Private ruling: Entitlement to input tax credits of receivers - managers of an incapacitated entity
Published: June 2013

Ruling: Q1: Are you, Receivers and Managers of Entity X, entitled to input tax credits on the acquisition of development services by Entity X from Entity Y, prior to your appointment as the receivers and managers of Entity X? Decision No, you are not entitled to input tax credits on the acquisition of development services by Entity X from Entity Y, prior to your appointment as the receivers and managers of Entity X. Entity X is entitled to input tax credits on those acquisitions.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. · Entity X was the registered proprietor of a block of land. Entity X acquired development services from Entity Y to construct a residential and commercial property development (the Development) on this land. · Later on Entity X became incapable of servicing their loans. On Date A, a consortium of banks placed Entity X under receivership and appointed you as the receivers and managers of Entity X. · Later on Entity Y also became incapable of servicing their loans. On Date A, the same consortium of banks placed Entity Y under receivership and appointed you as the receivers and managers of Entity Y. · Entity X and Entity Y are related entities. Performance of the DA For the purposes of this private ruling request, the duties of Entity Y are grouped under the following three broad categories; (a) project management services (b) construction services; and (c) marketing and selling services. The acquisition of project management and construction services was wholly completed prior to your appointment as the receivers and managers of Entity X. Marketing and selling services · Entity X acquired some marketing and selling services from Entity Y prior to your appointment. In addition, Entity X acquired marketing and selling services from another related entity and third parties. · In the period following your appointment, no marketing and selling services were acquired from the receivers and managers of Entity Y. · Instead, you acquired and continue to acquire services associated with marketing and selling the residential units directly from third parties. · In the present time, all staff that undertakes and oversees marketing and selling services for the project is employed by you. Payments made to Entity Y for services supplied under the DA · Entity X made payments to Entity Y for part of the development fee (DF) equal to the Commercial Return prior to your appointment. · Entity Y invoiced and received payments in respect of the development fees on residential units settled prior to your appointment, on dates occurring prior to your appointment. · Since your appointment, you have received invoices from and made payments to receivers and managers of Entity Y for the development fees (DF) in respect of residential units settled during your receivership. However, the relevant development services were acquired by Entity X prior to your appointment. All acquisitions relating to this private ruling were made by Entity X from Entity Y prior to your appointment.

Relevant legislative provisions: A New tax System (Goods and Services Tax) Act 1999 (GST Act) - section 9-5 | A New tax System (Goods and Services Tax) Act 1999 (GST Act) - section 9-40 | A New tax System (Goods and Services Tax) Act 1999 (GST Act) - section 58-10 | A New tax System (Goods and Services Tax) Act 1999 (GST Act) - section 195-1 Reasons for the decision | Section 11-20 of the GST Act provides that you are entitled to the input tax credit for any creditable acquisition that you make. | Section 11-5 of the GST Act states: | 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. | * Denotes a term defined in section 195-1 of the GST Act. Subsection 58-10(1) of the GST Act refers to circumstances in which representatives have GST-related liabilities and entitlements and states: | (1) A *representative of an *incapacitated entity; | (a) is liable to pay any GST that the incapacitated entity would, but for this section or section 48-40, be liable to pay on a *taxable supply or a *taxable importation; and | (b) is entitled to any input tax credit that the incapacitated entity would, but for this section or section 48-45, be entitled to for a *creditable acquisition or a *creditable importation; and | (c) has any *adjustment that the incapacitated entity would, but for this section or section 48-50, have; | to the extent that the making of the supply, importation or acquisition to which the GST, input tax credit or adjustment relates is within the scope of the representative's responsibility or authority for managing the incapacitated entity's affairs. | Section 195-1 of the GST Act states: | incapacitated entity means: | (a) an individual who is bankrupt; or | (b) an entity that is in liquidation or receivership; or | (c) an entity that has a *representative. | representative means: | (a) … | (b) ….or | (c) a receiver; or | (d) … | (e) A person appointed or authorised under an *Australian law to manage the affairs of an entity because it is unable to pay all its debts as and when they became due and payable; or | (f) … | Therefore, for the purposes of the GST Act, Entity X is an 'incapacitated entity' and you, the receivers and managers of Entity X, are a 'representative' of Entity X. Payments made by you for services supplied by JD2 prior to your appointment | As mentioned above, Entity X acquired development services from Entity Y prior to your appointment. For some of the residential units constructed by Entity Y prior to your appointment and settled after your appointment, as receivers and managers of Entity X, you have received DF invoices from the receivers and managers of Entity Y and paid the consideration to them. It is necessary to ascertain whether you became entitled to input tax credits on the consideration made to the receivers and managers of Entity Y, for the development services acquired by Entity X prior to your appointment. | ATO ID 2012/7 | ATO Interpretative Decision 2012/7 (ATOID 2012/7) refers to the GST liability for a supply made by an incapacitated entity prior to the appointment of a representative. | As per the facts given in ATOID 2012/7, the incapacitated entity made the taxable supply prior to the appointment of the representative. As the supply was made by the incapacitated entity prior to the appointment of the representative, the making of the supply clearly did not fall within the representative's responsibility or authority for managing the affairs of the incapacitated entity, at the time the supply was made. | The mere subsequent receipt of the consideration by the representative does not have the effect of bringing the 'making' of the supply within the scope of the representative's responsibility or authority for managing the affairs of the incapacitated entity. | Conclusion | In this case, Entity X acquired all the development services under the DA from Entity Y prior to your appointment as receivers and managers of Entity X. Using the same logic as quoted in ATOID 2012/7, we consider that making of these acquisitions by Entity X did not fall within your scope of responsibility or authority for managing the affairs of Entity X. | The mere subsequent payment by you of the consideration for development services acquired prior to your appointment as representative does not have the effect of bringing those acquisitions within the scope of your responsibility or authority for managing the affairs of Entity X. | Accordingly, under subsection 58-10(1) of the GST Act, you are not entitled for input tax credits on the creditable acquisitions made by Entity X from Entity Y, despite the fact that you paid the consideration for the creditable acquisitions after your appointment. | Instead, under section 11-20 of the GST Act, Entity X may be entitled to the input tax credits.