Introduction

The GST treatment of aged care services and retirement villages is complex and can be controversial.  This is because the services provided may be taxable, input taxed or GST-free.

The Ruling seeks to explain the Commissioner’s views on when care services and accommodation provided to residents in privately funded nursing homes, aged care hostels and serviced apartments in a retirement village are GST-free, with a focus on the following provisions in s 38-25 of the GST Act:

• s 38-25(3) – the supply of prescribed services to one or more aged or disabled persons in a residential setting;
• s 38-25(4) – the supply of accommodation to a person in the course of making a GST-free supply under ss(3);
• s 38-25(4A) – the supply of residential premises in connection with making a GST-free supply under ss (3).

The Ruling does not deal with the GST treatment of government funded retirement facilities or those provided by charitable institutions.

S 38-25(3) – GST-free supplies of residential care

The section has three limbs, each of which must be satisfied:

• services are provided to “one or more aged or disabled people in a residential setting”; and
• 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
• the services include, and are only provided to people who require, the services set out in item 2.1 (daily living activities) of part 2 of the Schedule and item 3.8 (nursing services) of Part 3 of the Schedule

Subsection (3A) and (3B) expressly limit the scope of subsection (3) in the context of residents of retirement villages.

• subsection (3A) provides that services provided to a resident of a retirement village are only provided in a residential setting if he or she is a resident of a serviced apartment in the village and 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 apartment
• subsection (3B) excludes services provided to residents of a serviced apartment in a retirement village where the Aged Care Secretary has made a determination of the levels of care services that such residents must receive in order for subsection (3) to apply and the Aged Care Secretary has not assessed the resident as requiring those levels of care

When are services provided “in a residential setting”?

It is clear that services will only be GST-free pursuant to s 38-25(3) if they are provided “in a residential setting”.  The Ruling takes the view that the meaning of “residential setting” in the context of paragraph 38-25(3)(a) does not include a person’s private home and excludes settings in which care may be provided but are medical in nature, such as a hospital of psychiatric facility.  Further, the Ruling considers that the words refer to privately funded nursing homes and aged-care hostels which have the following characteristics:

• residents do not have a proprietary interest in the property;
• residents can be moved at the operator’s discretion under certain circumstances
• premises are marketed and held out to the public as a place for care and accommodation, rather than just accommodation; and
• residents have limited rights compared to residents who lease or owns their premises.

The focus of the Ruling on the existence of a proprietary interest in the property appears to be based on the premise that a proprietary interest (e.g., as owner or lessee) would equate the person to that of a owner or tenant residing in their own private homes, notwithstanding that the premises may form part of larger accommodation.

The Commissioner notes that the expression “residential setting” is not defined in the GST Act, but takes the view that the meaning of the words is informed by the context in which s 38-25(3) appears in Division 38, which recognises the types of care that are separately provided for and defined in the Aged Care Act.  In this regard, the Aged Care Act definition of “residential care” expressly excludes care provided to a person in their private home, hospital or a psychiatric facility.  Further, s 38-30 of the GST Act, dealing with the supply of “community care” addresses the GST treatment of personal care and assistance provided to a person in their own private home.

While I can understand the reasoning behind the Commissioner’s approach, when one has regards to the words of the statute the argument becomes more difficult and this raises the question of whether a Court would take the same view.  There have been a number of examples where the Federal Court has had to grapple between the construction of the words of the section and the apparent intention of the section: eg, Deputy Commissioner of Taxation v PM Developments Pty Ltd [2008] FCA 1886; Commissioner of Taxation v Gloxinia Investments (Trustee) [2010] FCAFC 46.

In this regard, the following matters may be relevant:

• If Parliament had intended the words “residential setting” to have the meaning in the Aged Care Act, one would expect that this would have been done.  The GST Act contains numerous examples of where terms are defined by reference to definitions contained in other Acts.
• In the absence of a definition, the ordinary meaning of “residential setting” would arguably be broad enough to include private homes.
• That “residential setting” was intended to take its ordinary meaning arguably gains support from the inclusion of ss (3A) and (3B) which expressly exclude serviced apartments from ss (3) save for specific circumstances.
• The fact that a supply may be treated as GST-free under one section within Division 38 should not prevent that supply satisfying the terms of another section.

In the Ruling the Commissioner does acknowledge the alternative view.

When are services provided in a residential setting the GST-free supplies of residential care?

Services will only qualify if:

• 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
• the services include, and are only provided to people who require, the services set out in item 2.1 or 3.8 of that Schedule.

The Ruling takes the view that it is not necessary for the resident to require and to have a continuing need for all of the item 2.1 and item 3.8 services set out in the Schedule.  However, the resident must have a current need for one or more of those services, rather than “isolated” or “sporadic”.  Whether a resident has a “continuing need” for services may be a difficult question and in the Ruling the Commissioner states that he will consider objective evidence, including medical reports.

The Ruling notes that the Minister’s Determination requires that services must be supplied to a resident as a package of services under a written agreement, and the charges for the services must be payable to the same entity.  Where the supplier, as principal, contracts with third parties for the provision of some items in the package, the Ruling considers that the requirement is met when the third parties are the supplier’s agents or subcontractors.  However, if the supplier merely facilitates or arranges the provision of some part of the package by a third party, separate supplies are made and neither suppliers are GST-free under s 38-25(3).

S 38-25(4) – when is the supply of accommodation GST free?

Under s 38-25(4) the supply of accommodation to a resident of a private nursing home is GST-free if it is made to a resident “in the course” of making a supply of services that are GST-free under s 38-25(3).

The Ruling takes the view that the accommodation is only made “in the course of” making the GST-free supplies if it is made at the same time as the other services.  Accordingly, the supply of accommodation only will not be GST-free, including where the supplier merely facilitates or arranges for an external provider to supply services to the resident.

Also, the supply of the accommodation must be integral to the supply of the care – the resident must move into the accommodation in order to receive the care.  In this context, the Ruling refers to the following example:

The primary focus of some premises is to provide a type of residential lifestyle accommodation for older persons, rather than to provide residential care services.  Some services such as basic first aid and social activities may be provided for some or all of the residents if, and when, they require them.  However, the level of services is such that it cannot be said that the accommodation is being supplied ‘in the course of’ supplying those services.  In these circumstances, the accommodation does not facilitate a supply of care services by residents.

The Ruling accepts that short, termporary, absences by a resident does not prevent the GST-free residential care and accommodation services to continue to be supplied.

S 38-25(4A) – when is the supply of a serviced apartment in a retirement village GST-free?

S 38-25(4A) provides that the supply of a serviced apartment in a retirement village will be GST-free if:

• the supply is made by sale, lease, hire or licence, or the supply of a right under a security to participate in a retirement village scheme;
• the serviced apartment is supplied to a resident who requires item 2.1 services (daily living activities) or nursing services (item 3.8 services) and
• the serviced apartment is supplied in connection with one or more supplies, or proposed supplies, to the person that are or will be GST-free supplies of care services under s 38-25(3).

This subsection uses the phrase “in connection with”, rather than “in the course of”, in the context of the relevant nexus between the supply of the serviced apartment and the GST-free care services.  The Ruling appears to view these words in a broader context and takes the view that the supplier of the serviced apartment does not need to be the same entity that supplies the GST-free care services.

The Ruling accepts that a “one-off” supply of a serviced apartment in a retirement village can be GST-free.  This raises the issue of the scope of the requirement that the recipient requires item 2.1 services or item 3.8 services.  Arguably, the focus of that test should be limited to the time of the supply (ie, does the recipient require those services at the time of settlement, or grant of the lease) and whether that requirement is a continuing one is not relevant.  The Ruling does not deal with this question.