ATO ID 2004/35: GST and renting property by a mortgagee in possession
Date of decision: 13 September 2002
Business line: Indirect Tax

Issue
Is the entity, a mortgagee in possession, making a taxable supply under subsection 105-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it leases out commercial property belonging to a debtor that is registered for goods and services tax (GST)?

Decision
Yes, the entity is making a taxable supply under subsection 105-5(1) of the GST Act when it leases out commercial property belonging to a debtor that is registered for GST.

Facts
The entity is a mortgagee in possession (a creditor). The entity is in possession of a debtor's commercial property as mortgagee in possession. The entity is entitled under the mortgage to sell or lease the property and apply the proceeds towards satisfaction of the debt that the debtor owes to the entity. The entity leases out the commercial premises to a third party. The entity and the debtor are registered for GST. If the debtor had leased out the commercial property, the supply would have been a taxable supply under section 9-5 of the GST Act.

Reasons for decision
Summary: Subsection 105-5(1) of the GST Act provides that a supply made by an entity is a taxable supply if: A lease of commercial property is a grant of real property and is a supply for the purposes of the GST Act (paragraph 9-10(2)(d) of the GST Act). The entity is leasing the debtor's commercial property to a third party and applying the proceeds towards the debtor's debt to the entity. Therefore, the entity is supplying the debtor's property to a third party in satisfaction of a debt that the debtor owes to it. The requirement in paragraph 105-5(1)(a) of the GST Act is satisfied. The debtor is registered for GST. Had the debtor leased out the commercial premises, the supply would have been taxable under section 9-5 of the GST Act. Therefore, the requirement in paragraph 105-5(1)(b) of the GST Act is also satisfied. Accordingly, the entity is making a taxable supply under subsection 105-5(1) of the GST Act when it leases out the commercial property of a debtor that is registered for GST.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 subsection 105-5(1) paragraph 105-5(1)(a) paragraph 105-5(1)(b)
Subject references: Goods and services tax GST special rules GST supplies in satisfaction of debt GST supplies & acquisitions Taxable supply