ATO ID 2001/112: GST and mortgagee in possession
Date of decision: 19 April 2001
Business line: Indirect Tax

Issue
Can the entity, a mortgagee in possession (a creditor), choose to apply the margin scheme under section 75-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when it exercises power of sale in relation to real property?

Decision
Yes, the entity can choose to apply the margin scheme under section 75-5 of the GST Act when it exercises power of sale in relation to real property.

Facts
The entity is a mortgagee in possession (a creditor). The supply of the real property would have been a taxable supply if the debtor had made the supply. The debtor, if it had sold the real property, could have chosen to apply the margin scheme under section 75-5 of the GST Act. The debtor does not give written notice to the entity that the supply, had the debtor made it, would not have been a taxable supply.

Reasons for decision
Summary: Under section 75-5 of the GST Act, 'you' may choose to apply the margin scheme if 'you' make a taxable supply of real property by selling a freehold interest in land. The debtor, had it sold the property, would have been able to apply the margin scheme. Therefore, it must be considered whether the word 'you' can still be taken to mean the debtor, where the creditor, rather than the debtor, is making the supply. Division 105 of the GST Act deals with supplies made by creditors of property belonging to a debtor, where the supply is in satisfaction of a debt owed to the creditor. The supply is a taxable supply if, had the debtor made the supply, it would have been a taxable supply. The creditor is liable for any GST payable on the supply of the debtor's property. It does not matter if the supply is made in the course of the creditor's enterprise, or if the creditor is registered, or required to be registered for GST. Having regard for the provisions of Division 105 of the GST Act, the creditor is taken to be standing in the shoes of the debtor when the creditor makes the supply. Therefore, for the purpose of the creditor applying the margin scheme to the sale, the word 'you' as used in section 75-5 is taken to mean the debtor. As the debtor was able to apply the margin scheme in line with section 75-5 of the GST Act, the entity may also choose to apply the margin scheme in respect of the sale.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 75-5 Division 105
Subject references: Goods and services tax GST supplies in satisfaction of a debt Taxable supply