A new amending regulation has clarified when retirement village operators need to comply with the new Asset Management Plan (AMP) provisions. Depending on when a retirement village’s financial year commences, the first AMP has to commence on either 1 January 2022 or 1 July 2022. The amendments also provide that the transition period afforded to operators to comply with the AMP provisions ends on 30 June 2022.
These changes are the result of the Retirement Villages (Asset Management Plans and Exit Entitlements) Amendment Regulation 2021 which was published in the Government Gazette (amending regulation) on 21 May 2021. The changes brought about by the amending regulation also commenced on that date. The amending regulation also makes changes to the earlier Retirement Villages Amendment (Asset Management Plans) Regulation 2021 (NSW) which commenced on 5 February 2021 (outlined in a previous blog).
Key changes to the AMP provisions
The amending regulation has provided for additional items to be included in the 3-year report to be provided with the proposed village budget. These comprise of:
- a list of the major items of capital that have a year or less of effective life remaining and whether each of those items are proposed to be replaced or whether its maintenance will continue; or
- for items other than a building, a list of the major items of capital in relation to which the accumulated costs of repairs as at the date on which the 3-year report is prepared, are greater than 90% of the purchase price of the items, and whether each of those items are proposed to be replaced or whether its maintenance will continue.
The definition of ‘major item of capital ’ has also been amended so that for a group of items of capital, each of the items must have a purchase price of $1,000 or more. Further, the acquisition date has been expanded to cover the items purchased in the same financial year. This will limit the items that fall within this definition, as the previous definition was based on a combined total purchase price being $1,000 or more for a group of similar capital items.
A new concept of an ‘independent assessment’ of the AMP has also been introduced by the amending regulation. It is now a requirement that the AMP undergo an independent assessment, being a written opinion of the auditor appointed for the village or an independent qualified quantity surveyor as to whether the plan contains all the required matters. The independent assessment must be attached to the proposed AMP and a copy of that assessment must be available at all times for inspection. However, if an operator has started to prepare an AMP that is to commence on or before 29 August 2021, then the operator is not required to obtain the independent assessment before commencement of the next financial year.
The amending regulation also made provisions as to the manner of estimating the effective life of items of capital. When calculating the ‘effective life’ of items of capital, the operators are to use both Table A and Table B of the Schedule to the TR 2020/3 – Income tax: effective life of depreciating assets (applicable form 1 July 2020). The amendment has also confirmed that when identifying a description in Table A or Table B that corresponds to an item of capital, the operators must follow the methodology of using the tables set out under the heading ‘How to use Tables A and B” in that taxation ruling.
The final key amendment limits the circumstances in which an operator may increase recurrent charges after the former registered interest holder’s liability to pay them has ceased. That liability must have ceased after 1 January 2021 and the recurrent charges increase occurs only for the financial year immediately following the financial year in which it ceased. This will apply to residents who have left the village after 20 November 2020.
Proposed amendments to the Retirement Villages Act 1999 (NSW)
There is currently a bill in the Legislative Assembly, which is proposing to amend the Retirement Villages Act 1999 (NSW) (Act). The Better Regulation Legislation Amendment (Miscellaneous) Bill 2021 (NSW) (Bill) includes the following proposed amendments to the Act:
- changes to the way that surplus funds in the village accounts may be distributed to residents of the village. If a distribution of the whole or any part of surplus funds are consented to by the residents, the funds are to be distributed based on the number of existing residential premises rather than the number of existing residents. The proposed amendment allocates any surplus on a per-premises amount to each existing residential premises and then distributes the per-premises amount equally between the residents in each premise;
- the introduction of a maximum penalty of 50 penalty units (currently $5,500) for any breaches of section 168(5) of the Act, which requires the operator, or a person chosen by the operator, who is appointed as a selling agent to adhere to certain marketing and reporting requirements, to provide information to the former resident;
- clarification of currently controversial section 182AB(8) of the Act by providing that, if the Department of Fair Trading does not make an exit entitlement order, a former resident may not make another application for an exit entitlement order for the same premises until the end of the period to be prescribed by the regulations or a later day approved by the Department of Fair Trading;
- the ability for the regulations to prescribe additional information that a valuer must include in a valuation of residential premises for the purposes of an exit entitlement order.
If you need clarification on any of the proposed amendments to the Act or would like assistance with complying with the AMP provisions please contact a member of our Health, Aged Care and Retirement Villages team. For your convenience, we have also developed an AMP Guide which is available for a fixed fee. Please contact Arthur Koumoukelis or Lucinda Smith for more information.
Maryna Roganova | Senior Associate | +61 2 8248 5881 | email@example.com
Leanne Truong | Graduate Lawyer