Possible GST hike for RV developers
A draft ruling from the ATO outlines tax increases for retirement village developers.
Retirement village developers will be hit with a significant increase in GST payments if a draft ruling of the Australian Taxation Office (ATO) goes ahead.
The eagerly awaited draft ruling would see a significant increase in the amount of GST applied to developers selling villages.
Rhys Guild from Minter Ellison Lawyers said the changes had the potential to change the retirement village marketplace.
“If someone builds a retirement village to sell, they will lease out the units and once they are all let, the developer will sell the village,” he said. “If the village goes for $30 million, they would then pay $3 million in GST.
“But the ATO’s draft ruling would mean the developer would also have to pay GST on the value of the loans.
“It wouldn’t be uncommon for a village to have $100 million in loans so they would be receiving $30 million in cash and paying $13 million in GST. That’s an incredible amount of GST to have to pay.”
The draft ruling also reduced the amount of GST credits that village developers can claim on GST.
“As you go to build a village, the builder might charge $20 million and then there will be $2 million for GST,” said Mr Guild.
“In the past someone might have claimed 80 per cent of that $2 mill back in GST credits but that is going to reduce so they might only be able to claim back 50 or 60 per cent.
“It’s going to hit both ends of the development. At the construction phase they will receive fewer credits and at the sale they will be charged more GST. It’s a double whammy!”
The draft ruling could affect village transactions from up to four years ago but the ATO has announced a number of transition provisions which may protect some developers from retrospective costs.
The ATO will receive submissions on the draft ruling until 23 July.
