Private ruling: GST and mortgagee in possession
Date of advice: 6 December 2018
Published: March 2019

Ruling: Q1: Is sale of property by mortgagee in possession a taxable supply if the debtor is not registered or required to be registered for GST, ensuing that the purchaser is required to remit GST to the Commissioner under section 14-250 of Schedule 1 to the Tax Administration Act 1953 ? | A1: No, you will not be liable for GST on the sale of the mortgaged property when you exercise your power of sale as a mortgagee in possession and therefore the purchaser does not have a GST liability as the sale is not a taxable supply.

Relevant facts and circumstances: You are a mortgagee in possession exercising power of sale. The property in question is vacant land. The debtor purchased the property from the property developer and no improvements were made to the property. The purchase price included GST and the margin scheme was applied. The property was sold by you. GST was included in the sale price and the contract specified that the margin scheme applied. The debtor has provided a statutory declaration confirming that they are not registered or required to be registered for GST and they are not carrying on an enterprise.

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 section 9-40. | A New Tax System (Goods and Services Tax) Act 1999 section 105-5 | Taxation Administration Act 1953 section 14-250 Schedule 1

Reasons for decision: Summary: 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 the entity makes. Under Division 105 of the GST Act, a creditor is liable for GST on supplies of a debtor's property where the supply is in satisfaction of a debt owed to the creditor. Subsection 105-5(1) of the GST Act states: (1) 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. (* denotes a term defined in section 195-1 of the GST Act) Subsection 105-5(3) of the GST Act further states: (3) However, 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. A supply would be a taxable supply if all of the requirements listed in section 9-5 of the GST Act are satisfied. Section 9-5 of the GST Act 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 a purchaser of vacant land you have a liability to pay an amount of GST to the Commissioner if your acquisition is a taxable supply to you. Taxation Administration Act 1953 , Schedule 1, Section 14-250 Recipients of certain taxable supplies of real property must pay amounts to Commissioner. Liability to pay an amount (1) You must pay to the Commissioner an amount if: (a) you are the recipient (within the meaning of the * GST Act) of a * taxable supply that is, or includes, a * supply to which subsection (2) applies; and (b) in a case where the supply is a supply of * potential residential land--either: (i) you are not registered (within the meaning of that Act); or (ii) you do not acquire the thing supplied for a * creditable purpose. (2) This subsection applies to a * supply, by way of sale or long-term lease (within the meaning of the * GST Act), of: (a) * new residential premises that: (i) have not been created through * substantial renovations of a building; and (ii) are not * commercial residential premises; or (b) * potential residential land that: (i) is included in a * property subdivision plan; and (ii) does not contain any building that is in use for a commercial purpose; … We need to consider whether the sale of the property would have met all of the requirements listed in section 9-5 of the GST Act if it was the debtor who was making the sale. Based on the information that you have provided, had the debtor sold the property, the sale would not have met the requirements listed in paragraphs 9-5(b) and 9-5(d) of the GST Act and therefore the debtor is not making a taxable supply. Consequently, you as a mortgagee in possession will not be liable for GST on the sale of the mortgaged property. The purchaser of the property will not have a liability under Tax Administration Act 1953 section 14-250 of Schedule 1, as the purchaser is making an acquisiti on of a taxable supply.