Living Choice Australia Limited and Commissioner of Taxation
[2014] AATA 168
[2014] AATA 168
Division TAXATION APPEALS DIVISION File Number
2012/3250
Re
Living Choice Australia Limited
APPLICANT
And
Commissioner of Taxation
RESPONDENT
DECISION
Tribunal Senior Member R W Dunne
Date 28 March 2014 Place Adelaide 1. The Tribunal:
(a) affirms the objection decision to the extent that the respondent has determined the applicant’s input tax credit entitlement based on its calculation of the extent of the applicant’s creditable purpose for the Relevant Periods is 13 per cent; and
(b) remits the objection decision to the respondent for further consideration pursuant to s 42D of the AAT Act insofar as it is necessary for all of the expenses listed in the 2011 Glenhaven profit and loss statement to be considered and dealt with by both of the parties, having regard to the application of the apportionment methodology in the Green Acres model; and
(c) specifies that the period within which the respondent is to reconsider the objection decision remitted to it pursuant to (b) above is the period commencing on the date of this decision and expiring on 27 July 2014.
......................[Sgd]..................................................
Senior Member R W Dunne
CATCHWORDS
TAXATION – goods and services tax – construction and operation of retirement villages –
residential premises – extent of creditable purpose – input tax credits – extent to which acquisitions relate to supplies that are input taxed – objection decision under review varied in part.
LEGISLATION
A New Tax System (Goods and Services Tax) Act 1999 (Cth) ss 9-5, 11-5, 11-15, 11-30, 40-35, 195-1.
CASES
Marana Holdings Pty Ltd v Commissioner of Taxation (2004) 141 FCR 299
South Steyn Hotel Pty Ltd v Commissioner of Taxation (2009) 180 FCR 409
Vidler v Commissioner of Taxation (2010) 183 FCR 440
VBN and Ors and Australian Prudential Regulation Authority and Anor [2006] AATA 710
Sunchen Pty Ltd Commissioner of Taxation (2010) 190 FCR 38
AGR Joint Venture v FC of T 2007 ATC 2692Case 6/2007, 2007 ATC 157
SECONDARY MATERIALS
Retirement Villages Industry Partnership – issues register
Retirement Villages Industry Partnership – Green Acres – example A
Goods and Services Tax Ruling GSTR 2006/4
Goods and Services Tax Ruling GSTR 2007/1
Goods and Services Tax Ruling GSTR 2012/4REASONS FOR DECISION
Senior Member R W Dunne
28 March 2014
INTRODUCTION
This is an application for review of a decision by the respondent to disallow a taxation objection lodged by the applicant against assessments of the applicant’s goods and services tax (“GST”) net amount for the quarterly tax periods ended 30 September 2007 and 31 March 2008 (“Relevant Periods”).
At the hearing, the applicant was represented by Mr C Sievers (of counsel) and the respondent was represented by Mr C Bleby and Mr S Cole (both of counsel). The Tribunal received into evidence the T documents lodged pursuant to s 37 of the Administrative Appeals Tribunal Act 1975 (“AAT Act”),[1] together with the following exhibits:
·annual budgets of Broadwater Waterfront, Kawana Island and Twin Waters Retirement Villages;[2]
·plans of Glenhaven Retirement Village;[3]
·witness statement of Kirrily Burton with Attachments A to H;[4]
·supplementary documents to Attachment C of the witness statement of Kirrily Burton;[5]
·reworked example of GST worksheet, lifts and ute apportionment;[6]
·witness statement of Gail Eyers dated 30 August 2013 with Attachments A to R;[7] and
·witness statement of Graham Hobbs (undated) with Attachments A to G.[8]
[1] Exhibit R1.
[2] Exhibit A1.
[3] Exhibit A2.
[4] Exhibit A3.
[5] Exhibit A4.
[6] Exhibit A5.
[7] Exhibit A6.
[8] Exhibit A7.
ISSUE BEFORE THE TRIBUNAL
Following the raising of the preliminary issue referred to in paragraphs 40-44 of these reasons and the Tribunal’s ruling in paragraph 45 relating to a limited hearing of the proceedings, the issue before the Tribunal is: To what extent are the acquisitions made by the applicant, in relation to the development, construction and operation of various retirement villages, related to the making of input taxed supplies?
LEGISLATION
The legislation that applies in the consideration of this matter is contained in the A New Tax System (Goods and Services Tax) Act 1999 (“GST Act”) and it relevantly reads:
“9‑5 Taxable supplies
You make a taxable supply if:
(a) you make the supply for consideration; and
(b) the supply is made in the course or furtherance of an enterprise that you carry on; and
(c) the supply is connected with Australia; and
(d) you are registered, or required to be registered.
However, the supply is not a taxable supply to the extent that it is GST‑free or input taxed.”
“11‑5 What is a creditable acquisition?
You make a creditable acquisition if:
(a) you acquire anything solely or partly for a creditable purpose; and
(b) the supply of the thing to you is a taxable supply; and
(c) you provide, or are liable to provide, consideration for the supply; and
(d) you are registered, or required to be registered.”
“11‑15 Meaning of creditable purpose
(1) You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your *enterprise.
(2) However, you do not acquire the thing for a creditable purpose to the extent that:
(a) the acquisition relates to making supplies that would be input taxed; or
(b) the acquisition is of a private or domestic nature.
(3) An acquisition is not treated, for the purposes of paragraph (2)(a), as relating to making supplies that would be input taxed to the extent that the supply is made through an *enterprise, or a part of an enterprise, that you *carry on outside Australia.
(4) An acquisition is not treated, for the purposes of paragraph (2)(a), as relating to making supplies that would be *input taxed if:
(a) the only reason it would (apart from this subsection) be so treated is because it relates to making *financial supplies; and
(b) you do not *exceed the financial acquisitions threshold.
...”
“11‑30 Acquisitions that are partly creditable
(1) An acquisition that you make is partly creditable if it is a creditable acquisition to which one or both of the following apply:
(a) you make the acquisition only partly for a creditable purpose;
(b) you provide, or are liable to provide, only part of the consideration for the acquisition.
(3) The amount of the input tax credit on an acquisition that you make that is partly creditable is as follows:
Full input
tax credit
x
Extent of creditable
purpose
x
Extent of
consideration
where:
extent of consideration is the extent to which you provide, or are liable to provide, the consideration for the acquisition, expressed as a percentage of the total consideration for the acquisition.
extent of creditable purpose is the extent to which the creditable acquisition is for a creditable purpose, expressed as a percentage of the total purpose of the acquisition.
full input tax credit is what would have been the amount of the input tax credit for the acquisition if it had been made solely for a creditable purpose and you had provided, or had been liable to provide, all of the consideration for the acquisition.
(4) For the purpose of working out the extent of the consideration, so far as the consideration is not expressed as an amount of money, take into account the GST inclusive market value of the consideration.
(5) The Commissioner may determine, in writing, one or more ways in which to work out, for the purpose of subsection (3), the extent to which a creditable acquisition is for a creditable purpose.”
“40‑35 Residential rent
(1) A supply of premises that is by way of lease, hire or licence (including a renewal or extension of a lease, hire or licence) is input taxed if:
(a) the supply is of residential premises (other than a supply of commercial residential premises or a supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises); or
(b) the supply is of commercial accommodation and Division 87 (which is about long‑term accommodation in commercial premises) would apply to the supply but for a choice made by the supplier under section 87‑25.
…
(2) However:
(a) 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); and
(b) the supply is not input taxed under this section if the lease, hire or licence, or the renewal or extension of a lease, hire or licence, is a long‑term lease.”
“195‑1 Dictionary
In this Act, except so far as the contrary intention appears:
…
residential premises means 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.
...
retirement village: premises are a retirement village if:
(a) the premises are residential premises; and
(b) accommodation in the premises is intended to be for persons who are at least 55 years old, or who are a certain age that is more than 55 years; and
(c) the premises include communal facilities for use by the residents of the premises;
but the following are not retirement villages:
(d) premises 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 (within the meaning of that Act);
(e) commercial residential premises.”
BACKGROUND
The material facts in these proceedings are not in dispute and have been largely extracted from the statements of facts, issues and contentions of the applicant and the respondent. The applicant is a member of a GST registered group comprised of six members that operate retirement villages. The applicant’s principal activity is that of a developer, operator and manager of the retirement villages which provide independent living units (“ILUs”) for occupation by their residents.
A lease is entered into between the residents and the applicant (or the relevant subsidiary) as operator of the respective village (“Lease”). The salient features of the Lease include the following:
(a) it is for a period of 99 years;
(b) the rent comprises $1.00 per annum payable upon demand;
(c)the resident must pay an in-going contribution on or before the commencement date;
(d)the in-going contribution comprises an interest-free loan which is repayable to the resident in full following termination of the Lease, subject to any lien created in the Lease;
(e)recurrent charges are required to be paid by the resident monthly, which include the sum of all rates, taxes, costs, outgoings, fees and expenses incurred or paid for managing, supervising, operating, cleaning, painting and maintaining the villages;
(f)the applicant/subsidiary agrees to provide the “general services” detailed in the Lease and the costs of providing these services are included in the recurrent charges; and
(g)the resident must pay a departure fee after permanent vacation of the village. The departure fee is a specified percentage, for a maximum period of occupation, of the ingoing contribution.
The ILUs are designed to be occupied as a residence and are provided to the residents under the following conditions:
(a)An incoming resident will provide a loan to the applicant. The loan will be repaid in full when the occupancy ceases.
(b)The incoming resident will also pay a lease premium.
(c)The incoming resident will enter into a deferred management fee arrangement with the applicant under which management fees will be payable in accordance with a prescribed formula when the occupancy ceases.
(d)The incoming resident will enter into a services agreement with the applicant to provide additional services on a user-pays basis and the applicant will provide the following resort-style facilities to residents:
(i)floating jetty;
(ii)bowling green with its own clubhouse;
(iii)leisure centre featuring a 17 metre indoor heated lap pool;
(iv)gymnasium;
(v)movie theatre;
(vi)pampering centre;
(vii)auditorium with stage and dance floor;
(viii)library;
(ix)billiards room;
(x)tennis court; and
(xi)outdoor pool.
One of the retirement villages (Glenhaven Estate) (“Glenhaven”) was chosen as a representative member of the six villages, and the following information was provided by the applicant in respect of its recreation facilities:
(a)Bowling green.
Bowls competitions are run on a weekly basis and the entry fee for the competitions forms a prize-money pool that is awarded to the winner. Residents have the use of the bowling green when it is not being used for competitions. Residents are charged a recurrent fee each week, part of which is directly related to the use of the bowling green. GST is charged on this part of the recurrent fee and remitted to the respondent. The bowling green is available for hire by non-village residents at a GST inclusive hourly rate and the GST component is remitted to the respondent.
(b)Auditorium.
The fee for the hire of the auditorium is charged on an event basis that is GST inclusive and remitted to the respondent. The auditorium is available for hire by non-village residents. Residents are charged a recurrent fee each week, part of which is directly related to the use of the auditorium. GST is charged on this part of the recurrent fee and remitted to the respondent.
(c)Country club.
Drinks are served by waiting staff to residents. The drinks are charged on a user-pays basis and the price is GST inclusive. The country club operates in a similar manner to that of a social club or bowling club. The gymnasium, swimming pool and bowling green are inherent parts of the structure of the country club. There is a licensee of the restaurant and bar and part of the residents’ recurrent fee is directly related to the use of the bar. GST is charged on this part and remitted to the respondent.
(d)Swimming pool.
Residents are charged a recurrent fee, part of which is directly related to the use of the pool. GST is charged on this part and remitted to the respondent. The pool is available for hire to non-village residents. The fee for hire of the pool (eg for water aerobics) is charged on a user-pays basis, which is GST inclusive and is remitted to the respondent.
(e)Gymnasium.
Residents are charged a recurrent fee, part of which is directly related to the use of the gymnasium. GST is charged on this part and remitted to the respondent. The gymnasium is available for use by non-village residents. The fee for the gymnasium is charged on a user-pays basis and the price is inclusive of GST which is remitted to the respondent.
(f)Communal facilities.
Residents are charged a recurrent fee, part of which is directly related to the use of the communal facilities. GST is charged on this part and remitted to the respondent.
(g)Village bus.
The village bus is used to provide transport to residents for shopping and sightseeing outings, and each trip is charged on a user-pays basis. The fee is GST inclusive and the GST component is remitted to the respondent. The day trips are organised in the same manner as those conducted by tour operators or travel agents. The village bus is available for hire to village residents.
On 8 January 2008 the applicant applied to the respondent for a private binding ruling (“PBR”) requesting confirmation of whether the applicant had determined its creditable purpose correctly for the following categories or acquisitions. Pursuant to the PBR, the applicant submitted that:
(a)the creditable purpose of the acquisitions relating directly to the construction and operation of the ILUs is 0%;
(b)the creditable purpose of the acquisitions relating directly to the construction and operation of the country club is 100%; and
(c)the creditable purpose of acquisitions that cannot be directly related to the premises or facilities in (a) or (b) above is subject to the principles of apportionment.
On 25 January 2008, the respondent provided the following decisions relating to the submissions in paragraph 10 above:
(a)Yes, the creditable purpose of acquisitions relating directly to the construction of the ILUs at Glenhaven is 0%. This is because the acquisitions relate to input taxed supplies of residential premises.
(b)No, the creditable purpose of acquisitions relating directly to the construction of the country club, which comprises the gymnasium, bowling green and swimming pool is not 100%. The country club is considered to be a communal recreation facility at Glenhaven and therefore will form part of the supply of residential premises, which is an input taxed supply. However, the country club is also used to make some taxable supplies. Consequently, you will need to apportion the total purpose of the club between that which, on your estimate, is creditable and that which is not.
(c)The creditable purpose of acquisitions that cannot be directly related to the premises or facilities in (a) or (b) above will be subject to the principles of apportionment as discussed in GST Ruling GSTR 2006/4.
On 24 October 2008, the respondent confirmed that an audit of the applicant would be conducted and would initially cover, but would not be limited to, the Relevant Periods. On 19 February 2010, the respondent issued an interim GST report which determined that the applicant was not entitled to the input tax credits claimed and that therefore the credits claimed would be reduced to nil. The applicant responded on 19 March 2010 providing supporting documents, including a number of input tax credit apportionment methodologies calculating the extent of creditable purpose between 59.04 per cent and 73.84 per cent. The applicant received confirmation of completion of the audit on 30 March 2010, with the result that the input tax credit entitlements claimed by the applicant were disallowed in accordance with the interim GST report.
Notices of assessment of the GST net amount were issued for the Relevant Periods on 6 April 2010 and an administrative penalty was applied on the basis that the tax shortfall amount had arisen due to a failure of the applicant to exercise reasonable care. The applicant lodged an objection against the penalty, which objection was allowed in full by the respondent. On 20 September 2010, an objection was lodged against the assessments and, during the objection process, the applicant submitted various apportionment methodologies resulting in a creditable purpose of between 73.84 per cent and 40 per cent. On 31 May 2012, the respondent provided the finalised notice of objection decision and confirmed that the input tax credit entitlement based on its calculation of the extent of the applicant’s creditable purpose was 13 per cent.
EVIDENCE
Evidence of Kirrily Burton
In giving her evidence in chief, Ms Burton said that consolidated GST reports for the applicant were prepared using MYOB and that these reports were used to prepare the applicant’s BAS. Every purchase, every payment, every sale is entered in the MYOB file and the tax is allocated per individual transaction. At the end of the quarter a summary GST report is produced out of MYOB and those figures are collated into the consolidated spreadsheet that is used to include in the BAS. In preparing the BAS and with the assistance of various staff she said she determined the basis upon which GST was allocated in the MYOB accounts. She always regarded the retirement village aspect of what the applicant did as input taxed. When an expense came in for the retirement village, no input tax credits were claimed. Few expenses related to taxable supplies, such as a resident paying for hairdressing. She said, overall, the applicant treated everything in relation to the running of a retirement village as input taxed. When referred by Mr Sievers to paragraph 7 of her witness statement, Ms Burton said that she had been instructed by the applicant to prepare a worked example of Example A in the Retirement Villages Industry Partnership as it applied to Glenhaven. This had become known as the “Green Acres model” (see paragraph 26(a) below). She said she had made some amendments to the worked example. The amendments related to the lifts and the ute, which expenses had been moved from direct input taxed to apportionable. Ms Burton was then referred to and confirmed the amendments made to paragraph (d) on page 3 and in paragraph (c) on page 6 of her witness statement.[9] In paragraph (d), motor vehicles were changed from direct to mixed, and lifts were changed from direct to apportionable. In paragraph (c), she explained how “Emergency response (and on costs)” was determined.
[9] Exhibit A3.
In cross-examination by Mr Bleby, Ms Burton was referred to paragraph 11 of her witness statement, which she said was her understanding of the criteria by which she allocated the applicant’s expenses to be directly referrable to residential or non-residential. She said that she used her best judgment to allocate the expenses between direct residential and direct non-residential. When questioned about the criteria she would bring for her “best judgment”, she said she did this by reviewing the detail in the general ledger accounts. She had no discussions with Mr Hobbs or any other of the applicant’s personnel when exercising her judgment. If an expense could be considered to be purely residential in nature, then it was a direct residential expense. She acknowledged she was using her own subjective judgment when she decided that the swimming pool expenses would be direct non-residential and the ILU’s were residential because people lived in them. She did not look up the definition of “residence” in the GST Act and she gave no consideration to GST Ruling GSTR 2012/D2 (now GSTR 2012/4). She said she did not look at anything subsequent to the Green Acres model.
When questioned by Mr Bleby about the expense for ground care, Ms Burton agreed that this was a direct residential expense which was closely connected to the ILUs. This also applied to the garden out the front of the ILUs, but not to other gardens or bush land areas around the retirement village. In looking at what a “service” supplied by Glenhaven might be, she considered only those like ground care that were provided within the village. In relation to other services, these were not directly related to residential. When questioned about the 24 hour emergency monitoring service provided to residents (or “Emergency and Care” in paragraph 11(f) on page 4 of her witness statement), she said that, in her judgement, there was no relationship between the service and the provision of a residential supply. In relation to other services, such as the provision of the motor vehicles, the expenses were apportionable.
In relation to communal aspects of the village, Ms Burton said that she excluded the possibility of communal aspects being residential in nature, apart from gardens and paths. She said this was because she saw that something communal was separate to the living area. The communal area was where residents would partake of activities that were outside their residence. In relation to pool expenses, she said that these were purely in relation to a supply that was non-residential in nature. In relation to employment, she agreed that the expenditure should be treated as mixed. In further cross-examination, Ms Burton accepted that, if half of Ms Eyres’ salary was recharged to sales, the other half would be attributable to her managerial role, and that there would be a notional allocation of a little over 80 per cent of her manager role devoted to emergency response which would be a direct taxable supply. Finally, when questioned further by Mr Bleby, Ms Burton said that she did not review the application of “creditable purpose” that she made in light of her understanding of how the retirement village was used.
Evidence of Gail Eyres
In giving her evidence in chief, Ms Eyres acknowledged that she was manager of the applicant. When asked about her annual salary in 2011, she said the base was $62,000, 50 per cent was paid by the village and 50 per cent was paid by sales (the applicant). In addition, she received another $18,000 in sales commissions. When asked by Mr Sievers about the leisure centre, Ms Eyers said that the centre had three floors. On the top floor there was a one bedroom apartment, there was an open lounge area with a kitchenette and a computer kiosk and card table and lounge area for residents. There was also another area for table tennis and a storage area set up for the library. She said the second floor was the main floor, with a reception and office, an auditorium, a piano area, a main lounge area, a fully-equipped kitchen, bar area and snooker room. On the ground floor there was a workshop, a cinema, a craft room, a pampering room, a library, a heated pool and spa and a gymnasium. She said that roughly once a quarter, residents could book the lounge for a family function and when it was vacant other times it could be used for other activities, such as the Melbourne Cup, fashion parades, guest speakers, cards or other board games and music afternoons. She said the swimming pool was indoor and was heated 24 hours a day. There were also humidifiers, an air-conditioning unit, two bathrooms with showers and also emergency call points on pillars in the pool.
Ms Eyres also gave evidence about other group events that took place in the leisure centre and there was a cinema in the auditorium. When asked about the frozen meals, Ms Eyres said that the applicant had introduced main meals, soups and desserts that were available to residents to purchase. In relation to the bowling green and tennis court, there was a booking system for residents to register for bowls, tennis, the theatre and snooker. In relation to the village bus, she said it provided transport to residents, including shopping deliveries and sight-seeing tours. The bus was driven by resident volunteers and a staff member. Bus trips could be organised through the booking system and local shopping trips could also be arranged. In relation to her role in the emergency response system, Ms Eyres said that she spent more than 20 per cent of her time in this role.
When cross-examined by Mr Cole, Ms Eyres said that her role as manager of the village involved overseeing the accounts, organising and maintaining the budgets, dealing with residents’ requests for maintenance, medical or information for further care, working with staff and residents’ families and maintaining the overall appearance of the whole village by making sure that everyone was keeping up to date in their roles at the village. When asked about the emergency response system, she said that in each of the ILUs there was a button/phone that could be activated if need be for any sort of emergency. If the response system was activated, she would be contacted in the first instance or she would delegate someone else to attend to the resident involved. If she was not available, Ms Eyres said that a buddy system existed for neighbours to attend the resident. If the emergency response system was activated, a record would be kept of what took place. She said that on average between 10 to 15 emergency responses occurred in a month and her involvement would never be less than 15 to 20 minutes. Of the emergencies, she said about 50 per cent occurred during the day-time when she was at the village and about 50 per cent when she was not at the village.
When re-examined by Mr Sievers, Ms Eyres said that when the emergency system was activated at night, she would get the call any way through her mobile. She would then make a decision whether to go to the village or not and whether to arrange for someone to be there before she arrived.
Evidence of Graham Hobbs
In giving his evidence in chief, Mr Hobbs said that the applicant wanted to pay Ms Eyres a package that was equivalent to about $100,000 a year. Her role was partly working for the applicant and partly working for the residents. Because she was working for the residents, there was an obligation to apportion her package in an appropriate way. Because of this, a greater amount of the package was contributed by the applicant than was contributed by the village. When asked further about Ms Eyres’ role, Mr Hobbs said that with her particular qualifications and skill-set, she was more qualified than the personal care assistants who had previously been at Glenhaven. He said that, after consultation with the residents, the applicant agreed to cancel the personal care assistants and to arrange for Ms Eyres to be responsible for the emergency response service and in respect of the general care and welfare of the residents.
In cross-examination by Mr Cole, Mr Hobbs said that he received financial reports with actual expenses against budgets on a quarterly basis, and also annual budgets. Monthly reports were all-encompassing and dealt with complaints from residents, any outstanding maintenance issues and maintenance issues that had been completed. He said that as manager, Ms Eyres reported to an operations manager, Ms Christine Osgood, who would in turn report to Mr Hobbs. Ms Osgood did not operate from the village, but from an office at Broadwater Retirement Village in New South Wales.
SUBMISSIONS
The following are the submissions that were put to the Tribunal by the applicant and the respondent.
The Applicant’s Submissions
The applicant submits that the central issue in its application is the determination of its “extent of creditable purpose” pursuant to s 11-30 of the GST Act, that is, the percentage to be applied by the applicant in determining its entitlement to input tax credits with respect to acquisitions it made in the course of the construction and operation of its retirement villages in the Relevant Periods.
For the purposes of its application, the applicant accepts the following matters:[10]
(a)The indirect input based apportionment methodology outlined in example A in the Retirement Villages Industry Partnership (“Green Acres model”) provides a fair and reasonable methodology to determine the applicant’s “extent of creditable purpose” percentage for the purposes of s 11-30.
(b)The applicant’s “extent of creditable purpose” is to be determined by the application of the apportionment methodology in the Green Acres model to the expenses listed in the 2011 profit and loss statement for the Glenhaven.
[10] Paragraph 4 of the applicant’s submissions.
The applicant contends that the “residential premises” supplied to each resident is limited to the following:
(a)the ILU which is “occupied” by the tenant as a residence, being part of the village to which the lessee has exclusive use and possession and has a sufficient measure of control to prevent strangers from interfering; and
(b)those additional facilities and services which are necessary for the convenient use and occupation of the ILU by the resident as a place of residence. In the context of Glenhaven, the applicant argues that this is limited to the paths, driveways and immediate gardens in the village.
The “residential premises” supplied to each resident do not include the leisure centre or the other communal recreation facilities, such as the tennis court and the bowling green. And “residential premises” do not include additional services such as the village bus and the emergency monitoring service. These additional services are not necessary for the convenient use and occupation of the ILU by the resident.
The alternative argument of the applicant is that these additional services as components of the supply of residential premises are to be carved out of the input taxed treatment of the supply by paragraph 40-35(2)(a) of the GST Act because they are not “to be used predominantly for residential accommodation”.
The applicant refers to the respondent’s view of the meaning of “residential premises” in paragraphs 12 to 15 of Issue 1 of the Retirement Villages Industry Partnership. The applicant disputes the respondent’s broad construction of the word “residential premises”, in particular, its extension to include communal recreation facilities which are located within the curtilage of the village complex.
The applicant then refers to the three decisions of the Full Federal Court where, the applicant argues, the meaning of “residential premises” in the GST Act has been properly considered. The decisions are Marana Holdings Pty Ltd v Commissioner of Taxation (2004) 141 FCR 299, South Steyne Hotel Pty Ltd v Commissioner of Taxation (2009) 180 FCR 409 and Vidler v Commissioner of Taxation (2010)183 FCR 440. Having regard to these decisions, the applicant asserts that the following principles can be distilled from the definition of “residential premises” in the GST Act:
(a)there must be occupation as a residence or an intention to occupy as a residence; or be occupation for residential accommodation or an intention to occupy for residential accommodation;
(b)the words “residence” and “residential accommodation” are to be given their ordinary meaning;
(c)the expression “residence” means a dwelling, abode or house in which a person may reside, being at least the element of shelter and basic living facilities such as are provided by a bedroom and bathroom;
(d)the expression “residential accommodation” connotes lodging, sleeping or overnight accommodation; and
(e)the word “occupied” connotes living within or inhabiting a structure.
In relation to the “residential premises” at Glenhaven, the applicant contends that it is the ILU described in the Lease which constitutes the “residential premises” for the purposes of s 40-35 of the GST Act. It is the ILU that is the “residence”, being a dwelling, abode or house in which a person may reside and over which the resident has rights of occupation. The applicant accepts that the residential premises supplied by the applicant to a resident under the terms of the Lease includes only those facilities and services which are necessary for the convenient use and occupation of the ILU by the resident as a place of residence.
The applicant refers to the respondent’s reasons for decision of the applicant’s objection in which the respondent contends:[11]
“… in the context of a retirement village, the residential premises would include the land on which the residential buildings are constructed, along with the surrounding land that actually or substantially contributes to the enjoyment of the building(s) or to the fulfilment of its purpose as a residence (whether or not on separate titles. This would include the residential units together with communal areas such as a library, dining room, recreation room, chapel, gymnasium, outdoor recreational and leisure facilities such as a tennis court, swimming pool, barbeque area and gardens.)”
The applicant asserts that there is no basis in the GST Act for the respondent’s contention. The definition of “residential premises” in s 40-35 and s 40-65 of the GST Act makes no reference to a “retirement village”. The decisions of the Full Federal Court that the applicant refers to in paragraph 31 above show that the words “residential premises”, “residence” and “residential accommodation” take their ordinary meaning. The applicant notes that the respondent’s contention is taken from the public GST Ruling GSTR 2007/1. This Ruling deals with the definition of “retirement village” in s 195-1 of the GST Act, which is found in s 38-25(3) and s 38-260 dealing with GST-free supplies. That definition and those provisions have nothing to do with s 40-35 and the making of input taxed supplies.
[11] Exhibit R1,T2 page 9.
The applicant further asserts that the respondent cannot seek to characterise the individual supply of residential premises (i.e. the individual ILUs) by reference to how the entire residential complex may be characterised: see South Steyne Hotel (supra) per Emmett J (at [24]).
The Respondent’s Submissions
The respondent submits that the ultimate question for the Tribunal is: To what extent are the acquisitions made by the applicant, in relation to the development, construction and operation of the retirement villages in the Relevant Periods, related to the making of input taxed supplies? Then, to what extent do the acquisitions the applicant makes relate to supplies that are input taxed? Further, where acquisitions by the applicant are partly creditable, the applicant is required to determine the extent of creditable purpose. Any question of creditable purpose depends upon the characterisation of the supplies that the applicant makes.
The determination of the extent of creditable purpose is the subject of a public GST Ruling, GSTR 2006/4, which is an expression of the respondent’s view on the meaning of “creditable purpose” and “extent of creditable purpose” in Division 11 of the GST Act. The Ruling provides examples of apportionment methodologies that may be used to determine the extent of creditable purpose. GSTR 2006/4 makes it clear that “you” are not limited to the particular methodologies it sets out, but explains the requirement that the methodology “you” use must be fair and reasonable in the circumstances. In paragraphs 142 to 153 of GSTR 2006/4, the respondent offers simple examples of what are described as the “input based indirect method” and the “output based indirect method” for working out the creditable purpose of overheads (acquisitions) that cannot be directly allocated to making either input taxed supplies or to taxable supplies.
The respondent submits that the crucial question, having regard to the provisions of s 11-15(2) of the GST Act, is the characterisation of the supplies that the applicant makes. To the extent that an acquisition relates to the making of supplies that would be input taxed, the acquisition does not have a creditable purpose. The question of what supplies made by the applicant are input taxed needs to be answered before a method of apportionment is established as, on either the input based indirect method or the output based indirect method, it is necessary to know how to characterise all of the supplies or acquisitions, depending on which method is adopted. The respondent asserts that the dispute in the present case is over the extent of the applicant’s creditable purpose, so as to determine correctly its input tax credit entitlement for GST on acquisitions that it has made in connection with its development, construction and operation of its retirement villages.
Thus, whether the apportionment methodology for expenses that cannot be directly allocated as relating to taxable supplies or input tax supplies is input-based or output-based, in either case it is necessary to determine the character of the things in respect of which the applicant is either making acquisitions or supplies. The “base” question in analysing s 11-15(2) is what is the extent to which an acquisition is related to the making of supplies that would be input taxed and, consequently, what is the character of that which the applicant is supplying?
The respondent asserts that the analysis of the “base” question in analysing s 11-15(2) can be done against:
(a)the terms of the Lease;
(b)a legal analysis of the statutory concept of “residential premises” within the meaning of s 195-1 of the GST Act;
(c)an application of that legal analysis to the physical premises that form the main supply, to see the extent to which communal facilities, in particular, can be characterised as part of the residential premises; and
(d)a physical review of the premises themselves to check what proportion of infrastructure the applicant devotes to what may be properly characterised as residential premises.
PRELIMINARY ISSUE
The written submissions of both the applicant and the respondent in relation to these proceedings suggest that the central issue in the application (or the ultimate question for the Tribunal) is the extent to which the acquisitions made by the applicant relate to the making of input taxed supplies. The written submissions of the respondent were lodged with the Tribunal on 31 October 2013. Those of the applicant were lodged on 1 November 2013. At the hearing on the first day, Mr Sievers referred the Tribunal to an email dated 4 November 2013 that had been sent by the applicant’s solicitors to the respondent. The email was accompanied by a number of earlier emails between the parties. In the 4 November 2013 email, the applicant expressed concern that, in its written submissions, the respondent appeared to be raising a further contention. The further contention was about new matters not raised in the respondent’s objection decision, nor prior to the filing of written submissions. These new matters were said to conflict with the agreed basis upon which the applicant had prepared its case.
Mr Sievers argued that, if the respondent was allowed to raise these new matters at this late stage, the onus on the applicant would be harsh. He raised the issue of procedural fairness and referred to the decision of Deputy President Forgie in VBN and Ors and Australian Prudential Regulation Authority and Anor [2006] AATA 710, where the learned Deputy President said (at paragraphs 251-253):
“…
251. The third obligation is imposed on the Tribunal. It has a duty to ‘… ensure that every party to a proceeding before the Tribunal is given a reasonable opportunity to present his or her case …’. This duty must extend to ensuring that each party has a reasonable opportunity to know the issues being relied on by another party and also the issues that the Tribunal itself regards as relevant. Giving the parties a ‘reasonable opportunity’ to present a case is one aspect of natural justice, or of procedural fairness. As with the obligation to assist the Tribunal, what amounts to procedural fairness ‘… in a given situation depends upon the circumstances. And it is not a one-sided business.’
252. There are at least two sides of the business. The parties and the issues they raise form one side of that business, the issues raised by the relevant legislation are another. If the new issue were an issue required to be decided under the relevant legislation in order to make a decision, it could not be ignored however late in the piece it were raised. If it were raised during the hearing and the other party could not deal with the point at the time, the Tribunal would have little option but to adjourn the proceedings. Its hands would be tied, quite properly, by its obligation to give each party a reasonable opportunity to present its case. There are cost implications in such a course but they could be accorded little, if any, weight as they are essential to the review of the decision.
253. If the new issue were simply a new contention in relation to an issue that must be decided under the legislation but that has already been raised, the situation may be different. Cost considerations to the parties may have greater weight in the consideration of what amounts to a reasonable opportunity for a party to present a case. Considerations such as the time at which the party became aware of the issue and raised it with the other party and/or the Tribunal will be of some relevance. The effect on the orderly disposition of the business of the Tribunal may, on occasion, be relevant. The Tribunal’s role to reach the correct or preferable decision will also be a factor that must be taken into account. [Emphasis added by the Tribunal]
…”
Mr Sievers submitted that, if the respondent wanted to proceed with these new matters, the hearing could not go ahead because the applicant needed a significant amount of time to consider the material, particularly given the onus of proof that the applicant bore. In considering options, Mr Sievers suggested a potential middle ground that would limit the hearing to the matters on which the parties (or at least the applicant) had prepared the case. In so doing, he referred to paragraphs 24 and 25 of the respondents submissions, which read:
“24. This then leads to the question – what supplies made by the Applicant are input taxed? This is a foundational question that needs to be answered before a method of apportionment is engaged, as on either approach, it is necessary to know how to characterise all of the supplies or acquisitions, depending on the approach that is taken.
25. The dispute in the present case is over the extent of the Applicant’s creditable purpose, so as to determine correctly its input tax credit entitlement for GST on acquisitions that it has made in connection with its development, construction and operation of its retirement villages. This can only be resolved by determining the extent to which that which is being supplied by the Applicant is an input taxed supply – i.e., residential premises.”
In response, Mr Bleby argued that there were no new matters that the respondent was seeking to introduce which might conflict with the agreed basis upon which the applicant had prepared its case. He referred to Annexure A to the witness statement of Kirrily Burton which referred to the Green Acres model that had been published by the respondent. The front page of the model reads: [12]
“Retirement Villages Industry Partnership – Green Acres – example A
The application of GST to the operations of a retirement village – input taxed and taxable supplies
This is an example of a method that may help you to determine the extent of creditable purpose of your acquisitions for the purpose of claiming input tax credits.
You will have to review your methodology if the application of creditable purpose differs from the extent of your intended or planned use.
For source of ATO view, refer to paragraphs 142 to 153 of GSTR 2006/4 – Goods and services tax: determining the extent of creditable purpose for claiming input tax credits and for making adjustments for changes in extent of creditable purpose.”
Mr Bleby said that what the respondent was submitting was based entirely on the content of the applicant’s GST detail reports that had been provided by the applicant and were included in the T documents. Along with the Glenhaven site plans, the GST detail reports provided a “high level check” on what was contained in the applicant’s Green Acres model and whether the judgements made in the application of the model were unreasonable. The respondent was not proposing a methodology outside the Green Acres model.
[12] Exhibit A3, Annexure A.
After further discussion, Mr Sievers asked whether the Tribunal could make a finding on the legal question of what residential premises meant and then apply that finding to certain supplies made by the applicant in the village, or whether there would only be a finding as to the legal question which would be applied later. Mr Bleby submitted that the respondent understood the applicant’s case was directed to the Green Acres model and, in particular, to the six or so elements that related to the Green Acres model. He said that the respondent did not understand the applicant was promoting a case where it built into the Green Acres model any other matters, like the pampering centre.
To clarify the position, the Tribunal ruled as follows: [13]
“……. on my reading there seems to be, or has been a dispute between the parties as to this legal issue: what does residential premises include? And there is a whole host of those issues, I mean there’s a few that you’ve been mentioning, but there’s others. Now if we’re looking at the Greenacres model, if the Greenacres model just deals with four of those but there are others besides that, I won’t be dealing with those unless the parties want me to. I hadn’t anticipated doing that. Greenacres model, whatever those other benefits are, I’ll address those, the legal issues relating to that and whether they fall within residential premised or not. Is that clear?”
[13] Transcript, page 31/35.
CONSIDERATION
To what extent are the acquisitions made by the applicant, in relation to the development, construction and operation of various retirement villages during the Relevant Periods, related to the making of input taxed supplies?
The Tribunal notes the applicant accepts that the indirect input based apportionment methodology outlined in the Green Acres model provides a fair and reasonable methodology to calculate the applicant’s “extent of creditable purpose” percentage in respect of the Relevant Periods. For the applicant’s purposes, the percentage is to be applied to expenses listed in the 2011 profit and loss statement for Glenhaven. The issue that remains to be determined by the Tribunal is how the Green Acres model is to be applied to certain of the expenses that are listed in the 2011 Glenhaven profit and loss statement.
The applicant has referred to the Retirement Villages Industry Partnership. From what I have read, the Retirement Villages Industry Partnership is a consultative forum established (under the auspices of the respondent) to clarify GST issues for retirement village proprietors and residents. The respondent has published documents relating to the operation (or intended operation) of the Retirement Villages Industry Partnership.[14]
[14] See paragraph 50 below.
The Retirement Villages Industry Partnership contains an “issues register” which contains guidelines relating to the GST treatment of retirement village maintenance fees. In the register, Issue 1 addresses the GST treatment of maintenance fees in non-freehold/strata situations where the resident is not eligible for residential care. Paragraph 17 of Issue 1 states:
“Apportionment
A lessor may make mixed supplies of both input taxed and taxable supplies. The amount of GST payable will depend on separating these supplies and the consideration for each type of supply in order to determine the extent ‘creditable purpose’ for claiming input tax credits. Goods and Services Tax Ruling GSTR 2006/4 explains the Commissioner’s view on the meaning of ‘creditable purpose’. That ruling also explains several possible methodologies for determining the extent of ‘creditable purpose’.”
As paragraph 17 of Issue 1 states, GSTR 2006/4 explains the respondent’s view on the meaning of creditable purpose. The Ruling is said to provide guidance on how to determine the extent of creditable purpose in making acquisitions to enable the correct amount of input tax credits to be claimed and does this by providing examples of apportionment methodologies that may be used.
Given its connection to, and its specific reference as a public ruling of the respondent in, the Retirement Villages Industry Partnership the Tribunal is of the view that GSTR 2006/4 is, as a matter of law, a reasonable expression of provisions in the GST Act, and its use and application is appropriate in the applicant’s case.
Paragraph 26 of Issue 1 refers to examples of methods of apportionment “that may help you to determine the extent of creditable purpose of your acquisitions for the purpose of claiming input tax credits”. The examples include the Green Acres model. The model village is described in the Retirement Villages Industry Partnership as follows:
“Green Acres is privately funded residential retirement village offering some 200 villa or town house style accommodation. Each home is fully self-contained and has either two or three bedrooms and garages. The village is set in extensive landscaped gardens with a swimming pool and bowls green. Other facilities include an on-site restaurant, communal lounges and libraries and a bus which is used both for trips to the local city centre and for excursions. The village employs people to organise on-site activities and day trips, drive the bus, maintain the grounds, run the kitchen and for administration.
Green Acres provides both input taxed supplies (residential premises) and taxable supplies (the restaurant, village bus and activities).
…
The apportionment methodology used in this example is consistent with GSTR 2006/4 and, in particular paragraphs 101-103, 116-119, and 148-150 which discuss input based methods of apportionment. This example uses an input based method of apportionment. However, the most appropriate method of apportioning input tax credits depends upon the particular circumstances of each case.
In Green Acres, the expenses of the bus, the activities and the expenses of the restaurant are included in the maintenance fees charged to the residents. This is not necessarily the case with other retirement villages. Expenses have been allocated to those services directly attributable to input taxed supplies (in this case, residential premises) and those directly attributable to taxable supplies. In the example below, the direct expenses attributable to residential premises are 70% of the total. The indirect expenses have therefore been apportioned 70:30.” [15]
[15] Exhibit A3, Annexure A, pages 2-3.
The Tribunal notes that, in her cross-examination, Ms Burton said that she had given no consideration to GST Ruling GSTR 2012/4 (previously draft Ruling GSTR 2012/D2). This Ruling deals with the GST treatment of fees and charges payable on exit by residents of a retirement village operated on a leasehold or licence basis. The Tribunal further notes that, like GSTR 2006/4, GSTR 2012/4 is an expression of the respondent’s opinion about the way in which a relevant provision of the GST Act applies or would apply. Again, from what I have read, it appears the GST treatment of exit fees collected by the operator of a retirement village has in the past been limited to an issue contained in the Retirement Villages Industry Partnership and the respondent has been encouraged to formalise its view in a public GST ruling.
In paragraph 40 of its submissions, the respondent contends that the expression “residential premises” is capable of including facilities that go beyond the bare ILU. In the present context, the question becomes which facilities and services are capable of being residential, and to what extent. In paragraph 41 of its submissions, the respondent relevantly refers to GSTR 2012/4, which states:
“Input taxed supplies
11. Input taxed supplies to the resident in a lease or licence arrangement may include supplies of:
• residential premises by way of lease or licence; and
• services which are integral, ancillary or incidental to the lease or licence (incidental services).
12. Incidental services are to be regarded as part of an input taxed or composite supply, the dominant part of which comprised the residential premises provided under the lease or licence.
13. Whether or not a service is incidental to a supply depends on the facts of each case. A service may be regarded as incidental where it is intended to ensure, facilitate or enhance the resident’s enjoyment of the lease or licence, but is not provided as an end in itself. The nature of a service is assessed according to its true character rather than simply by reference to a label or description given to it by the parties.
14. The costs of providing services that are integral, ancillary or incidental to the supply of the residential premises are sometimes included in the calculation of the monthly service or maintenance fee. This does not change the nature of the services concerned.”
Given its background in paragraph 51 above, the Tribunal is of the view that GSTR 2012/4 is, as a matter of law, a reasonable expression of provisions of the GST Act and its application is appropriate in the applicant’s case.
Although the applicant accepts that it makes input taxed supplies of residential premises, being the supply of individual ILUs to the residents, what components beyond the ILUs does the supply of “residential premises” include? The applicant contends that the “residential premises” supplied to each resident is limited to the following:
(a)the ILU which is “occupied” by the tenant as a residence, being part of the village; and
(b)those additional facilities and services that are necessary for the convenient use and occupation of the ILU by the resident as a place of residence. In the context of Glenhaven, the applicant argues that this is limited to the paths, driveways and gardens.
In referring to creditable purpose in s 11-15 of the GST Act, the respondent urges a different approach to that advanced by the applicant in paragraph 54(b) above. The respondent submits that the additional facilities and services are supplied as incidental to the supply of the residential premises. The residential premises are supplied to residents pursuant to the Lease (of an ILU), and at the same time the residents obtain contractual rights to other supplies. These contractual rights are not options that a resident can reject, simply in favour of just a Lease of an ILU. In reading the Lease, it can be seen that the contractual rights come as part of a package. To understand the package, it is noted that clause 1.6 contains a definition of “Common Property”, which means “all roads, pathways, landscaped grounds, buildings and conveniences of the Village, excluding Units……for the common use of residents of the Village”, and the “Village” is a defined term itself. So, under the Lease, there is a Village and there is a property (an ILU) in the Village.
The Lease also contains terms defined as “Recurrent Charges” and “Total Recurrent Charges”, the latter in clause 5.1 meaning the sum of all rates, taxes, costs, charges, outgoings, fees and other expenses incurred by the applicant in maintaining and keeping secure, not just the common property or the leisure centre, but the whole of the Village. Clause 1.24 of the Lease refers to “Recurrent Charges”, which means a resident’s proportion of the charges that the applicant determines and which is calculated on the basis of the floor area of the resident’s ILU, excluding courtyards and balconies and other ILUs and common areas, storerooms and garages in the Village. Hence, the amount of a resident’s Recurrent Charges is calculated having regard to the nature of the ILU that the resident occupies.
The Tribunal notes that the applicant has criticised the respondent for using the concept of a “retirement village” in its submissions, because the GST Act does not create a concept of a retirement village of residential premises. As the respondent argues, a retirement village in that sense is a short-hand expression for the bundle of rights that a resident obtains, along with the corresponding obligations under the Lease that provide the resident with an ILU and other facilities and services. In the Tribunal’s opinion, having regard to what is said in the Retirement Village Industry Partnership, this is a sensible description of the supply that the applicant makes to residents in the Village. The respondent has also submitted that what is supplied is a composite supply which the resident cannot opt out of. If the resident wants to live in one of the ILU’s, he (or she) also takes on board all of these other facilities and services and the option to use them. Moreover, there is an ongoing contribution which is based on the loan that a resident makes to the applicant and which is calculated by reference to the value of the resident’s ILU. The loan is non-interest bearing and is paid back at the end of the Lease, minus certain exit payments. Thus, it is not possible to say that there are separate supplies for separate considerations: see the definition of “Recurrent Charges” in clause 1.24 of the Lease. As the respondent has submitted, correctly in the Tribunal’s view, there is a composite supply of a bundle of rights to the resident, which includes the right to reside. In this retirement village context, there is a Village and the Lease identifies that the residents reside in the Village, the Village has common property and all this is the concept of the supply. As the respondent submitted, there is a context and that context is manifested in the Lease. It is the retirement village context that goes no further than the terms of the Lease: on this, see Statutory Interpretation in Australia, Seventh Edition by Pearce and Geddes at pages 375-377.
The respondent has referred to the three decisions in the Federal Court in Marana Holdings, South Steyne Hotel and Vidler which were referred to by the applicant. In the Tribunal’s view, the decisions in these cases are not relevant in the present proceedings. Here, the issue is whether “residential premises” includes communal facilities and services. The decision in Marana Holdings was not concerned, in any sense, with the idea of communal facilities. In the decision in South Steyne Hotel, there was no question of characterisation of communal facilities in any context that is akin to a retirement village. The decision in Vidler dealt with vacant land, not communal facilities and services. To summarise, communal facilities and services and the balance of vacant land are in no way excluded by the decisions in these three cases from being related to “residential premises”, particularly in the retirement village context.
In paragraph 65 of its submissions, the applicant contends that it is the ILU described in the Lease which constitutes the residential premises for the purposes of s 40-35 of the GST Act. It is the ILU that the resident occupies as a residence and it is the ILU over which the resident has rights of occupation. In paragraph 66 of its submissions, the applicant accepts that the residential premises supplied to a resident under the terms of the Lease includes those facilities and services that are necessary for the convenient use and occupation of the ILU by the resident as a place of residence. In the context of Glenhaven, the applicant submits that this is limited to the paths, driveways and immediate gardens. The respondent addresses these submissions in the following way:
“… You can be residentially accommodated in a building with a garden, a large garden with a pool where there are amenities. There’s no difficulty with that proposition. There’s only the communal aspect [sic] stands in the way from the applicant’s point of view they had to share with the other residents of the village in those terms of the lease. Now the retirement village context and I’ve defined that term, introduces the communal element into the residential context, that’s the ... point. That is why a retired person or couple will leave their house with all its amenities, maybe their pool, come to the retirement with their security system, come to the retirement village and experience these various amenities in the residential context in a communal setting, not only communal, but to some degree supported.
That doesn’t mean that the costs or the acquisitions associated with amenities do not relate to the supply of residential premises. …” [16]
[16] Transcript, page 150/15-25.
In the Tribunal’s view, the respondent’s comments in paragraph 60 above, expressed to be in the retirement village context, have considerable force. The applicant accepts that the “residential premises” of a resident is limited to paths, driveways and immediate gardens and not the communal aspects. But, as the respondent and the Tribunal have questioned, where do you draw the line? The respondent submits, again correctly in the Tribunal’s opinion, that the only way to draw the line is to go back to the Lease and see that “the supply of the various other facilities and services is part and parcel with the ILUs”.
In paragraph 69 of its submissions, the applicant seeks to rebut the respondent’s contention that the definition of “residential premises” has a particular meaning in the context of a retirement village. The respondent agrees that s 40-35 and s 40-65 of the GST Act do not refer to retirement villages. The respondent also agrees that words like residential premises take their ordinary meaning. But what is the ordinary meaning in the context that exists in the applicant’s case? The respondent calls it the retirement village context, strictly speaking, in the context of the Lease. As the applicant points out, in addressing the definition of retirement village in s 195-1 of the GST Act, it is true that that section does not apply to s 40-35. And the fact that the definition of retirement village is included in s 195-1 of the GST Act does not mean that retirement village is a concept that applies in the present case. The respondent agrees that retirement village is not a statutory concept for the business that the Tribunal is dealing with at the moment. But, it is apparent from s 195-1 that the GST Act is giving guidance as to what is capable of constituting residential premises. As the respondent submits (which submission the Tribunal accepts), s 195-1 clearly contemplates that communal facilities of a retirement village may none-the-less be residential. That is to say, while these provisions are not directly applicable in the present case, they illustrate that the GST Act starts from a position of assumption that the expression “residential premises” is capable of including facilities that go beyond the bare ILU. To ignore that assumption is to deny the intention of the GST Act.
The applicant has referred to the respondent’s public GST Ruling GSTR 2007/1 where, in paragraph 12, the respondent states:
“…
Therefore, the definition of ‘retirement village’ for GST purposes is only applicable in meeting the requirements of specific concessional provisions in the GST Act (that is, subsection 38-25(3) and section 38-260). It has no effect on any other legislation that refers to the term ‘retirement village’.
The respondent has indicated that it accepts what is stated in paragraph 12 of GSTR 2007/1. However, it seems to the Tribunal that the respondent is not dealing with a retirement village as a matter of law, but as a matter of fact. All that is happening is that the respondent is concerned with the scope of the term “residential premises” where the GST Act recognises that residential premises are capable of including communal facilities. The fact that “residential premises” is part of the definition of “retirement village” should be put to one side. All that should be looked at is the fact that the expression “retirement village” are premises that are residential premises, but they also include premises that include communal facilities for use by the residents. The expression “residential premises” in s 195-1 of the GST Act might only mean the ILU’s. However, in a different context the same expression can include communal facilities and services. Thus, to determine what things are included within the definition of residential premises, it is necessary to refer back to the Lease and to identify what other facilities and services are included with the supply of the ILU’s.
In paragraph 70(c) of its submissions, the applicant refers to paragraph 24 of the decision of Emmett J in South Steyne Hotel (supra). The applicant argues that the respondent cannot seek to characterise the individual supply of residential premises (i.e. the individual ILU’s) by reference to how the entire residential complex may be characterised, i.e. as a retirement village. The argument assumes that the applicant is trying to establish that it is only the ILU that is residential premises. In the present case, the respondent is contending that the definition of residential premises is not so limited. In the Tribunal’s view, the facts of South Steyne Hotel are distinguishable. That case dealt with serviced apartments in a hotel and whether they were “commercial residential premises”, not “residential premises”.
As an alternative contention, the applicant argues in paragraph 72 of its submissions that, if the supply of “residential premises” includes the communal recreation facilities, such as the leisure centre, tennis court and the bowling green, and also the additional services such as the emergency response system and the village bus, then these matters are carved out of the input tax treatment of that supply by paragraph 40-35(2)(a) of the GST Act. This is because each of these elements of the “residential premises” supplied to the residents by the applicant is not “to be used predominantly for residential accommodation”: see Sunchen Pty Ltd v Commissioner of Taxation (2010) 190 FCR 38. Sunchen was a case which dealt with s 40-65(1) of the GST Act, where a company registered for GST purchased land on which a single storey house with a carport had been located and the purchase was subject to an existing tenancy. It was common ground that the whole property was residential premises. The question was whether the whole property was to be used predominantly for residential accommodation. The company was essentially arguing that regard could be had to the future subjective intentions with respect to the property. The Full Federal Court held that regard could not be had to the subjective intentions of the purchaser, but rather to the actual characteristics of the property for the purposes of s 40-65(1). In the Tribunal’s opinion, the case is of no assistance in an analysis of s 40-35(2) of the GST Act.
In relation to the making of composite supplies, the respondent has referred to several cases. Two of the cases were decisions of the Administrative Appeals Tribunal which appeared particularly relevant. In AGR Joint Venture v FC of T 2007 ATC 2692, the Tribunal (Justice Downes and Senior Member Sweidan) said:
“34. In ascertaining whether a transaction should be regarded as several distinct supplies as opposed to one composite supply, it is necessary to consider the true and substantial nature of the consideration given in return for the payments (Customs & Excise Commissioners v Wellington Private Hospital Ltd [1997] STC 445 at 462). ‘[The] fact that separate charges are identified in a contract or on an invoice does not on a consideration of all the circumstances necessarily prevent the various supplies from constituting one composite transaction nor does it prevent one supply from being ancillary to another supply’ (Customs & Excise Commissioners v British Telecommunications [1999] WLR 1376 at 1383). Similarly ‘…although the existence of a single price or separate prices is a relevant factor, it should not be treated as determinative. The court should have regard to the commercial reality of the transaction. If two or more distinct elements in the supply can be discerned, it needs to be asked whether or not one or more can be seen as ancillary to a principal element or elements’ (Sea Containers Ltd v Customs & Excise Commissioners [2000] STC 82 at 88).
…
41. We accept that the dealings are capable of being characterised as the supply of a bundle of rights, including the crediting of a metal account, followed by the fabrication of metal into blanks. However, that does not mean that there are not two supplies. To say that there are two supplies is, in our opinion, to create an artificial splitting of the transaction. The effect of the GST legislation on the dealings is not simply determined by identifying their precise legal character. The question is how they should be characterised for GST purposes. This involves an analysis of the nature of the dealings as much as a technical legal analysis.”
In Case 6/2007, 2007 ATC 157, the Tribunal (Justice Downes) said:
“Composite and mixed supplies
5. Some GST cases dealing with packaged items involve the question whether a supply is a ‘composite supply’ or a ‘mixed supply’. In a composite supply, items which are integral, ancillary or incidental to the main item may be treated for GST purposes in the same way as the main item. An example might be a paper serviette supplied with food. In a composite supply, where the main item is GST-free (usually when it is food), no GST will be payable. A mixed supply, on the other hand, is a supply of separate items together. The present supply is a mixed supply. The promotion items have intrinsic value, will not be consumed with the food and are mostly unconnected with the food. This is so even when, for example, the main item is a jar of coffee and he promotion item is a mug in which coffee might be served. This particular example was in the Further Supplementary Explanatory Memorandum addressing the introduction of the food subdivision of the GST Bill in the Senate (para 1.58). Where items are supplied together in a mixes supply, the supply will attract GST if the supply of one or more of the items is a taxable supply.”
These decisions of the Administrative Appeals Tribunal are useful in their consideration of whether a supply is a “composite supply” and where items which are integral, ancillary or incidental to the main item may be treated for GST purposes in the same way as the main item. The decisions support the respondent’s argument that “residential premises” supplied to a resident under the Lease in the present case include communal facilities and services.
The Applicant’s Reply
In its reply, the applicant argued that the respondent was wrong in characterising the Lease “by reference to this context of a retirement village”. The applicant said that you have to “take the Lease….. through the provisions of the GST Act”. In the Tribunal’s view, the respondent has taken a principled approach by analysing the Lease, through what is said in GSTR 2006/4 and GSTR 2012/4, in determining the extent to which what is being supplied by the applicant is an input taxed supply, that is, “residential premises”. This approach is preferred to the analysis taken by the applicant through the provisions of the GST Act.
THE LEGAL QUESTION
The applicant has asked the Tribunal to make a finding on the legal question of what “residential premises” means on the facts in the present case. Having regard to the respondent’s submissions, my finding will be directed to the Green Acres model and to certain of the expenses listed in the 2011 Glenhaven profit and loss statement. As I have said in paragraph 45 above, having made my finding on the legal question, I would deal with four of the expenses or elements listed, but I would not deal with others unless the parties wanted me to. The applicant and the respondent agreed with this approach.
On all the evidence before me, and applying what is said in GSTR 2012/4, it is my finding that the expression “residential premises” (or the supply of “residential premises) in the present case includes:
(c)the premises by way of lease or licence (that is, the ILU); and
(d)facilities or services that are integral, ancillary or incidental to the Lease, that is, incidental services.
I have chosen to deal with five of the expenses listed (and not others) as follows:
(a)Motor vehicles, comprising the village bus, the ute and fuel. It seems the applicant has been characterising the bus and the ute separately. If this is done, given that the bus and the ute are either used by the residents or used for ground care and the costs are part of the total recurrent charges, the expenses would be direct input taxed. However, if the motor vehicles are taken as a group, the evidence is unclear. On the material available, I am of the view that all the motor vehicle expenses are apportionable.
(b)Emergency response monitoring system. I understand that this system is a proxy for a security alarm. I understand the applicant accepts that the costs of the system itself are input taxed, but not the monitoring. In my view, the system and the monitoring is part of the residential premises. I am of the view that these expenses would be direct input taxed.
(c)Indoor heated pool. Residents are charged a recurrent fee, part of which is directly related to the use of the pool. The indoor pool is also available for hire to non-village residents or is used for commercial activities (such as aerobics) in the pool. In these circumstances, I am of the view that these expenses, including the heating of the pool, are apportionable.
(d)The lift. There is evidence that the top floor of the leisure centre is not being occupied by residents. Although it might be argued that the centre is still residential premises, it is used for other things. Some of these might be commercial activities, but the evidence is not clear. In these circumstances, the expenses relating to the leisure centre would be mixed or apportionable. In my view, the same would apply to the expenses relating to the lift.
(e)Employment. On the available evidence, the employment expenses include those relating to ground care (residential premises). They also include expenses relating to the employment of Ms Eyers, where she is involved in the management of the village (residential premises) and sales (taxable supplies). In these circumstances, the employment expenses should be apportioned.
SUMMARY
In its objection decision, the respondent has allowed the applicant’s objection in part. The respondent has recalculated the applicant’s input tax credit entitlement for the Relevant Periods as 13 per cent. This entitlement has been based upon the respondent’s calculation of the applicant’s creditable purpose under s 11-15 of the GST Act. In calculating the applicant’s creditable purpose it is necessary to determine the extent to which what is supplied by the applicant is an input taxed supply, that is, related to residential premises. In paragraph 69 above, I made a finding on the legal question of what “residential premises” means on the facts in the present case. To that extent and having particular regard to the limited hearing of the proceedings, the respondent’s determination of the applicant’s input tax credit entitlement of 13 per cent for the Relevant Periods is, in my opinion on the basis of the evidence, correct. However, because of this limited hearing, it will be necessary for all of the (or all of the other) expenses listed in the 2011 Glenhaven profit and loss statement to be considered and dealt with by both the parties. In these circumstances, I think it is appropriate to remit the matter for further consideration pursuant to s 42D of the AAT Act.
DECISION
For the reasons outlined in paragraph 73 above, the Tribunal:
(a)affirms the objection decision to the extent that the respondent has determined the applicant’s input tax credit entitlement based on its calculation of the extent of the applicant’s creditable purpose for the Relevant Periods is 13 per cent; and
(b)remits the objection decision to the respondent for further consideration pursuant to s 42D of the AAT Act insofar as it is necessary for all of the expenses listed in the 2001 Glenhaven profit and loss statement to be considered and dealt with by both of the parties, having regard to the application of the apportionment methodology in the Green Acres model; and
(c)specifies that the period within which the respondent is to reconsider the objection decision remitted to it pursuant to (b) above is the period commencing on the date of this decision and expiring on 27 July 2014.
I certify that the preceding 74 (seventy - four) paragraphs are a true copy of the reasons for the decision herein of Senior Member R W Dunne ..................[Sgd]......................................................
Administrative Assistant
Dated 28 March 2014
Date(s) of hearing 5, 6 and 7 November 2013 Counsel for the Applicant Mr Chris Sievers Advocate for the Applicant Ms L Simeoni Solicitors for the Applicant Kain Corporate + Commercial Lawyers Counsel for the Respondent Mr C Bleby & Mr S Cole Advocate for the Respondent Mr A Goss Solicitors for the Respondent ATO Legal Services Branch
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