Private ruling: GST and sale of property by mortgagee in possession
Published: October 2011

Ruling: Q1: Will you be liable for goods and services tax (GST) on the sale of the mortgaged property when you exercise your power of sale as a mortgagee in possession? | A1: No, you will not be liable for GST on the sale of the mortgaged property when you exercise your power of sale as a mortgagee in possession?

Relevant facts and circumstances: You, are a mortgagee in possession. You have appointed another entity as your agents as the mortgagee in possession of the mortgaged property pursuant to the powers contained in a real property mortgage. The property is a newly developed residential premise build post July 2000. Your agents are now in the process of realising the property. The mortgagor confirmed that the property is his principal place of residence and he is not registered or required to be registered for GST, or carrying on an enterprise. He did not claim any input taxed credit on the construction of the residence.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 9-5. | A New Tax System (Goods and Services Tax) Act 1999 section 9-40. | A New Tax System (Goods and Services Tax) Act 1999 section 105-5.

Reasons for decision: Summary: Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that an entity must pay the GST payable on any taxable supply that the entity makes. Under Division 105 of the GST Act, a creditor is liable for GST on supplies of a debtor's property where the supply is in satisfaction of a debt owed to the creditor. Subsection 105-5(1) of the GST Act states: (1) You make a taxable supply if: (a) you supply the property of another entity (the debtor ) to a third entity in or towards the satisfaction of a debt that the debtor owes to you; and (b) had the debtor made the supply, the supply would have been a *taxable supply. (* denotes a term defined in section 195-1 of the GST Act) Subsection 105-5(3) of the GST Act further states: (3) However, the supply is not a *taxable supply if: (a) the debtor has given you a written notice stating that the supply would not be a taxable supply if the debtor were to make it, and stating fully the reasons why the supply would not be a taxable supply; or (b) if you cannot obtain such a notice - you believe on the basis of reasonable information that the supply would not be a taxable supply if the debtor were to make it. In your case, you have appointed several entities as the joint and several agents for the mortgagee in possession of the property and your agents will be selling the debtor's property in satisfaction of a debt that the debtor owes to you. The debtor has given you a written notice stating that the sale of the property would not be a taxable supply as it was his principal place of residence. A supply would be a taxable supply if all of the requirements listed in section 9-5 of the GST Act are satisfied. Section 9-5 of the GST Act states: You make a taxable supply if: (a) you make the supply for *consideration; and (b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and (c) the supply is *connected with Australia; and (d) you are *registered, or *required to be registered. However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed. We need to consider whether the sale of the property would have met all of the requirements listed in section 9-5 of the GST Act if it was the debtor who was making the sale. Based on the information that you have provided, had the debtor sold the property, the sale would not have met the requirements listed in paragraphs 9-5(b) and 9-5(d) of the GST Act. This is because the sale of the principal place of residence is not considered to be done in the course of an enterprise and therefore does not meet paragraph 9-5(b) of the GST Act. What this means is that had the debtor sold the property, the sale would not have been a taxable supply under section 9-5 of the GST Act. Consequently, you as a mortgagee in possession will not be liable for GST on the sale of the mortgaged property. Your agents will also not be liable for GST on the sale of the mortgaged property as they have not made a taxable supply of the property. They may be liable for any fees that they receive for their services as your agents.

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