ATO Investigates GST Scheme

by Mary Swire, Tax-News.com, Hong Kong

04 November 2010

Australian Tax Commissioner Michael D’Ascenzo on October 3 said that retirement village operators' arrangements are to be investigated by the Australian Tax Office (ATO) in cases where operators are selling services, such as electricity, to residents in an attempt to gain a tax advantage.

Under Australian tax law, goods and service tax (GST) is not charged on residential accommodation. This means that retirement village residents do not pay GST on their accommodation and consequently retirement village operators are not entitled to claim GST credits on the costs of supplying that accommodation.

Under the arrangement to be investigated, the retirement village operator requires residents to buy electricity which the operator has bought from an electricity supplier. The retirement village operator claims GST credits by treating its supply of electricity to residents as a taxable supply, separate from the non-taxable supply of residential accommodation. D’Ascenzo said these arrangements appear artificial and contrived in their design and execution.

“It is unlikely these operators would begin supplying electricity under a separate contract if it wasn’t for the GST credits they believe they will gain from the arrangement,” D’Ascenzo said.

The ATO has confirmed it is to examine these arrangements and any others that attempt to take advantage of the GST provisions contrary to the intention of the law. “Retirement village operators unsure about their situation should seek independent advice from someone who is not selling the arrangement or contact the ATO for a private ruling on their individual circumstances,” D’Ascenzo concluded.

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