ATO ID 2004/290: GST and a representative's liability for a supply made under a contingent agreement
Date of decision: 29 July 2003
Business line: Indirect Tax

Issue
Is the entity, a representative of an incapacitated entity, liable for goods and services tax (GST) under section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it completes the final condition of a contingent agreement that was made by the incapacitated entity?

Decision
No, the entity is not liable for GST under section 9-40 of the GST Act when it completes the final condition of a contingent agreement that was made by the incapacitated entity, as it is the incapacitated entity that makes the supply and is liable for GST.

Facts
The entity is a representative of an incapacitated entity. The incapacitated entity owns several assets. Before the entity's appointment, the incapacitated entity entered into a contingent agreement with a purchaser to sell these assets. Under the terms of this agreement, the purchaser has had possession and use of the assets since the day the agreement was signed. The terms of the agreement provide that title to the assets does not pass to the purchaser until two conditions are met, resulting in the agreement being completed. The first condition for the completion of the agreement is the sale of specified premises. This sale was completed before the entity was appointed. The second condition for the completion of the agreement is the release of the assets from a registered charge. After the entity's appointment, the entity paid monies owed to the relevant finance companies. Following these payments, the charges were released. As the second condition under the terms of the agreement was met, the title to the assets was transferred to the purchaser, free of encumbrances. The purchaser paid the consideration due and a tax invoice was issued. At the time of the entity's appointment, the incapacitated entity was registered for GST. The entity registered for GST, in its capacity as representative of the incapacitated entity, in accordance with the provisions of subsection 58-20(1) of the GST Act. The supply of the assets satisfies the requirements of section 9-5 of the GST Act and is a taxable supply.

Reasons for decision
Summary: Section 9-40 of the GST Act provides that an entity is liable for the GST payable on any taxable supply that it makes. Therefore, the entity is only liable to pay the GST if it is the entity that has made the supply. The incapacitated entity entered into the contingent agreement to sell the assets before the entity's appointment. The incapacitated entity signed the agreement and made the assets available to the purchaser for possession and use on the same day. In addition, the incapacitated entity met the first condition of the agreement when it sold the premises prior to the appointment of the entity. After the entity's appointment and as part of its professional duties, the entity engaged in actions on behalf of the incapacitated entity to ensure that the second condition (releasing the charge over the assets) was met and the original agreement was completed. Under the terms of the agreement, the completion of the related transaction and the release of the charge, are prerequisites to title passing to the purchaser. The entity does not make the supply merely by ensuring that those prerequisites are satisfied. It was the incapacitated entity who did everything to effect the actual supply of the goods and as such, it is the incapacitated entity that makes the supply. Therefore, the entity is not liable for GST under section 9-40 of the GST Act when it completes the final condition of a contingent agreement made by the incapacitated entity.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 section 9-40 subsection 58-20(1)
Subject references: Goods and services tax GST special rules Representative of incapacitated entities GST supplies & acquisitions Taxable supply