Private ruling: GST and the representative of an incapacitated entity
Published: February 2014

Ruling: Q1: Are the liquidators liable to pay GST in respect of the $W received by them in relation to the sale of the assets of the company? | A1: Yes.

Relevant facts and circumstances: The company carried on a specified business. On DD/MM/YYYY the company entered into an agreement to sell certain assets used in its business to the purchaser. The agreement provides that: · Completion means completion of the sale and purchase of the assets under the agreement. · Completion date means a specified time on DD/MM/YYYY or such earlier date which is agreed in writing by the parties. · The title to property in and risk of the assets remains with the company until completion and passes to the purchaser on and from completion. · The company is required at completion to confer on the purchaser unencumbered title to, and to place the purchaser in effective possession and control of the assets and, to this end, the company must deliver or cause the assets to be delivered to the purchaser in good and merchantable condition. This will be satisfied by the assets being situated at the business premises of the company on the completion date and the purchaser being given access to remove any of the assets. · On the completion date the purchaser must pay the purchase price to the company. If the assets are not capable of all being placed in the possession and control of the purchaser at the completion date then the funds shall be paid to the purchaser's solicitors to be place in a trust account until all the assets are in the possession and control of the purchaser. · The parties will ensure that all dealings between them are transacted on an arms-length basis. · The company must not be placed into liquidation or administration or wound up until the purchaser has registered appropriate charges over the assets with the relevant authorities. · The purchase price is $X payable on completion date on the following basis: a. $V to be paid to the company once the company provides written confirmation that the charges that it registered on a specified date have been discharged or will be discharged. The sum of $V is to be held in a specified trust account and only released to the company upon receiving written instructions from the purchaser that the purchaser deems this condition has been satisfied. b. $W to be paid to the purchaser's solicitors to be held in their trust account in the name of the purchaser until all the assets are transferred to the purchaser free from all encumbrances. On the 'completion date' the purchaser paid $V to the company and $W to the purchaser's solicitors. A few days after the 'completion date' the director of the company resolved that the company be placed into voluntary liquidation and that specified people be appointed as joint and several liquidators of the company (liquidators). As a result, on DD/MM/YYYY the liquidators became the representatives of an incapacitated entity (ie the company). In the month following the 'completion date' and the appointment of the liquidators, with the permission of the liquidators, the purchaser removed the physical assets sold under the agreement from the company's premises. In the month following the month in which the assets were removed, the purchaser's solicitor paid $W to the liquidators.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 subsection 58-10(1)

Reasons for decision: Summary: Under subsection 58-10(1) GST Act, the liquidators are liable to pay GST on the taxable supply of the assets of the company to the extent of the $W payment received from the purchaser after their appointment. | Detailed Reasoning - Detailed reasoning: Division 58 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) sets out how to ascribe activities of a representative of an incapacitated entity between the representative and the incapacitated entity for GST purposes. 'Representative' for the purposes of Division 58 of the GST Act is defined in section 195-1 of the GST Act and includes a liquidator. Under subsection 58-10(1) of the GST Act a representative of an incapacitated entity is liable to pay any GST that the incapacitated entity would, but for section 58-10 or section 48-40 of the GST Act, be liable to pay on a taxable supply to the extent that the making of the supply is within the scope of the representative's responsibility or authority for managing the incapacitated entity's affairs. Section 58-10 does not provide that it is the time of the relevant supply, importation or acquisition that is determinative of whether or not a representative has a liability or entitlement. What is important is whether the supply is within the scope of the representative's responsibility or authority for managing the incapacitated entity's affairs. For example, if an agreement is entered into prior to the appointment of the representative, but services are performed post, the relevant question for the purposes of Division 58 is whether the supply is within the representative's scope of authority or responsibility for managing the incapacitated entity's affairs. In other words, the fact that a representative may not be a party to a contract or agreement that was entered into prior to their appointment does not preclude relevant supplies from being within the scope of their responsibility or authority for managing the incapacitated entity's affairs if they adopt the contract or agreement post appointment. In the current case, the company entered into a contract for the sale of its assets on DD/MM/YYYY prior to the appointment of the liquidators. The agreement provides that the date of completion was DD/MM/YYYY. Under the agreement, on the completion date the company was obliged to confer on the purchaser unencumbered title to and to place the purchaser in effective possession and control of the asset and deliver or cause the assets to be delivered to the purchaser. Further the agreement provides that this would be satisfied by the assets being situated at the business premises of the company on the completion date and the purchaser being given access to remove any of the assets. The agreement provides that on the completion date the purchaser was required to pay the purchase price to the company. The agreement also provides that if the assets were not capable of being placed in the possession and control of the purchaser at the completion date then the funds were to be paid to the purchaser's solicitors to be held in a trust account until all the assets were transferred to the purchaser free from all encumbrances. From the information provided, on completion date the balance of $W was not paid to the company, indicating that the assets were not placed in effective possession and control of the purchaser as required by the agreement. That is the assets were not transferred to the purchaser free from all encumbrances prior to the appointment of the liquidators. The information provided suggests that the liquidators adopted the contract after their appointment as the liquidators of the company and received the balance of the purchase price. Accordingly, under subsection 58-10(1) of the GST Act, the liquidators are liable to pay GST on the taxable supply of the assets to the extent of the payment received from the purchaser after their appointment.