Private ruling: GST liability of receivers and managers of an incapacitated entity
Published: June 2013

Ruling: Q1: Are you, Receivers and Managers of Entity X, required to account for the goods and services tax (GST) liability, on the supply of services made by Entity X under the development agreement (DA), prior to your appointment as the receivers and managers of Entity X? Decision No, you are not required to account for the GST liability on the supply of services made by Entity X under the DA prior to your appointment. Entity X is liable for the GST on those supplies.

Relevant facts and circumstances: Entity X is a property construction company that supplied development services to construct a residential and commercial unit development (the Development). 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. Our records indicate that you, as the Receivers and Managers of entity X, are registered for GST effective from Date A. Entity Y is the registered proprietor of the land upon which the Development was constructed. Later on Entity Y too 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. Development Agreement (DA) On Date B, Entity X entered into a development, design, construction and project management agreement (development agreement or DA) with Entity Y to supply development services on the land upon which the Development was to be constructed. Development services are defined in DA as 'the management of the approval process and the design and construction of the building incorporating the matters referred to in the DA'. The DA required Entity X to perform the various tasks such as general duties, works implementation and administration, documentation, tenders and contracts, construction, marketing and selling etc. The DA provides that Entity X is to be paid a fee (the development fee or DF) for completing the development works and for assuming the various obligations on its part as set out in the DA. The sequence and priority of funds disbursement is further set out in the DA. This is practically understood to be upon the settlement of each unit. Performance of the DA For the purposes of this private ruling request, duties of Entity X are grouped under the following three broad categories; a) project management services b) construction services; and c) marketing and selling services. The project management and construction services were wholly completed prior to your appointment as receivers and managers of Entity X. Marketing and selling services Entity X supplied some marketing and selling services to Entity Y prior to your appointment. In addition, Entity Y acquired marketing and selling services from another related entity and third parties. In the period following your appointment as receivers and managers of Entity X, you did not supply any marketing and selling services to the receivers and managers of Entity Y. They acquired and continue to acquire marketing and selling services for the residential units directly from third parties. In the present time, all staff that undertake and oversee marketing and selling services for the project are employed by the receivers and managers of Entity Y. Receipt of payments by JD2 for services supplied under the DA Entity X received development fees (DF) for commercial units prior to your appointment. Entity X 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 issued invoices to and received payments from receivers and managers of Entity Y, for the development fees in respect of sale of residential units completed during your receivership. However, the development services for these residential units were supplied by Entity X to Entity Y prior to your appointment. The DF invoices issued by you do not include any element in relation to marketing and selling services. All supplies relating to this private ruling were made by Entity X to 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 9-40 of the GST Act provides that you must pay the GST payable on any taxable supply that you make. | 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. | * 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'. Payments received by you for services supplied by JD2 prior to your appointment | As mentioned above, Entity X supplied development services to Entity Y prior to your appointment. For some of the residential units constructed by Entity X prior to your appointment and sold after your appointment, as receivers and managers of Entity X, you issued the invoices and received the consideration for the development services supplied by Entity X. It is necessary to ascertain whether you incurred a GST liability on the relevant development services supplied by Entity X. | ATO ID 2012/7 | ATO Interpretative Decision (ATOID 2012/7) refers to GST and liability for a supply made by an incapacitated entity prior to the appointment of a representative. | ATO ID 2012/7 provides that under section 58-10 of the GST Act, the representative of an incapacitated entity is not liable for GST, when it receives consideration for a supply that was made by the incapacitated entity, prior to the appointment of the 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 | Accordingly, you are not liable for the GST on the taxable supplies made by Entity X to Entity Y prior to your appointment, despite the fact that you receive the consideration for the taxable supplies since your appointment. | Instead, under section 9-40 of the GST Act, the incapacitated entity is liable for the GST.