Retirement Village Taxes: Some Good News from the ATO

A recent statement by the ATO confirms that many retirement village operators may have significant new deduction claims.

It is common for retirement village operators to use a lease/license model with their residents, under which exiting residents are paid a share of the “capital appreciation of their retirement village property” which essentially reflects the capital appreciation of the leased unit during the resident’s occupation of that unit.

The ATO’s published view in Taxation Ruling TR 2002/14 Income Tax: taxation of retirement village operators (‘TR 2002/14’) is that such capital appreciation payments made by retirement village operators are of a capital nature and are therefore not deductible.

However, in December 2013, in Retirement Village Operator v FCT [2013] AATA 887, the Administrative Appeals Tribunal found that capital appreciation payments made by a retirement village operator were an ordinary part of the carrying on of the taxpayer’s retirement village business and thus necessarily incurred in carrying on that business. As a result, the Tribunal found that the payments were deductible under section 8-1(1)(b) of the Income Tax Assessment Act 1997.

Although the case was a positive sign for retirement village operators, a significant length of time passed without the ATO publicly responding to this case, which caused uncertainty as to the ATO’s current position.

Finally, on 12 November 2014, the ATO issued a Decision Impact Statement in respect of Retirement Village Operator v FCT [2013] AATA 887. In the Decision Impact Statement, the ATO formally confirmed that it would amend its position in TR 2002/14 with a new paragraph to reflect the Tribunal’s decision. The resulting addendum to TR 2002/14 was issued on 26 November 2014.

As a result of this change, affected taxpayers may request that the Commissioner amend previous tax assessments in accordance with section 170 of the Income Tax Assessment Act 1936. This may result in significant deduction claims for many retirement village operators.

Kain C+C Lawyers are experienced in acting for retirement villages and in dealing with technical tax issues and claims for retirement villages. Please contact our tax specialist Marc Romaldi on (08) 7220 0912 or [email protected] if you would like us to review your retirement village’s circumstances and assist you with any potential deduction claims.