Private ruling: GST and mortgagee in possession
Date of advice: 27 August 2021
Published: November 2021

Ruling: Q1: Will the supply of the Property by Entity A 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

Relevant facts and circumstances: Entity A entered into a finance contract (Loan) with a Trust (the Trust) to enable the Trust to acquire vacant land. The Property is located in Australia. The Loan application provided that the Trust wished to acquire the property to construct a home for use by beneficiaries. The Trust registered for GST on or about the date the purchase contract was signed. The property purchase settlement occurred in mmyyy. In mmyyyy, the Trust defaulted on the Loan and from settlement date has remained entirely silent on all matters. No application to develop or build on the land has been registered with the governing Local Council for XXXX. Entity A exercised their power as mortgagee in possession and took possession of the Property on ddmmyyyy and plans to sell it. The Trust remains registered for GST. The Property remains as vacant land and no local council applications nor approvals exist to develop the vacant land. Entity A (as mortgagee in possession) have entered into a contract to sell the Property. Neither the Trust nor any of its representatives have provided Entity A with a notice stating the supply would not be a taxable supply. As no commercial activity appeared to have occurred, Entity A does not believe that the supply would be a taxable supply.

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 Division 105

Reasons for decision: Summary: In this reasoning, please note: • unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) • all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act • all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on the ATO's website ato.gov.au Division 105 provides that supplies by creditors in satisfaction of debts may be taxable supplies. Subsection 105-5(1) provides 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. Subsection 105-5(2) provides that 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 for GST. However, subsection 105-5(3) provides that 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. In this case, you, (the Creditor), will sell the Property of the Trust (the Debtor) to a third party to recover funds on a defaulted loan. Further, neither the Debtor nor any of its representatives gave Entity A the Creditor a notice stating the supply would not be a taxable supply. Entity A did not believe that the supply would be a taxable supply based on the fact that there has not been any recorded activity on the land. Relevantly Entity A submits that the Property was purchased by the Trust for home construction and was not part of an 'enterprise' for development and resale, but rather was purchased (by the Trust) to construct a home for use by beneficiaries. We do not agree with your submission. In particular, as the Trust holds an ABN and is registered for GST it is evidence that the Trust is carrying on an enterprise. Further, you have explained that the Property was acquired by the Trust in the course or furtherance of its enterprise as it was to develop the Property for the purpose of the Property to be used by the beneficiaries. On this basis, the fact that the Trust has not commenced any development activities does not mean that the acquisition made by the Trust and any subsequent supply is not made in the course or furtherance of its enterprise, nor can it be concluded that any subsequent supply would not be a taxable supply. Therefore what needs to be considered is whether the supply by the Trust would be a taxable supply in the current circumstances. Where the supply would have been a taxable supply had the Trust (Debtor) made the supply, then Entity A will be liable for GST on the sale. This requires us to look at whether, had the Trust made the supply, the supply of the Property would have been a taxable supply. Section 9-5 provides that you make a taxable supply if: (a) you make the supply for consideration (b) the supply is made in the course or furtherance of an enterprise that you carry on (c) the supply is connected with the indirect tax zone (Australia), and (d) you are registered, or required to be registered for GST. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. In this case, consideration will be paid for the supply of the Property which was located in Australia. The supply would have been made in the course or furtherance of the Trusts' enterprise and the Trust is registered for GST. Further, as the supply is of the Property consist of vacant land it is not GST free or input taxed. Therefore, the supply of the Property would have been a taxable supply if the Trust had made the supply and therefore the supply of the Property by Entity A will be a taxable supply pursuant to section 105-5.