ATO ID 2012/7: GST and liability for a supply made by an incapacitated entity prior to the appointment of a representative
Date of decision: 20 January 2012
Business line: Indirect Tax

Issue
Is the entity, a representative of an incapacitated entity, liable for GST under section 58-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it receives consideration for a supply that was made by the incapacitated entity prior to its appointment?

Decision
No, the representative of the incapacitated entity is not liable for GST under section 58-10 of the GST Act when it receives consideration for a supply that was made by the incapacitated entity prior to the appointment of the representative. (It is the incapacitated entity that is liable for GST, under section 9-40 of the GST Act.)

Facts
The incapacitated entity is registered for GST. The representative of the incapacitated entity is registered for GST. The incapacitated entity made a taxable supply under section 9-5 of the GST Act prior to the appointment of the representative. While appointed, the representative receives all of the consideration for the taxable supply made by the incapacitated entity prior to the appointment.

Reasons for decision
Summary: Under subsection 58-10(1) of the GST Act, a representative of an incapacitated entity is liable to pay any GST that the incapacitated entity would, but for section 58-10 or section 48-40, be liable to pay on a taxable supply to the extent that the making of the supply is within the scope of the representative's responsibility or authority for managing the incapacitated entity's affairs. Paragraph 58-10(2)(a) of the GST Act provides an exception to the general rule in subsection 58-10(1) of the GST Act. Under paragraph 58-10(2)(a), the representative of an incapacitated entity is not liable for any GST amounts to the extent that the consideration for a taxable supply was received before the representative became a representative of the incapacitated entity . This exception does not apply as the incapacitated entity did not receive any consideration for the supply prior to the appointment of the representative. The facts state that the incapacitated entity made the taxable supply prior to the appointment of the representative. As the supply was made by the incapacitated entity prior to the appointment of the representative, the making of the supply clearly did not fall within the representative's responsibility or authority for managing the incapacitated entity's affairs, at the time the supply was made. The mere subsequent receipt by the representative of the consideration for the supply that was made by the incapacitated entity before the appointment of the representative does not have the effect of bringing the 'making' of the supply within the scope of the representative's responsibility or authority for managing the incapacitated entity's affairs. Accordingly, because the supply is not within the scope of authority of the representative, the representative is not liable for the GST on the taxable supply under subsection 58-10(1) of the GST Act, despite the fact that the representative receives all of the consideration for the supply. Instead, the incapacitated entity is liable for GST, under section 9-40 of the GST Act. Notes:

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 section 9-40 subsection 58-10(1) subparagraph 58-10(2)(a)
Subject references: Goods and services tax GST special rules Representative of incapacitated entities GST supplies & acquisitions Taxable supply