RETIREMENT village developers could be forced to pay a significant amount of GST under a proposed new ATO ruling, ultimately resulting in higher accommodation costs for thousands of ageing baby boomers.
WMS Chartered Accountants retirement sector specialist Anthony Karos (pictured), ATO wants to hit retirement village developers with a GST ‘double whammy’, which would cause concerning flow-on effects for the industry and retirees.
“If the draft is adopted it will represent a backflip by the ATO and the higher taxes could discourage development of retirement projects as well as threatening the viability of developers who are seeking to sell entire projects,” says Karos.
“Higher taxes for developers will mean higher accommodation costs for the tidal wave of baby boomers that will be entering the retirement market in coming years. It is concerning that the ATO is proposing such a heavy-handed approach to an industry that is so vitally important to the Gold Coast and a generation of Australians.”
The major change in the proposed ruling is that the taxable value of a retirement village will include the loan value previously advanced to developers by residents.
With additional changes to the claimable GST credits during construction, Karos says the ruling would mean higher GST costs for developers at the start and end of a project.
“Throughout construction developers will not be able to claim as many GST credits as they do now and the double whammy arises when substantially more GST is payable on the sale of a village,” he says.
“If a village is sold for $25 million and the purchaser assumes liability for resident loans totalling $65 million, GST would be payable on the $90 million total. Previously there would only be GST on the $25 million sale proceeds.
“Other flow on effects may include increased stamp duty, additional income tax and funding obligations related to the additional GST for the purchaser.”
Karos says the proposed ruling would add another burden to the retirement industry, which is already struggling to meet demand without readily available credit.
“It is already very difficult for developers wanting to finance new projects because of the prevailing market and the fact that buyers have the right to opt out of a sale in the closing stage of a project,” he says.
There are also concerns that the ruling would have an impact on retirement village valuations.
The ATO has called for submissions on the draft ruling by July 23.
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