The ATO has released a Decision Impact Statement on Re Retirement Village Operator and FCT [2013] AATA 887. In this case, the AAT ruled that a taxpayer that owns and manages a number of retirement villages was entitled to a deduction for payments it was contractually required to make to "outgoing residents". The AAT concluded that such payments were properly characterised as an ordinary part of carrying on the business and were not capital or of a capital nature and therefore deductible under s 8-1 of the ITAA 1997.

The ATO said the AAT's conclusion was contrary to the current ATO view expressed in para 50 of Taxation Ruling TR 2002/14. The ATO said it will issue an addendum to TR 2002/14 to reflect the AAT's decision. The new paragraph will confirm that, where a retirement village operator makes a payment to an outgoing resident (or to their legal personal representative) that represents a share of any increase in the entry price payable by a new resident (ie the difference between the initial entry price paid by the outgoing resident and the entry price payable by the new resident), such payments will be deductible under s 8-1 of the ITAA 1997.

Taxpayers may request amendment

The ATO said taxpayers may request the Commissioner amend an assessment subject to s 170 of the ITAA 1936. Any such amendment request can be made through the Business Portal, a registered tax agent, or by post to: Australian Taxation Office, PO Box 3004, PENRITH NSW 2740. The ATO has asked that the words "Retirement Village" appear in the description field explaining the reason for the amendment.

Source: ATO Decision Impact Statement on , Re Retirement Village Operator and FCT [2013] AATA 887 http://law.ato.gov.au/atolaw/view.htm?docid=%22LIT%2FICD%2F*2013*AATA887%2F00001%22.