The Commissioner has issued a draft ruling on the GST treatment of amounts (exit payments).which a resident becomes liable to pay the operator of a retirement village when the resident’s interest in the village terminates and the resident’s interest in the village is a right to possession of residential premises under a lease or licence. These exit payments are often referred to as deferred management fees.

The Commissioner is of the view that exit payments will be consideration for a supply of residential premises, except to the extent that an objective assessment in all the circumstances indicates that they are consideration for some other supply or supplies. This will generally mean that the exit payment is consideration for an input taxed supply and therefore not subject to GST.

However the Commissioner is also of the view that an exit payment will be consideration wholly or partly for supplies that would be taxable where the resident is not liable to provide any separate consideration for the services that the resident receives or the value of the separate consideration they provide for those services is significantly less than the market value of the services. Where the exit payment is partly for supplies that would be taxable then the GST on the exit payment must be apportioned between the taxable and non-taxable components on a basis that is reasonable in all the circumstances