13 Nov 1414 Decision Impact Statement - Retirement Village Operator
The ATO has published a Decision Impact Statement in relation to the decision of the Adminstrative Appeals Tribunal in Retirement Village Operator and FCT  AATA 887; 2013 ATC 1-061.
The case concerned whether certain payments made by the retirement village operator to outgoing residents are deductible to the retirement village operator under s 8-1 of ITAA 1997.
Specifically, under the terms of the resident licence agreement entered into with the resident, upon cessation of the residency, the taxpayer was required to make a payment to the resident (or their legal personal representative) that represented a share of any increase in the entry price payable by a new resident (that is, the difference between the entry price paid by the outgoing resident and the entry price payable by the new resident).
The AAT found that the payments were an ordinary part of the carrying on of the taxpayer's retirement village business and thus necessarily incurred in carrying on that business. It was enough that the payments were necessarily incurred in the carrying on of the business without having to tie any particular payment to any particular receipt. Further, the AAT also found that the payments were to enable the taxpayer to carry on a business of the provision of retirement village accommodation.
Consequently, the Tribunal found that the payments were necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income and came within s 8-1(1)(b) of the ITAA 1997 and were deductible.
This is contrary to the ATO view currently expressed in para 50 of TR 2002/14 that these payments are capital in nature and are therefore not deductible.
Accordingly, the ATO will issue an addendum to replace the view currently expressed in para 50 of TR 2002/14 with a new paragraph to reflect the AAT's decision.