ATO ID 2004/485: GST and sale of impounded livestock by a local council
Date of decision: 24 January 2003
Business line: Indirect Tax

Issue
Is the entity, a local council, making a taxable supply under either section 105-5 or section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when, under council by-laws it sells impounded livestock?

Decision
Yes, the entity is making a taxable supply under section 9-5 of the GST Act when, under council by-laws it sells impounded livestock. Section 105-5 of the GST Act does not apply, as the supply is not made in satisfaction of a debt.

Facts
The entity is a local council. The entity impounded stray livestock. The council by-laws provide that the entity can sell the impounded livestock after a specified period if the owner of the livestock cannot be identified. After the specified period the entity sold the livestock at public auction. The purchaser of the livestock has full ownership of the livestock. The entity did not take ownership of the livestock. Under the council by-laws the entity holds the proceeds from the sale of the livestock, less the costs of impounding and selling the livestock, on trust for the collection by the owner of the livestock once identified. If the owner of the livestock had realised their livestock had strayed and been impounded, before the entity sold the livestock, they could have collected the livestock and would have been liable to pay the impounding fees. The entity is not acting as an agent for the owner of the livestock when they sell the livestock. The entity is registered for goods and services tax (GST).

Reasons for decision
Summary: Section 105-5 of the GST Act provides that a supply made by a creditor in satisfaction of a debt is a taxable supply if: The entity sold the livestock to a third party at public auction. Under the council by-laws the entity holds the proceeds from the sale of the livestock, less the costs of impounding and selling the livestock, on trust for the collection by the owner of the livestock once identified. As such, the entity did not make the supply in satisfaction of a debt that the owner of the livestock owed to the entity, which is the first requirement of section 105-5 of the GST Act. Even though the costs of impounding and selling the livestock were withheld from the proceeds of the sale, the sale was not made for the purpose of satisfying a debt. Section 105-5 of the GST Act does not apply to the sale and the rules in Division 9 of the GST Act must be considered. Under section 9-5 of the GST Act, an entity makes a taxable supply if: The sale of the livestock is for consideration. The entity makes the supply in the course of its enterprise that it carries on in Australia and is registered for GST. Furthermore, the supply is neither GST-free under Division 38 of the GST Act nor input taxed under Division 40 of the GST Act. Therefore, the entity is making a taxable supply under section 9-5 of the GST Act when, under council by-laws it sells impounded livestock.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 section 105-5 Division 38 Division 40
Related ATO interpretative decisions: ATO ID 2004/486
Subject references: Goods and services tax GST livestock GST supplies and acquisitions GST supply