Private ruling: GST and sale by mortgagee in possession
Date of advice: 21 February 2017
Published: August 2017

Ruling: Q1: Was the sale of the vacant land by the mortgagee in possession a taxable supply under section 105-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: No.

Relevant facts and circumstances: ● Entity A is the registered proprietor of the vacant land. ● Entity A (borrower/debtor) obtained a loan from Entity B (creditor) to purchase the land and has provided the land as security to the creditor. The borrower defaulted on the loan repayments and owed a debt to the creditor. ● Entity B, as the mortgagee exercising its power of sale under the mortgage contracted to sell the property to a third party purchaser. ● Entity B sold the debtor's property in satisfaction of a debt that the debtor owed to it. ● The creditor has been able to obtain information from the debtor on the GST treatment of the sale. The creditor has been able to obtain information to determine that the sale of the land would not have been a taxable supply if the debtor had made the supply.

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

Reasons for decision: Summary: Division 105 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 made in satisfaction of a debt owed to the creditor. 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: ● an entity supplies the property of the debtor to a third party in satisfaction of a debt that the debtor owes to the entity, and ● the supply, to the third party, would be a taxable supply if the debtor had made the supply. ● However, pursuant to subsection 105-5(3) of the GST Act, the supply of a debtor's property by a mortgagee in possession is not a taxable supply if: ● the debtor has given to the mortgagee a written notice stating that the supply would not be a taxable supply if the debtor were to make it. The notice must state fully the reasons why the supply would not be a taxable supply; or ● if such a notice cannot be obtained, the mortgagee in possession believes on the basis of reasonable information that the supply would not be a taxable supply if the debtor were to make it. ● In this case, Entity A has defaulted on the loan repayments. The property of the debtor is sold to a third party purchaser by Entity B as mortgagee in possession in satisfaction of a debt owed by the debtor to the creditor. ● Subsection 105-5(3) of the GST Act is satisfied as the Entity B has been able to obtain the following: ● reasonable information to determine that the sale of the land would not have been a taxable supply if the debtor had made the supply. Therefore the supply of vacant land is GST-free. The supply of the land by the creditor is not a taxable supply under section 105-5 of the GST Act. The supply of the debtor's property by the creditor does not impose a GST liability on Entity B.