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Focus: Health, Aged Care & Retirement – January 2008

In this issue: we examine the latest chapter in a case involving workers exposed to traumatic events; New South Wales planning policy changes for housing for senior and disabled people; and recent Australian Taxation Office rulings regarding the GST and retirement villages. 

• Workers exposed to traumatic events
• NSW planning policy changes for housing for seniors and people with a disability
• Latest ATO rulings on the GST and retirement villages

Workers exposed to traumatic events

In brief: In Focus: Health – June 2007, we reviewed the decision in Hegarty v Queensland Ambulance Service¹, in which the Queensland Ambulance Service was held liable to a former employee for loss he suffered as a result of its failure to put adequate systems in place to properly identify and assist employees having difficulties dealing with the traumatic events to which they were regularly exposed. The Queensland Ambulance Service successfully appealed the decision.² Lawyer Sarah Bryden looks at the reasoning of the Court of Appeal.

The facts

The plaintiff, Mr Hegarty, worked as an operational ambulance officer in rural Queensland towns from 1984 to 1999. As part of his job, he attended numerous horrific and traumatic accident scenes, a number of which involved people he knew. By the time the plaintiff left his employment in 1999, he had developed post-traumatic stress disorder and obsessive compulsive disorder.

The plaintiff sued the Queensland Ambulance Service (QAS) on the basis that it was responsible for his disorders. The plaintiff claimed damages for negligence, breach of contract and breach of statutory duty. Specifically, he alleged that the QAS did not have in place any system, or any sufficient system, of counselling and/or psychological support or treatment, given the risk of psychological harm to which he was exposed in the course of his employment. As a result of the absence of any sufficient system, the plaintiff alleged that senior officers had not recognised in him signs of psychological dysfunction at a time when, if those signs had been picked up, he would have been able to seek, and would have sought, appropriate treatment.

The trial decision

The trial judge held that, although the QAS had a program in place (called the Priority One Program) that was intended to provide training to senior ambulance officers to enable them to recognise signs of work-related stress, senior ambulance officers had not, in fact, received such training. The trial judge held that had senior officers received appropriate training, they would have recognised the plaintiff's signs of psychological dysfunction and would have suggested that he seek professional assistance. The trial judge was satisfied that had this been suggested, the plaintiff would have sought professional help at an earlier time and had an opportunity of gaining a better prognosis. Therefore, the loss suffered by the plaintiff was the loss of a better outcome. The plaintiff was awarded more than $500,000 in damages.

The Court of Appeal decision

The QAS appealed to the Queensland Court of Appeal on the basis that, even if a more appropriate training program had been in place (the QAS conceding in argument before the Court of Appeal that senior officers had not undergone relevant training programs), the plaintiff's supervisors could not have been expected to recognise the plaintiff's psychological dysfunction in this case.

The Court of Appeal upheld the QAS's appeal, primarily on the following bases:

• The 'cluster of complaints' made by the plaintiff, and which were relied on by the trial judge, were made to a number of senior officers, none of whom were privy to the complaints made by the plaintiff to the other senior officers. Moreover, the complaints were not of such a nature as to alert the senior officers to a problem with the plaintiff's mental well being; there were other reasonable explanations for those complaints. On this point, the court pointed out the inherent difficulties in recognising psychological, as opposed to physical, problems.
• The plaintiff did not exhibit any problems while at work, nor did he tell anyone at work of his complaints (which included nightmares, flashbacks and recollections). As noted above, although the plaintiff had complained to senior officers, these complaints were not to do with his mental well being and could be otherwise explained.
• The plaintiff's explanation for requesting a transfer from a small regional town to Bundaberg was reasonable and did not suggest that he was struggling with his job. Instead, his reasons related to better educational and medical opportunities for his children in Bundaberg. The plaintiff did tell his supervisors that he thought his skill level was deteriorating in the small town. However, the court was not satisfied that there was sufficient evidence that any problems existed with his performance. On this point, the court noted that the plaintiff was awarded a medal for exemplary service at the very time that he was alleging his superior officers should have recognised that he was not coping. The court held that his superior officers were justified in their belief that the plaintiff was requesting a transfer to work in a more challenging environment.

For these reasons, even if the plaintiff's senior officers had received more training, those officers would not have been alerted to the plaintiff's other complaints, such that they recognised a signal that the plaintiff was having difficulty coping with his job. The court allowed the appeal by the QAS and set aside the judgment at first instance.

Conclusion

The court held that, even if senior officers had been given more appropriate training, in the circumstances outlined above there was insufficient evidence to alert senior officers to the plaintiff's psychological problems.

This decision warns of the dangers of 'litigation hindsight', particularly in respect to psychological ( as opposed to physical) damage, and illustrates that a clear causal connection must be established between a plaintiff's loss and the employer's negligence before an employer will be responsible for injury suffered by an employee.

NSW planning policy changes for housing for seniors and people with a disability

In brief: The New South Wales State Environmental Planning Policy (Seniors Living) 2004 (Amendment No. 2), which came into effect on 12 October 2007, introduced changes to the permissibility of, and application processes applicable to, the development of aged care facilities, retirement villages and accommodation for people with disabilities. Senior Associate Bill McCredie and Lawyer Mary Berton provide an overview of the town planning implications of the recent changes.

Background

The State Environmental Planning Policy (Seniors Living) 2004 (Amendment No. 2) (the amending policy) introduced changes to the State Environmental Planning Policy (Seniors Living) 2004 (the principal policy), including to its name: it is now called the State Environmental Planning Policy (Housing for Seniors or People with a Disability) 2004.

The principal policy is designed to encourage housing developments appropriate for seniors and people with disabilities, particularly to accommodate NSW's growing population of people over 55 years of age. 'Seniors housing' includes residential care facilities, hostels, groups of self-contained dwellings, or a combination of these (but excludes hospitals).

The primary areas of interest for the property development sector in relation to the future provision of aged care facilities and retirement villages in NSW are that the principal policy will now:

• apply to lands adjoining land zoned primarily for urban purposes;
• apply to land used for registered clubs and adjoining land in urban areas; and
• development proposals in these areas must pass a 'site compatibility test', requiring certification from the Director-General of the NSW Department of Planning that a proposal is compatible with its surrounding environment and appropriate to the local area.

Application to lands adjoining land zoned primarily for urban purposes

The amending policy has the effect of lifting the NSW Government's moratorium on developments on lands adjoining urban land, subject to the site compatibility test and certificate requirements (see below), where that development is for a form of seniors' housing consisting of a hostel, a residential care facility or serviced self-care housing. Where self-care housing is proposed on this land, it must be demonstrated that the housing is to be provided for people with a disability, includes a residential care facility, or is a retirement village.

Application to land used for registered clubs

The amending policy extends the application of the principal policy to land that is being used for the purposes of an 'existing registered club' (in or adjoining urban land), subject to the site compatibility test and certificate requirements (see below). An 'existing registered club' is one that was registered under the Registered Clubs Act 1976 (NSW) prior to 12 October 2007. The consent authority must be satisfied that appropriate measures will be in place to separate the club from the residential areas, such as separate access points.

Site compatibility certificate

The amending policy will require a site compatibility certificate to be obtained from the Director General of the NSW Department of Planning, before a consent authority can grant consent to an application for development:

• on land that adjoins land zoned primarily for urban purposes;
• on land that is within a zone identified as 'special uses' under another environmental planning instrument;
• on land that is used for the purposes of an existing registered club; or
• for a 'vertical village' within the meaning of the principal policy (see below).

In order to issue a site compatibility certificate, the Director-General must be satisfied that the proposed site is suitable for more intensive development, and that the development for the purposes of seniors housing is compatible with the surrounding environment, having regard to certain criteria, including the availability of retail, commercial and medical services, community facilities, and access to transport networks. More specific criteria apply to land that adjoins land zoned primarily for urban purposes.

The Director-General must consult with the relevant consent authority in determining whether to issue a site compatibility certificate; however, it remains open to a consent authority to refuse a development application, even if a site compatibility certificate has been issued by the Director-General. The Director-General must determine an application for a site compatibility certificate within 35 days after lodgment if it is practical to do so, and a site compatibility certificate remains valid for two years from the date of issue.

Where a site compatibility certificate is not required, the relevant consent authority must take into consideration the site compatibility criteria in its merits assessment of a development application for seniors housing.

Further amendments

The amending policy makes a number of miscellaneous changes to the principal policy in relation to:

• the provision of new standards concerning accessibility and useability for the development of hostels or self-contained dwellings;
• the extension of the application of the principal policy to certain land identified as bushfire-prone land, subject to compliance with planning guidelines for bushfire protection;
• the provision of a Floor Space Ratio (FSR) bonus on gross floor area on 'vertical villages', being residential flat buildings for seniors housing, in limited circumstances if the proposed development has on-site support services and at least 10 per cent of dwellings as 'affordable places'; and
• the identification of an expiry date for certain existing partial exemptions from the principal policy for the Ashfield, Blue Mountains, Hurstville, Kogarah, Strathfield, Sutherland and North Sydney local government areas on 31 December 2008. Additional transitional provisions apply to Warringah and Sutherland local government areas.

The amending policy will not apply to development applications made but not finally determined before the commencement of the amending policy.

Conclusion

The amending policy should help expand the supply of housing for seniors and people with disabilities by making this form of development permissible on additional lands, including rural land adjoining urban lands and at registered clubs and adjoining sites in urban areas.
While the amendments will make additional land available for the development of facilities for seniors and disabled people, the requirement for a site compatibility certificate from the Director-General of the NSW Department of Planning introduces a potential new source of delays and costs in the project approvals process.

Latest ATO rulings on the GST and retirement villages

In brief: The Australian Taxation Office has recently published a number of edited versions of GST private rulings dealing with retirement village issues. Senior Associate Marc Johnston reports on some of these GST rulings.

Residential premises exemption applied despite demolition of units prior to settlement

It is generally preferable for land to be acquired through a transaction that does not generate a GST liability, as it reduces the stamp duty liability on the acquisition and reduces financing costs. One of the more common ways in which this type of transaction can occur is where the land consists of 'residential premises to be used predominantly for residential accommodation (regardless of the term of occupation)', as outlined under section 40-65(1) of the A New Tax System (Goods and Services Tax) Act 1999 (the Act).

Ruling 76381 deals with such a situation, where the property in question consisted of independent living units (some of which would be occupied or vacant at settlement), as well as land that would be vacant following demolition works carried out under a licence granted by the vendor to the purchaser. The licence enabled the purchaser to demolish some of the independent living units and associated structures prior to settlement on the purchaser's own account and at its own cost. The demolition works were not carried out at the request of the vendor, nor were they a condition of the sale.

The issue was whether the whole of the land could still be treated as 'an input taxed supply of residential premises', despite the fact that part of it would be vacant at settlement. This issue arises because there are no relevant 'time of supply' rules in the Act and the general view is that a supply of land will occur at settlement under a standard land sale contract. However, this ruling confirms that the entire sale could be treated as an input taxed supply of residential premises, despite the demolition works.

The Australian Taxation Office (ATO) reiterated its views from other GST rulings that the term 'residential premises' requires the building have the physical characteristics to enable it to be occupied, or to be capable of occupation, as a residence or for residential accommodation (see GSTR 2000/20). In this case, the physical characteristics of the independent living units satisfied this definition. Importantly, the exclusion from input taxation for new residential premises did not apply because the vendor had previously acquired the retirement village from a third party.

Most significantly, the ATO ruled that 'although the contract for the supply of the residential premises allows the purchaser to access the premises, and the purchaser actually demolishes the premises before title to the property passes, the thing supplied to the recipient is the residential premises'. In other words, as the purchaser is only able to demolish the premises under an agreement between the parties, this did not change the substance of the arrangement between them.

This is a useful ruling because it confirms the GST as a 'practical business tax' and that the characterisation of a transaction for GST purposes should not be determined slavishly as at settlement. Instead, the true nature and substance of the transaction needs to be determined and, in this case, it was clearly the sale of residential premises because that is what the parties' contracted to buy and sell. It, therefore, provides scope for construction work on a proposed retirement village to commence prior to settlement (assuming the vendor is suitably protected).

Full input tax credits claimed because communal facilities provided to residents under country club arrangements separate to unit leases

Determining input tax credit entitlements in relation to the construction and operation of a retirement village is an issue regularly faced by retirement village operators. In this case, the village comprised independent living units and assisted living units, with residents having occupancy rights under a leasehold tenure. A country club, which included an indoor swimming pool, gymnasium, billiards room, theatre and bowling green, was to be built on the grounds of the retirement village. Non village residents could become members of the country club.

Ruling 74609 deals with the extent of input tax credit entitlements for acquisitions by the owner relating directly to its construction and operation of the residential units, assisted living units and the country club, as well as other acquisitions not directly related to them but which had to be apportioned.

The leasing of the independent living units would be an input-taxed supply of residential premises and so no input tax credits could be claimed for their construction and operation (that is, the retirement village operator's 'creditable purpose' was zero per cent). The ATO confirmed that the denial of input tax credits extended to any common areas and other things accessory to the building, and the land immediately contiguous to the building that is predominantly necessary for the use and enjoyment of the building by individuals as their place of residence. The common areas were held to include paths, driveways, parks, gardens and communal recreational facilities.

On the other hand, full input tax credits could be claimed for the construction and operation of the assisted living units, provided that they satisfied the definition of 'serviced apartment' in section 195-1 of the Act and the services and accommodation provided to the residents of those units satisfied the requirements in section 38-25 (see Schedule 1 of the Quality of Care Principles). That is because, in those circumstances, the retirement village operator would be making GST-free supplies.

The ruling then dealt with the requirement for the retirement village premises to include 'communal facilities' for use by residents, in order to satisfy the definition of 'retirement village' in section 195-1 of the Act. That is, the communal facilities had to be physical and within, attached to, or connected to, the residential buildings (or be constructed on the surrounding land that actually and substantially contributed to the enjoyment of the buildings or to the fulfilment of its purposes as a residence (see GSTR2007/1). The ruling noted that, in a retirement village context, communal facilities would ordinarily include facilities such as a library, dining room, recreation room, chapel, equipped gymnasium, and outdoor recreational and leisure facilities, such as a tennis court, swimming pool or a barbecue area.

In this case, however, the facilities contained within the country club would not be provided to residents under the terms of the independent-living unit leases. Instead, residents had to join the country club to access the facilities. The country club itself would be operated by an incorporated association under a lease from the retirement village operator. Consequently, the club could not be regarded as a communal facility of the retirement village and the use of the facilities would not form part of the input taxed supply of residential premises.

Instead, as the retirement village operator would be making a taxable supply of a commercial lease to the incorporated association, the acquisition by it of building materials and services for the country club would be for a fully creditable purpose. That is, full input tax credits could be claimed on the construction of the country club. This is a significant benefit because those input tax credits would otherwise have been denied if the facilities were provided as a right under the independent-living unit leases.

Finally, the ruling confirmed that costs not directly related to the construction of the residential premises or the country club, such as professional fees and infrastructure costs, had to be apportioned to determine the total purpose that was creditable and that which was not. Unfortunately, the ruling does not specify an acceptable method of apportionment and simply notes that the method has to be fair and reasonable in the circumstances of the enterprise, reflect the planned use of the relevant acquisitions and be appropriately documented (see GSTR 2006/4).

Change in extent of creditable purpose enabled input tax credits to be claimed because units were sold Instead of solely leased

This short ruling deals with the adjustment provisions in Division 129 of the Act, where the extent of creditable purpose changes as a result of later events. In this case, a retirement village was constructed and no input tax credits were claimed because the intention was to lease the relevant premises to the retirement village residents.

However, the retirement village was sold within five years of its construction and it, therefore, met the definition of 'new residential premises' for the purposes of the Act. That is because residential premises are new residential premises if they have not previously been sold as residential premises (other than commercial residential premises) and have not previously been the subject of a long-term lease, except where they have been used for a period of at least five years for the purposes of providing input-taxed supplies (s40-75).

In order to perform the adjustment necessary to determine the input tax credits the retirement village owner could claim, the owner had to work out the extent of creditable purpose in relation to its construction costs. This required the owner to determine the amount of consideration received for the rental of the independent living units. However, as the amounts charged to residents also included the deferred management fees, and the calculation of those fees was complex, the owner argued that they could not accurately be determined. The owner, therefore, sought approval to use the benchmark weekly accommodation rate of a country town to work out the proportion of consideration received from the retirement village residents relating to the rental of the independent living units.

The ATO confirmed that the extent of creditable purpose had to be determined by comparing the proceeds from the rental of the independent living units with the ultimate sale price of the retirement village, and found that the benchmark rate applicable to the relevant area was acceptable. The ruling specifically noted that the ATO did not intend recommending one apportionment method over another, but rather, that the ATO could accept an alternative method that reflected a reasonably accurate extent of creditable purpose (and the benchmark weekly accommodation rates found in the Charities Consultative Committee Resolved Issues document on the ATO website were acceptable in this case.

Purchaser's intention irrelevant to application of residential premises exemption despite NSW case

A recent issue of concern for the property industry has been the affect of the New South Wales Supreme Court decision in Toyama Pty Ltd v Landmark Building Developments Pty Ltd [2006] NSWSC 83. The case highlighted that, in order for a sale of residential premises to be exempt from GST, the purchaser's intended use of the premises was pivotal (not just the actual physical characteristics of those premises). This is based upon the requirement that for a sale of residential premises to be input taxed they must be intended 'to be used predominantly for residential accommodation' (s40-65 of the Act).

In this case, several self-contained residential villas (which had been used to provide independent-living accommodation for retired people, although some of the villas were now temporarily rented out to the public at market rates) were sold by the vendor to a property developer who had not yet decided how he would use the land. The vendor was concerned about the characterisation of the supply for GST purposes, as would also have been the case if the villas were solely part of a retirement village at the time of sale. Vacant possession of the villas was provided at settlement.

The sale was held to be input taxed rather than a taxable supply. This was because the villas had been used for residential purposes, were still fit to be used predominantly for residential accommodation, were capable of occupation as residences, and had the facilities required for daily living (and they were not considered to be new or commercial residential premises). This ruling confirms that the ATO will continue to apply the objective test set out in GSTR 2000/20, regarding the physical characteristics of the premises in question, to ensure that the sale of residential premises will be exempt from GST, regardless of whether the purchaser intends to develop the property in a commercial way. 

Footnotes

1. [2007] QSC 110.
2. [2007] QCA 366.

For further information, please contact:

• Andrew WisemanPartner, Sydney
  Ph: +61 2 9230 4701
  Andrew.Wiseman@aar.com.au
• Mark StubbingsPartner, Sydney
  Ph: +61 2 9230 4257
  Mark.Stubbings@aar.com.au
• Tony DaviesPartner, Brisbane
  Ph: +61 7 3334 3250
  Tony.Davies@aar.com.au
• Tony PymanConsultant, Melbourne
  Ph: +61 3 9613 8891
  Tony.Pyman@aar.com.au
• Andrew PascoePartner, Perth
  Ph: +61 8 9488 3741
  Andrew.Pascoe@aar.com.au
• Niranjan ArasaratnamPartner, Melbourne
  Ph: +61 3 9613 8324
  Niranjan.Arasaratnam@aar.com.au

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