Private ruling: GST and sale of a property by the mortgagee in possession
Published: September 2014
Ruling period: Not applicable
Date scheme commenced: Not applicable

Ruling: Q1: Is the sale of property X by a Bank as the mortgagee in possession, a taxable supply? | A1: No. The sale of property X by the Bank as the mortgagee in possession is not a taxable supply.

Relevant facts and circumstances: • The bank is registered for good and services tax (GST) and exercising its power of sale pursuant to its registered mortgage, entered into a contract of sale of the property to a purchaser. • The vendor of the property has provided a statutory declaration confirming that the sale of the property would not be a taxable supply if the vendor was to sell the property. • The statutory declaration states that the vendor is not registered for GST and the property would not have been sold in the course or furtherance of an enterprise, if the vendor was to sell the property. • According to the contract of sale the property was sold as a taxable supply and GST was included in the sale price. • The property was settled and an amount was retained on trust pending the outcome of this application for a private ruling. • The property is partially completed duplex residential property. • The property is considered as uninhabitable as per the valuation report.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 - subsection 105-5(1), (2) and (3)

Reasons for decision: Summary: Division105 of the A New Tax System (Goods and Services Tax) Act 1999 (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. Subsection 105-5(1) and (2) of the GST Act state that you make a taxable supply if 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 had the debtor made the supply, the supply would have been a taxable supply. It does not matter whether you made the supply in the course or furtherance of an enterprise that you carry on; or you are registered or required to be registered. In this case, the bank has made the supply of the property to a third party (the purchaser of the property) towards the satisfaction of the debt owed by the owner of the property. However, it should be determined that if the owner of the property had made the supply to the third party, whether the supply would have been a taxable supply to satisfy subsection 105-5(1) of the GST Act. The vendor of the property has confirmed that they are not registered for GST and the property would not have been sold in the course or furtherance of an enterprise carried on by them if she was to sell the property. The Commissioner does not have sufficient facts to determine whether the vendor is required to be registered for GST. However, based on the statement made by the vendor in the statutory declaration it is considered that the supply of the property would not have been a taxable supply if the vendor was to make the supply of the property to the third party. Subsection 105-5(2) of the GST Act is not relevant in this case as the bank made the supply in the course of their enterprise and they are registered for GST. Subsection 105-5(3) of the GST Act also should be considered to determine whether the supply of the property was not a taxable supply. A supply is not a taxable supply if the debtor has given the creditor 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. If the creditor cannot obtain such a notice, the creditor may reach a belief on the basis of reasonable information that the supply would not have been a taxable supply if the debtor were to make it. In this case, the debtor has provided a written notice in the form of a statutory declaration and confirmed that the supply of the property would not be a taxable supply if the debtor were to make it. Based on this written notice by the debtor, it is the view of the ATO that the supply of the property was not a taxable supply under Division 105 of the GST Act when the bank sold the property to the third party as a mortgagee in possession. Therefore, the bank is not required to remit GST to the ATO on the sale of the property to the third party.