessary that the charitable retirement village operator make the supply to a resident of a retirement village operated by the charity. Accordingly, supplies made by the charitable retirement village to visitors or staff of the retirement village would not qualify for GST-free treatment. [Schedule 1, item 5, paragraph 38-260(b)]

1.52       The range of supplies to which GST-free treatment applies, includes the supply of accommodation in a charitable retirement village, services related to the supply of the accommodation and meals. This would include, for example, the supply of accommodation in an independent living unit or serviced apartment, property maintenance fees and gardening services and meals and beverages. [Schedule 1, item 5, paragraph 38-260(c)]

1.53       It is possible that artificial arrangements might be entered into by charitable retirement village operators. These might include arrangements in which, for example, supplies of meals are made to a resident of a retirement village for more than market value with the main purpose of enabling other supplies to be made below the 50% of market value test or 75% of consideration test in the non-commercial supply provisions in existing section 38-250. Such arrangements would potentially be ineffective where the anti-avoidance rules in existing Division 165 of the GST Act are applied.

Application and transitional provisions

1.54       The amendments made by Schedule 1 to this bill concerning serviced apartments will apply to net amounts for tax periods starting on or after 1 July 2000. [Schedule 1, subitem 14(1)]

1.55       The amendments made concerning charitable retirement villages will apply to supplies made on or after the day on which the bill receives Royal Assent [Schedule 1, subitem 14(3)] . Existing arrangements entered into by charities are protected by the current view of the GST law published by the Australian Taxation Office, to the extent they have relied on that view.

1.56       However, a determination made for the purposes of new paragraph 38-25(3B)(a) of the GST Act does not apply in relation to any supplies made before Royal Assent. [Schedule 1, subitem 14(2)]

Consequential amendments

1.57       To provide greater clarity, paragraph 38-25(3)(c) will be amended to insert the term “( care services )” after the second occurrence of the word “services”. [Schedule 1, item 1, paragraph 38-25(3)(c)]

1.58       The amendments made by this bill in respect of supplies of retirement village accommodation by charities are to be inserted in Subdivision 38-G of the GST Act. Consequently, the heading for Subdivision 38-G will be changed from Non-commercial activities of charitable institutions etc. , to Activities of charitable institutions etc. . Further, the heading Subdivision 38-H - Raffles and bingo conducted by charitable institutions etc. , will be removed. [Schedule 1, items 4 and 6]

1.59       The amendments made by this bill will give the Aged Care Minister additional determination making powers. Consequently, a reference to new paragraph 38-25(3B)(a) will be inserted after paragraph 177-10(1)(c) of the GST Act. [Schedule 1, item 7, subsection 177-10(1)]

1.60           This bill repeals the definition of ‘residential care’ in the Dictionary because the term is not used in the operative legislation in the GST Act. [Schedule 1, item 10, section 195-1]

 



I ndex         

Schedule 1: Retirement villages

Bill reference

Paragraph number

Item 1, paragraph 38-25(3)(c)

1.57

Item 2, subsection 38-25(3A)

1.10

Item 2, subsection 38-25(3B)

1.15

Item 2, subparagraph 38-25(3B)(a)(i)

1.16

Item 2, subparagraph 38-25(3B)(a)(ii)

1.16

Item 2, subsection 38-25(3C)

1.17

Item 3, subsection 38-25(4A)

1.19

Items 4 and 6

1.58

Item 5, paragraph 38-260(a)

1.50

Item 5, paragraph 38-260(b)

1.51

Item 5, paragraph 38-260(c)

1.52

Item 7, subsection 177-10(1)

1.59

Item 8, section 177-11

1.20

Item 9, section 195-1

1.21

Item 10, section 195-1

1.60

Item 11, section 195-1

1.24

Item 12, section 195-1

1.33

Item 12, section 195-1, paragraph (a), definition of ‘serviced apartment’

1.28, 1.28

Item 12, section 195-1, paragraph (b), definition of ‘serviced apartment’

1.30

Item 12, section 195-1, paragraph (c), definition of ‘serviced apartment’

1.31

Item 12, section 195-1, paragraph (d), definition of ‘serviced apartment’

1.32

Item 15, subitem 15(1)

1.36

Item 15, subitem 15(2)

1.38

Item 15, subitem 15(3)

1.37

Item 16

1.41

Item 17

1.45

Item 18

1.49

Subitem 14(1)

1.54

Subitem 14(2)

1.56

Subitem 14(3)

1.55