Private ruling: GST and sale of real property
Published: April 2013

Ruling: Q1: Is GST payable on the sale of the secure property by the mortgagees in possession? | A1: No.

Relevant facts and circumstances: The Mortgagees in possession are named as the vendor of the Property. The Property contains a free standing commercial office building incorporating X self contained office suites. The subdivision of the building into X separate titles was granted in Month 20XX. The Mortgagees advanced funds to X (the Mortgagor) with the Property as security. The Mortgagor also took out another mortgage over the property from an unrelated entity. The Mortgagor was the builder responsible for the near completion of the complex. The Mortgagees are not aware of the intention of the Mortgagor with regards to the building. However, the Mortgagees assume that they would either be selling them off individually or leasing the offices out. The Mortgagor defaulted on the mortgages and the Mortgagees subsequently commenced proceedings in the Supreme Court of their State. The Court documents indicate that building works on the land were planned to be completed one year however, a certificate of occupancy was not issued later. The Court documents also indicate that the Mortgagor had been involved in the construction industry for many years. At the time of the hearing they were a pensioner. The Court made an order for possession of the secure Property. The Mortgagees searched the Australian Business Register and found that the Mortgagor is not currently registered for GST although they were registered. In a letter from the Mortgagor's representative, the Mortgagees became aware that the Mortgagor has been declared bankrupt. The Mortgagees are not aware if the Mortgagor is currently carrying on an enterprise however they consider it unlikely as they have been declared bankrupt. None of the offices in the building have been occupied prior to the Mortgagees gaining possession, nor have they been occupied since. The Mortgagor has not provided the Mortgagees with any statements as to why GST would or would not be applicable had they made the sale. The Mortgagees are unable to obtain such statement from them.

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. | A New Tax System (Goods and Services Tax) Act 1999 Section 105-5. | A New Tax System (Goods and Services Tax) Act 1999 Section 195-1.

Reasons for decision: Summary: GST is not payable on the sale of the secure property by the Mortgagees. | Detailed Reasoning - Detailed reasoning: Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that an entity must pay the GST payable on any taxable supply that it makes. Division 105 of the GST Act makes a creditor 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. Subsection 105-5(1) of the GST Act provides that 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. However, subsection 105-5(3) of the GST Act 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. (* denotes a defined term in section 195-1 of the GST Act.) In this case, the Mortgagees have obtained a court judgment against the Mortgagor. The Mortgagees are selling the Property to a third party, in satisfaction of the debt that the Mortgagor owes to them. The Mortgagor did not provide written notice stating that the sale of the Property is not a taxable supply had he made the supply, as outlined in paragraph 105-5(3)(a) of the GST Act. Therefore, the issue is whether the Mortgagees have reasonable information to form the belief that the supply would not be a taxable supply if the Mortgagor were to make the supply, as outlined in paragraph 105-5(3)(b) of the GST Act. A supply would be a taxable supply if all the requirements listed in section 9-5 of the GST Act are satisfied and it 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 Australia; 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. As outlined above, one of the requirements for the supply to be a taxable supply is for the entity to be either registered or required to be registered for GST. Section 23-5 of the GST Act sets out who is required to be registered and it states: You are required to be registered under this Act if: (a) you are *carrying on an *enterprise; and (b) your *GST turnover meets the *registration turnover threshold. Your inquiries indicate that the Mortgagor is not registered for GST. The information available to you does not indicate that the Mortgagor is required to be registered for GST as they are not carrying on an enterprise. Hence, the requirements of paragraph 9-5(d) of the GST Act are not met. As all the requirements of section 9-5 of the GST Act are not met, had the Mortgagor made the supply, it would not have been a taxable supply. Accordingly, as there is reasonable information available to form the belief that the supply of the Property would not have been a taxable supply if the Mortgagor were to make it, the supply of the Property by the Mortgagees is not be a taxable supply under section 105-5 of the GST Act. Consequently, GST is not payable on the sale of the secure property.