Private ruling: Taxable supply
Date of advice: 6 November 2025
Published: 22 December 2025
Ruling period: Year ended 30 June 20XX
Date scheme commenced: XX XXX 20XX

Ruling: Q1: Will the sale of units XXX (the Properties) by XXX as a mortgagee in possession (you), be a taxable supply pursuant to section 105-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes. The mortgagee in possession is making a taxable supply under subsection 105-5(1) of the GST Act. | Q2: Are you eligible to apply the margin scheme to the supply of the Properties under Division 75 of the GST Act? | A2: Yes, the mortgagee in possession is entitled to use the margin scheme. | Q3: Are you eligible to claim an input tax credit for goods and services tax (GST) incurred on remedial works undertaken to prepare the Properties for sale? | A3: Yes, the mortgagee in possession is entitled to claim input tax credits for GST paid on remedial works relating to the sale of the Properties.

Relevant facts and circumstances: You are a mortgagee in possession and exercising your power of sale over the properties described as XXX. XXX (the mortgagor) purchased the property XXX in January 2010. In its original configuration, the properties were comprised of X Certificates of Title and were transferred into the mortgagor's name on a date well before 2020. The purchase price paid by the mortgagor was $XXX together with stamp duty. The mortgagor has been registered for GST since X date. Between X and Y date, some residential units were constructed on the property. Certificates of Occupancy were issued on a date before 2022. A title search with the relevant land registry office indicated that: • The property was owned by XXX on XX date. • The mortgagor registered the mortgage on the title on before 2020. • The mortgagee acquired the title from XXX on XX after 2020. Based on the evidence available to you, you believe the mortgagor was more likely than not running a property development enterprise. You do not know if the mortgagor has already claimed input tax credits for the acquisition costs associated with the construction costs of the Properties. Unit one was occupied as the principal place of residence by the mortgagor for X years. You are operating an enterprise as an investor in the Rental, Hiring and Real Estate Services sector, and you are registered for GST. A $X million mortgage loan was established on a date before 2022 under a Deed of Trust arrangement. A search of the title shows that a mortgage was registered in your name on that date. The loan defaulted, and you eventually took possession effective as of X date. At this time, some units were tenanted while others were vacant. It took you approximately X year to gain control of the Properties due to rental pre-payments and other complexities. You proceeded to have units that were subject to tenancies vacated, which enabled a range of remedial works to be carried out as the mortgagor had failed to appropriately complete the Properties. Substantial funds were expended by you in these works which have now been completed. You intend to sell the Properties either in a straight line or on an individual unit basis. You have advised that you may have a buyer for the Properties (X units) and as it stands, there will be a capital loss of approximately $XX of the initial $X million funded. There will also be a loss of interest accruals for a period of less than 5 years.

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 11-5 | A New Tax System (Goods and Services Tax) Act 1999 section 11-15 | A New Tax System (Goods and Services Tax) Act 1999 section 11-20 | A New Tax System (Goods and Services Tax) Act 1999 section 40-65 | A New Tax System (Goods and Services Tax) Act 1999 section 40-75 | A New Tax System (Goods and Services Tax) Act 1999 section 75-5 | A New Tax System (Goods and Services Tax) Act 1999 section 105-5

Reasons for decision: Summary: Will the sale of units XXX (the Properties) by XXX as a mortgagee in possession (you), be a taxable supply pursuant to section 105-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | Detailed Reasoning - Summary 1: Yes, in the absence of a notice from the debtor, when you sell the Properties, you are entitled to act on your reasonable belief the supply is a taxable supply pursuant to section 105-5 of the GST Act. | Detailed Reasoning - Detailed reasoning: Section 9-40 of the 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. This division applies to sales made by a mortgagee in possession. Section 105-5 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. (2) It does not matter whether: (a) you made the supply in the course or furtherance of an enterprise that you carry on; or (b) you are registered, or required to be registered. (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. (4) This section has effect despite section 9-5 (which is about what is a taxable supply). (denotes a term defined in section 195-1 of the GST Act) Creditors include mortgagees. Therefore, it is the responsibility of the mortgagee in possession of the real property to determine whether the supply of property it makes on behalf of its debtor is taxable. In your case, the mortgagor has not provided you with a written notice that the supply would not be a taxable supply. Therefore, it is important to determine whether the supply of the Properties would constitute a taxable supply had the mortgagor sold the Properties. Section 9-5 of the GST Act defines what is a taxable supply. This section 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 the indirect tax zone; 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. Based on the facts of this case, had the mortgagor made the supply the supply would have met all the requirements of section 9-5 of the GST Act for the following reasons: • the sale would have been for consideration; • the sale would have been in the course or furtherance of the mortgagor's property development enterprise; • the supply is connected with Australia as the Properties are situated in Australia; and • the mortgagor is registered for GST. The Properties are located in the indirect tax zone, and you will be making the supply for consideration so these factors of a taxable supply are certain. You believe that the mortgagor is registered for GST, and this is confirmed via the Australian Business Register in the public domain. Given the scale of the development in conjunction with known activities of the mortgagor, we consider that on this available information, you are entitled form the conclusion the supply will be in the course of the mortgagor's enterprise in accordance with subparagraph 105-5(3)(b). In continuing the analysis whether the supply is a taxable supply under section 9-5 of the GST Act, the next issue to ascertain is whether the supply of the Properties will be GST-free or input taxed. There are no provisions of the GST Act under which the sale of the Properties by the debtor would be GST-free. Division 40 of the GST Act covers supplies, including the transfer of land, that are input taxed and are therefore not taxable supplies. If a supply is input taxed, then no GST is payable on the supply and there is no entitlement to input tax credits (GST credits) for acquisitions that relate to making the supply. Subsection 40-65(1) of the GST Act provides that a sale of real property is input taxed but only to the extent that the property is residential premises to be used predominantly for residential accommodation (regardless of the term of occupation). Further, subsection 40-65(2) of the GST Act provides that the sale of real property is not input taxed to the extent that the residential premises are: (a) commercial residential premises; or (b) new residential premises other than those used for residential accommodation (regardless of the term of occupation) before 2 December 1998. Subsection 40-75(1) of the GST Act explains when residential premises are new residential premises. New residential premises are residential premises that: (a) have not previously been sold as residential premises and have not previously been the subject of a long-term lease; or (b) have been created through substantial renovations of a building; or (c) have been built, or contain a building that has been built, to replace demolished premises on the same land. Subsection 40-75(2) provides that residential premises are not new residential premises if for a period of 5 years since: (a) if paragraph (1)(a) applies (and neither paragraph (1)(b) nor paragraph (1)(c) applies)-the premises first became residential premises; or (b) if paragraph (1)(b) applies-the premises were last *substantially renovated; or (c) if paragraph (1)(c) applies-the premises were last built; the premises have only been used for making supplies that are input taxed because of paragraph 40-35(1)(a). In your case, paragraph 40-75(1)(a) applies as the properties have not previously been sold. Subsection 40-75(2) applies in this case and as a result, the Properties have not been used to make input taxed supplies (the leasing) for a period of five years since the buildings became new residential premises. The sale of the Properties will not be input taxed as it is a sale of 'new residential premises'. It is important to note that in the matter of Domestic Property Developments Pty Ltd as trustee for the Dals Property Trust and Commissioner of Taxation (Taxation) [2022] AATA 4436 Senior Member Olding held at paragraph 49 that the period of five years must be continuous. The 5-year period is not exceeded where the properties are not held out for lease continuously for the period of five years. That is, if they are not being leased, they must be actively marketed for lease when they are not actually being leased in order to qualify as continuous. As the units have not been leased continuously, are not actively marketed for lease but are being prepared for sale, the five-year period is broken. In the case of unit one, the debtor lived there for some time. This is private use and is out of scope of the GST system. As it has not been leased continuously for five years, the unit remains new residential premises until such time as it is rented continuously for a period of five years. In your case, the Properties have not met the '5-year test' and are therefore new residential premises as defined in section 40-75 of the GST Act and excluded from being an input taxed supply as they are new residential premises pursuant to paragraph 40-65(2)(b) of the GST Act. Therefore, any supply of the Properties will be a taxable supply under section 9-5. Additionally, based on the limited information publicly available, it is reasonable for you to conclude the sale of the Properties by you will be a taxable supply pursuant to section 105-5 of the GST Act. | Detailed Reasoning - Question 2: Are you eligible to apply the margin scheme to the supply of the Properties under Division 75 of the GST Act? | Detailed Reasoning - Summary 2: Yes, the mortgagee in possession is entitled to use the margin scheme. | Detailed Reasoning - Detailed reasoning: Under the provisions of Division 105 of the GST Act, the creditor (as mortgagee in possession exercising power of sale) is taken to be standing in the shoes of the debtor when the creditor makes the supply. As a result, for the purpose of the creditor applying the margin scheme to the sale, the word 'you' as used in Division 75 is taken to mean the debtor. Paragraph 105-5(3)(b) of the GST Act requires the creditor to act on the basis of reasonable information in the absence of a written notice from the debtor. Therefore, to be able to use the margin scheme the applicant mortgagee should be in possession of reasonable information that the mortgagor would have been able to use the margin scheme. Division 75 of the GST Act discusses the application of the margin scheme. Subsection 75-5(1) of the GST Act provides that if an entity makes a taxable supply of real property by selling a freehold interest in land, or selling a stratum unit, or granting or selling a long-term lease, the entity may choose to apply the margin scheme in working out the amount of GST on the supply subject to provisions making the supply under the margin scheme ineligible. Subsection 75-5(1) of the GST Act also requires the supplier and the recipient to agree in writing that the margin scheme is to apply to the sale. Furthermore subsection 75-5(1A) of the GST Act provides that the agreement must be made on or before making the supply to a prospective purchaser or purchasers. However, subsection 75-5(2) of the GST Act provides that the margin scheme does not apply if the entity acquired the entire freehold interest, stratum unit or long-term lease through a supply that was ineligible for the margin scheme. Subsection 75-5(3) of the GST Act provides for the situations where the margin scheme cannot be applied for a sale of real property. These conditions make the supply ineligible for the application of the margin scheme. One situation where the margin scheme cannot be applied to the subsequent sale is where a supplier acquired the property under a taxable supply on which GST was worked out without applying the margin scheme. Currently there is no evidence that indicates that the acquisition of the property by the mortgagor was made through a taxable supply. Based on a search of publicly available information, the mortgagor was not registered for GST when the property XXX was purchased. Additionally, the properties consisted of 2 residential blocks that were most likely input taxed supplies to the mortgagor. We acknowledge that the properties in their original configuration may have been used as commercial residential premises, but it is more likely they were, based on the outward appearance, used as a residence. Therefore, in our view it would be reasonable for the applicant mortgagee to believe that the mortgagor did not acquire the property as a taxable supply based on the limited information available. There is no information available to suggest reason to believe the sales would otherwise be ineligible under the margin scheme. Consequently, where all of the requirements for the application of the margin scheme contained in Division 75 of the GST Act are satisfied, the applicant mortgagee acting in the shoes of the mortgagor may apply the margin scheme in respect of the sale of the Properties under Division 75 of the GST Act. | Detailed Reasoning - Question 3: Are you eligible to claim an input tax credit for goods and services tax (GST) incurred on remedial works undertaken to prepare the Properties for a taxable sale? | Detailed Reasoning - Summary 3: Yes, the mortgagee in possession is entitled to claim input tax credits for GST paid on remedial works relating to the sale of the Properties. | Detailed Reasoning - Detailed reasoning: As discussed above, Division 105 of the GST Act applies in such a way that you will make a taxable supply of the Properties. Consequently, you will be liable for GST on supplies of the debtors' property where the supply is in satisfaction of a debt owed to you. Please note that this relates to circumstances where the ownership of the property does not transfer to you as mortgagee. However, Division 105 of the GST Act does not address the entitlement of the lender to input tax credits for the GST paid in relation to the acquisition of goods and/or services in the course of making the supply of the borrower's property in satisfaction of a debt. Therefore, the normal rules contained within Division 11 of the GST Act would apply to an acquisition made by the lender when realising the property of the borrower. Section 11-20 of the GST Act provides that you are entitled to input tax credits for any creditable acquisition that you make. Section 11-5 of the GST Act provides that you make a creditable acquisition if: (a) you acquire anything solely or partly for a creditable purpose; and (b) the supply of the thing to you is a taxable supply; and (c) you provide, or are liable to provide, consideration for the supply; and (d) you are registered, or required to be registered. The meaning of creditable purpose is set out in section 11-15 of the GST Act which states: (1) You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. (2) However, you do not acquire the thing for a creditable purpose to the extent that: (a) the acquisition relates to making supplies that would be input taxed; or (b) the acquisition is of a private or domestic nature. The relevant facts are that you incurred various expenses as mortgagee in possession and have GST inclusive expenses as mortgagee in possession when you renovated or developed the property for a greater chance of debt recovery. You were in possession of the property when you incurred these expenses. As above, you are the supplier for the purposes of the margin scheme, and it follows that you are the acquirer for the purposes of completing the sale for the debtor. In these circumstances you will be eligible for a full input tax credit under section 11-20 of the GST Act for the GST incurred on these acquisitions for a creditable purpose as you are making new residential premises ready for a taxable sale.