The following applies to the sale of an entire retirement village with residents in place. It considers the dutiable value of retirement village land in an arrangement where:
- The retirement village is transferred as part of an ongoing business (commonly referred to in the industry as a going concern).
- The retirement village operates on a loan lease, lease premium or loan licence type arrangement.
- The retirement village owner is the registered proprietor and beneficial owner of the retirement village land (freehold)
The information here does not apply to the sale of individual retirement village interests between outgoing and incoming residents of a retirement village.
Dutiable value of retirement village land
The transfer of retirement village land is a dutiable transaction. There are a number of factors to consider about the dutiable value of such a transaction, such as the value of the ingoing contribution and/or statutory charge.
A retirement village resident often must make a lump sum payment to the retirement village operator. This payment is considered an ingoing contribution and is refunded when the resident exits the retirement village.
This resident’s right to a refund of their ingoing contribution (after deducting certain fees/amounts) is commonly referred to as a refund obligation.
The retirement village regime in Victoria creates a statutory charge, which is a charge on the retirement village land and, to secure the refund obligation.
When a purchaser buys a whole retirement village as part of an ongoing business, the purchaser assumes the seller’s obligation to repay the refund obligation. The purchaser also buys the retirement village land subject to the statutory charge.
Accordingly, the dutiable value of retirement village land is affected by the refund obligations assumed by the purchaser and the statutory charge that the land is subject to.
Impact of refund obligations (for ingoing contributions) and statutory charge on dutiable value
The dutiable value of property subject of a dutiable transaction is the greater of the:
- consideration (if any) for the dutiable transaction (which could be either monetary or non-monetary consideration), and
- the unencumbered value of the dutiable property.
The consideration paid for retirement village land when it is bought as part of an ongoing retirement village operation includes the:
- money paid for the retirement village land, and
- non-monetary consideration for the purchaser’s assumption of the seller’s refund obligation and encumbrance in the form of the statutory charge.
Ordinarily, it is the value of the refund obligation and/or statutory charge that should be taken into account, not the dollar amount of the refund obligation and/or statutory charge.
The value of the refund obligation and/or statutory charge is determined on a case-by-case basis.
Factors to take into account include:
- conditions attached to the refund obligation, and
- circumstances under which those conditions would be, and historically have been, satisfied.
For example, if the refund of the ingoing contribution is conditional upon another person becoming entitled to take up the accommodation in the retirement village and paying an ingoing contribution, the fact that the refund obligation is satisfied by funds provided by the incoming resident would be likely to affect the value attributed to the refund obligation or statutory charge.
Where conditions such as the above are present and the retirement village is expected to continue to operate as a going concern for the foreseeable future, the Commissioner accepts that the value of the refund obligation and statutory charge can be nil or nominal. However, this determination of nil or nominal value should be made by expert valuation.
For this reason, when submitting supporting information for transfers of retirement village land, you should include a valuation which addresses the value of the refund obligation and statutory charge in your situation so the dutiable value of the retirement village land can be determined.