NDIS Accom Investment and GST

Hi all,
We're looking to invest in NDIS property by engaging an SDA. We've created a company to facilitate the investment. I understand that the rental income is GST free, but there's GST in the land and build costs, as well as ongoing SDA fees. Do we register the company for GST or not? I'm investigating with the ATO/accountant, but so far don't have a clear answer from either.
Thank you!
Tracey

 

If the rental income is input taxed residential rent no GST can be claimed on the build. or any other inputs. Instead the GST inclusive costs are the construction costs for matters such as depreciation etc Understanding how GST is accounted for is a vital part of the advice prior to construction and at the time of planning.

 

Hi Paul,
Thanks for your response. The property will be built to NCC Class 1B requirements "boarding house, guest house or hostel......." - not sure if that's still considered 'residential'?
Tracey

 

You apparently havent seen the tax ruling on commercial residential premises which contains very complex requirements for a "boarding house" v other forms of commercial property. My advice is to obtain a ATO determination if tax advice suggests it could be commercial residential premises. The ATO run a very tough view on the GST issues here and will check various aspects with the local council and state register of "registered boarding houses". Get it wrong and they will impose some drastic penalties. My view is seek the ATO guidance prior to GST registration and this is complex and costly. The ATO also consider the common law definition of "boarding" includes provision of meals (ie board) as well as "lodging" (accomodation). Not kitchens or communal facilities. And a onsite manager. The ATO has also been known to defend "passive" income producing investment property vs that which is business like. The accomodation license is also something they consider carefully. Certain issues can invalidate the determination position. eg fees for cleaning on vacating.

Where true boarding requirements arent met the premises will be input taxed meaning no GST is a element of the rental incoem and no GST can be claimed on inputs. GST on the construction may vary depending on the structure for operation of the venture. eg Ownership and operation differ.

GSTR 2012/6

Council approvals in themselves are a element but dont determine the tax concerns. I have seen many councils approve boarding housing that fails the ATO requirements.

A warning - Unregistered (ie not to state law) operators may be reported to council in the ATO process. I ask this question to avoid inadevertent disclosure of illegal premises.

 

No worries, thanks for that Paul. Am waiting for feedback from the ATO, so I'm sure we'll get it right.

 

ATO cant give you advice of course.

 

We have had a managed fund get a ruling on theirs as far as claiming GST on the build goes. They are a fund that established for this purpose and has an initial $10+m raising round followed by one that is multiples of that. Haven't seen an individual get one before.

 

Good example of how the entity difference to direct ownership may change the commercial application of the premises rents. A managed fund (trust) may own several commercial premises and lease these to one of more commercial operators of aged care or specialist disability accomodation etc. Its a bit like Accor renting a tower of apartments from Mirvac etc

 

Hi Tracey

Have you got the answer yet? I'm interested knowing in the answer because I'm in a similar situation.
thanks,

 

Hi Linh,

Unfortunately not. We have to wait until all of the documents are in place with the SDA. Once the ATO can view the SDA agreement, they will make an individual ruling. As our build is only just commencing, we are still months off knowing what the outcome will be.

Good luck!
Tracey

 

Thank you Tracey, and same to you.

 

If the income is GST free (being residential rents that are input taxed) then the GST on construction is not creditable unless a supply OF the premsies is made by way of sale etc. SDA provider would need to sell the premises to the occupant for a taxable supply of NEW residential premises to occur which would permit a credit to be claimed. And then there may also be a mixed supply to consider. GST is only creditable to the extent of a taxable supply being made. SDA accomodation is also not subject to GST by legislative instrument which was recently updated. A New Tax System (Goods and Services Tax) (GST-free Supply—National Disability Insurance Scheme Supports) Determination 2021

This is generally the view in rulings. eg and also the usual private ruling view where a "head lease" operates the site
https://www.ato.gov.au/law/view/view.htm?docid=EV/4140087957367&PiT=99991231235958 and Question 1 and 2 both follow that basis.

Q1 . SDA doesnt provide "care facilities and so is mere residential accomodation and is input taxed.The supply from BuildCo to SDA Co is also as follows

Q2. The relevant issue here is whether Entity A's acquisition of the construction services (goods and services) from the building company is for a creditable purpose.
As outlined in question 1 Entity A has acquired the construction services in relation to making input taxed supplies. Therefore, Entity A is not making a creditable acquisition.

The GST inclusive value of depreciable assets under Div 40 and 43 are of course enhanced by the 9.09% higher outgoing.

 

Thanks Paul, that was very helpful.

 

Hi I have read the posts but need to understand it from a participant's view point. I am wanting to building for my son two 3 bed duplex so he can have an ooa. reading the new guidelines in the legislation it mentions accomodation but not specifically. With building costs at the moment this would greatly help with the build. Is there been any evidence of a private ruling being successful

 

Not sure what the issue and question is. GST on construction costs for a duplex is NOT be creditable unless the complete purpose of the build is to sell. In which case GST is payable and GST on build costs may be creditable. If you sell half then half GST could be creditable. If a property is to be rented GST on a build for that portion WILL NOT be creditable for SDA or a duplex ...or any other form of residential premises. No private ruling is required. It is fundamental tax advice.

The issue of creditable GST may continue to exist for UP TO 4 years. Even then when selling GST can occur AFTER 5 years despite what some think.

My tip is stop trying to self assess a complex tax issue and seek advice

 

Hi Paul
thank you for the tip your comments are fair and will explain further. As you know in July there has been new legislation regarding GST determination on NDIS supports which include SDA Accomodation. I am trying to find out if anyone has been successful or gone for a private ruling regarding SDA accomodation and claiming the gst free for building the whole or part. My son is a participant and meets the conditions. I would like to talk to an accountant who has helped their client utilise this new tax system

 

The legislative instrument says... no gst applies to rent as its residental and also GST free where there is doubt. Hence there cannot ever be a GST creditable issue for outgoings. The instrument also continues and adopts the view that the SDA accom is residential. So no GST credits on a build. Existing "residential premises rulings"cover the issue suffiiently. The premises are residential use and the rent derived in residential.
The instrumnet doesnt change the GST views. It merely reinforces it for the cost protection of NDIS recipients and the Govt who may otherwise have to pay more for NDIS funding

There may be one way to claim GST on the build. But it comes with a stamp duty problem. The Build entity constructs and sells at market value to OperatorCo. Of course the cashflows are more problematic as OperatorCo will need to pay (more) GST on acquisition BUT that GST inst creditable - usually since the margin scheme was used or at the very least because its residential premises. GST on building OR sale will always be a ineffciency. It can also affect lending etc

Attempting to claim the GST will also see penalties imposed even if its detected and cancelled by the ATO.

 

Hi Paul,

I found the link below on this topic posted in Feb 2022; and I wanted to check if there has been any recent developments.

NDIS / SDA Residental Investment Properties are GST Free - How?

I am looking to build an SDA and wanted to understand if I'm eligible for GST refund.

I would greatly appreciate any guidance.

Thanks

 

A public managed fund is very different to a company owner.

I never reply with specifics on (other) threads. @RKS
Your question is about your circumstance not someone elses.

In general terms construction of residential USE premises that will produce income will not give rise to a taxable supply so GST cant be creditable. Even a contract to supply the premises to a SDA operator for example doesnt alter the use of the premises. NDIS accomodation is generally a right of occupancy perhaps under license. And it is residential use.

The question @RKS asked would require tax advice. I will speculate it is highly improbably the answer is no. But simple factors could change this. eg Do you plan to build then sell ?

 

speak to vincent licciardi at hwl ebsworth. its a unique aspect of the law.