Bills Digest No. 61, 2004–05
Tax Laws Amendment (Retirement Villages) Bill
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Contact Officer & Copyright Details
Amendment (Retirement Villages) Bill 2004
Date Introduced: 18 November 2004
House: House of Representatives
The Bill takes effect
when it receives Royal Assent. However, the measures in
Schedule 1 in relation to serviced apartments take
effect from 1 July 2000. The commencement of other measures is
dealt with in the Main Provisions section of the Bills
The aim of the Bill is to clarify how the GST applies
to retirement villages. The
Explanatory Memorandum(1) states the purposes of the
measures in Schedule 1 of the Bill are as follows:
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 .
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
Retirement villages have been an accommodation option in
Australia since the 1950s when a number of church organisations
first set them up. Later, both private and community organisations
also began establishing retirement villages. Retirement villages
cater for people aged over 55 years of age but they vary as to the
type of accommodation and support services they provide. Some
villages only provide self-care accommodation whilst others provide
a continuum of care from self- care to serviced accommodation to
low care (hostel level) or high care (nursing home) accommodation.
These latter two categories are classified as residential aged care
and eligible owners/operators providing these facilities are
directly subsidised by the Commonwealth. It is the first two
categories of accommodation (self care units and serviced units)
that are the main concern of this Bill.
Residents in self care units tend to provide much of what they
need (for example, food, personal care) for themselves but also use
and share some village facilities such as recreation rooms. They
may also avail themselves of some maintenance and other village
support services. They are essentially self supporting. Residents
in serviced units typically, either eat in communal dining rooms or
have their meals delivered. They are often also provided with some
nursing services as well as cleaning and maintenance support and
assistance. Often there is a blurring of the distinction between
these two types of retirement village accommodation with residents
being self supporting in some things but requiring assistance with
The lack of clarity that has occurred with respect to how the
GST applies to retirement villages is essentially because of a
narrow definition by the Australian Taxation Office of the words
residential setting as used in the GST Act.
Section 38-25 of the GST Act sets out the conditions when a
supply of residential care services is GST-free. The provisions
relevant to retirement villages and serviced apartments for aged
persons are in subsection 38-25(3) set out below.
3) A supply of services is
(a) the services are
provided to one or more aged or disabled people in a residential
(b) the *Aged Care Minister has determined in writing
that the services are of a kind covered by Schedule 1 to the
*Quality of Care Principles; and
(c) the services include, and are only provided to people who
require, the services set out in:
(i) item 2.1 (daily living activities assistance) of
Part 2 of that Schedule; or
(ii) item 3.8 (nursing services) of Part 3 of that
An insight into how the ATO has interpreted subsection 38-25(c)
of the GST Act can be obtained from its
Interpretative Decision ATO ID 2001/664 made on 30 November
2001. The issue before the Commissioner was whether a retirement
village was eligible for GST-free supply under section 38-25 of the GST Act when it supplies meals to
residents in independent living units. The relevant part of that
Interpretative Decision is set out below.
For subsection 38-25(3) of the GST Act to apply,
the supply of residential care must satisfy the following
- the care recipient is aged or disabled
and receiving the care services in a residential setting; and
- the services provided to the care
recipient satisfy the Aged Care Minister's Determination under
paragraph 38-25(3)(b) of the GST Act; and
- the services include, and are only
provided to people who require the services set out in item 2.1 or
item 3.8 of Schedule 1 to the Quality of Care Principles.
The expression residential setting is not defined in the GST
Act. However, the Interpretative Decision seeks to equate the
meaning of residential setting with an inferred meaning of
residential facility in the Aged Care Act 1997.
The justification for this interpretation as set out in the
Interpretative Decision is set out below:
The term 'residential setting' is not defined in
the GST Act. However, Acts in pari materia can be
consulted in interpreting the Act in question. An Act in pari
materia is an Act which deals with the same subject matter as
the Act being interpreted (Danziger v. The Hydro-Electric
Commission  Tas SR 20).
Section 38-25 of the
GST Act refers to principles made under the Aged Care Act 1997.
Therefore, it is permissible to consult the Aged Care Act 1997, as
an Act in pari materia, to determine the meaning of the
term 'residential setting'. In the context of residential care,
'residential setting' has a similar meaning to 'residential
facility' in the Aged Care Act 1997.
A 'residential facility' in the Aged Care Act 1997
is a facility that provides accommodation that includes:
appropriate staffing to meet the nursing and
personal care needs of the person; and
meals and cleaning services; and
furnishing, furniture and equipment for the
provision of that care and accommodation.
The Aged Care Act 1997 provides that residential
care does not include care provided to a person in their private
home. It follows that the terms 'residential facility', and
therefore 'residential setting', do not include a private
This means that where a person lives in an
independent living unit that can be regarded as their own home, it
will not come within the ambit of these terms. This applies whether
the unit is owned or leased, and whether or not the unit is in a
specific complex or in the community at large.
In this context, 'residential setting' equates
with the type of facility provided in the publicly funded
residential care sector, for example nursing homes.
This narrow definition as outlined by the Australian Taxation
Office created a grey area in that it appeared to restrict the GST
free areas applying to retirement villages in contradiction to the
intent of the original GST legislation. For example, the
Explanatory Statement to the GST-free Supply (Residential Care -
Non-Government-Funded Supplier) Determination 2000 would appear
to support the view that aged people living in privately funded
residential accommodation, including serviced apartments in
retirement villages, may expect to receive the GST-free treatment
of services that are GST-free in Commonwealth funded aged care
The intent of the primary legislation is for aged
or disabled people in like care situations, who are living in
privately funded residential accommodation, to be treated similarly
in terms of their access to GST-free services, as aged or
disabled people living in Commonwealth funded residential aged care
services under the Aged Care Act 1997.
The Bill clarifies the meaning of residential setting by the
amendments proposed in items 2 and
3 of Schedule 1.
Item 2 inserts proposed subsections
38-25(3A), (3B), and
Proposed subsection 38-25(3A) states that
services provided to a resident of a retirement village are taken
for the purposes of section 38-25(3) to be provided in a
residential setting, if and only if:
(a) he or she is a resident of a serviced
apartment in the retirement village; and
(b) there is in force a written agreement under
which the operator of the retirement village provides daily meals
and heavy laundry services to all of the residents of the
However, proposed section
38-25(3B) limits the category of persons in serviced
apartments who may have otherwise by the operation of
proposed section 38-25(3A) been deemed to be in a
residential setting for the purposes of section 38-25(3) to
who will come within a determination in writing of the Aged Care
Minister as to the levels of care required, and
who are assessed by the Aged Care Secretary as requiring the
levels of care set out in the determination.
According to the Explanatory Memorandum, the
determination of the Aged Care Minister will be a disallowable
instrument for the purposes of section 46A of the Acts
Interpretation Act 1901.
Proposed section 38-25(3C) states that a
determination under proposed section 38-25(3B) may
be restricted to a specific class of residents of serviced
apartments in retirement villages. The
Explanatory Memorandum(2) adds:
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
Thus it is the Government s intention that existing residents of
serviced apartments should not be disadvantaged by the new
The Dictionary in section 195-1 of the GST Act will be amended
to include additional definitions with the following meanings.
The Aged Care Secretary means the Secretary of the Department
that administers the Aged Care Act 1997. (Schedule
1, item 9)
Premises satisfy the definition of retirement village if:
the premises are residential premises (as currently defined in
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.
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;
they are commercial residential premises (as currently defined
in the Dictionary).
(Schedule 1, item 11)
A serviced apartment is an apartment that is designed to be
occupied by aged residents who require either or both of the
(Schedule 1, item 12)
The Bill provides GST-free tax treatment for particular supplies
made by charitable institutions or trustees of charitable funds
that operate retirement villages (Schedule 1, item 5,
proposed paragraph 38-260(a)).
However, 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, proposed paragraph
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. (Schedule 1, item 5, proposed paragraph
The amendments made by Schedule 1 to the Bill
concerning serviced apartments will apply to net amounts for tax
periods starting on or after 1 July 2000. (Schedule 1,
The amendments in relation to charitable retirement villages
will apply to supplies made on or after the day on which the bill
receives Royal Assent (Schedule 1, subitem
The Explanatory Memorandum adds that 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(3).
A determination made for the purposes of proposed
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)).
The effect of these measures is that that residents in serviced
apartments in retirement villages who receive daily living or
nursing assistance will receive these supplies GST free. Under the
Bill, the degree and extent of daily living and nursing assistance
that is required to enable the resident to be exempt from the GST
is to be made by a Determination of the Aged Care Minister.
As the amendments in respect of serviced apartments apply from 1
July 2000 (when the GST took effect) some operators will be able to
claim refunds for overpaid GST as provided in the Bill.
The Bill also specifically provides that supplies of
accommodation, accommodation services and meals are GST free in
charitable retirement villages. This provision confirms what is
current practice with respect to how the GST applies to charitable
retirement villages. However, the amendments in this Bill in
relation to charities do not allow staff and visitors in retirement
villages to benefit from the GST exemption.
Explanatory Memorandum(4) states that the cost of
the measures in the Bill is as follows.
The high cost in the first
year reflects the expected claims for refunds of GST paid from 1
July 2000 in respect of serviced apartments.
Explanatory Memorandum to the Tax Laws Amendment (Retirement
Villages) Bill 2004; p. 3.
ibid., p. 9, paragraph 1.17.
ibid., p. 17, paragraph 1.55.
ibid., p. 3.
Greg McIntosh and Bernard Pulle
30 November 2004
Bills Digest Service
Information and Research Services
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© Commonwealth of Australia 2004
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