When you buy an operating retirement village as a “going concern,” the sale is GST-free. Sounds great, right? But here’s the catch many buyers miss.
If you plan to keep running the village and leasing accommodation to residents (which is an input-taxed supply), you’ll likely face a GST increasing adjustment after the sale closes. This isn’t a small fee—it can be a major, unexpected cost.
How is it calculated?
The formula is:
10% of the Sale Price × Proportion of Non-Creditable Use
What counts as the Sale Price?
It’s not just the purchase price. It also includes the value of any resident loans (ingoing contributions) you take over. This can significantly increase the base amount for the GST calculation.
A quick example:
Purchase price: $1.2 million
Value of resident loans assumed: $10.5 million
Total “Sale Price”: $11.7 million
If 99% of the village will be used for input-taxed accommodation:
GST adjustment = 10% × $11.7M × 99% = $1.158 million
That’s an extra $1.158 million payable to the ATO, despite the “GST-free” purchase.
Why does this happen?
The “GST-free” status applies only to the sale itself as a going concern. If you then use the asset for supplies that don’t allow GST credits (like residential leases), the ATO requires this adjustment.
The key takeaway
Don’t let the “GST-free” label in the contract fool you. The real tax impact comes later. Before signing any deal, it’s crucial to:
Model the potential GST adjustment.
Ensure your funding plan covers this future liability.
Get expert advice to structure the purchase optimally.
Need help navigating this? Our team specialises in GST and property transactions. We can help you calculate the true cost and avoid expensive surprises.
[Contact us today] for a confidential discussion.
Disclaimer: Any advice on this site is general nature only and has not been tailored to your personal objectives, financial situation and needs. Please seek personal advice prior to acting on this information. Because of that, before acting on the advice, you should consider its appropriateness to you, having regard to your objectives, financial situation or needs.
