Retirement villages and occupancy arrangements

What is a retirement village

There are so many options when it comes to moving into a retirement village. Here we explain what some of them are along with the contractual arrangements you may have for each accommodation.

A retirement village is accommodation:

• intended for people who are 55 years or older
• that may be independent living units, serviced apartments, care facilities or a combination of these
• providing services and communal facilities to residents
• operated by government, commercial businesses or as a charitable retirement village by a charitable body.

Retirement villages don’t include residential care as defined in aged care legislation or commercial residential property.

Types of occupancy arrangements

Retirement village contracts aren’t the same as ordinary residential property contracts. A retirement village contract is normally terminated on the death of a resident or when the resident leaves the village, for example, to go to an aged care facility.

Retirement villages offer several different contractual arrangements to residents. The most common types of contracts are:

• long-term leases or licences
• periodic leases
• long-term loan leases or licences
• special share or unit classes
• strata title schemes
• purple titles (tenancy in common).

Long-term leases or licences

A long-term lease in a retirement village will typically be a lease or licence to live in a retirement village for a period of more than 49 years.

The lease doesn’t amount to ownership of the unit or part of the property but is registered on the title deeds of the retirement village.

The contracts are commonly known as lease premium arrangements.

Entry

Commonly in a leasehold situation, an incoming resident pays an entry contribution close to the market value of the dwelling. In return they’re given:

• a long-term lease on that unit
• the right to use the communal facilities in the retirement village.

Upkeep

The residents pay for the upkeep of the communal facilities. This may occur on a continuing basis through a regular fee or levy. The communal facilities remain your property as the operator of the retirement village.

Termination

Depending on the contractual agreements, on termination of the lease the outgoing resident or beneficiaries may be entitled to a lease termination payment. This might be higher than the entry contribution due to capital growth (if there is any entitlement to capital growth or appreciation). Deferred management, refurbishment and other fees (commonly referred to as exit fees) are charged either on the incoming or outgoing price of the dwelling.

Periodic leases

Another form of lease is the prepaid or periodic rental lease, where a resident pays a period of rent in advance.

Entry

Residents with this kind of lease pay a fortnightly or monthly instalment that includes rent and a service fee. The rent is usually calculated in line with government pensions and rent assistance payments. Entry may be subject to a means test for the incoming resident.

Termination

If the lease is terminated before the stipulated years are up, the resident may get a refund for the time remaining.

Strata title schemes

Entry

Residents with strata title to their units are owners and have a separate certificate of title. They may either:

• share as tenants-in-common in the ownership of the communal facilities, or
• be granted rights to the use of communal facilities.

Upkeep

The residents may pay for the upkeep of the communal facilities, on a continuing basis, through a regular fee or levy.

Termination

When the resident leaves the retirement village, the tax consequences depend on the resident’s personal circumstances.

Purple titles (tenancy in common)

Entry

Each resident purchases an equal undivided share or ‘purple title’ in the retirement village. This means every co-owner would have an equal interest in every unit in the village. A resident would then be granted an exclusive use of one of the units in the village. In this way, each resident can occupy a residence to the exclusion of the other co-owners of the village. They don’t own the unit, but they do own a share in the whole property.

Upkeep

The residents may pay for the upkeep of the communal facilities, on a continuing basis through a regular fee or levy.

Termination

When the resident leaves the retirement village, the tax consequences depend on the resident’s personal circumstances.

To find out more about these types of accommodations, contact us for more information.

Source: ato.gov.au February 2025
Reproduced with the permission of the Australian Tax Office. This article was originally published on https://www.ato.gov.au/newsroom/smallbusiness/ .
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