Private ruling: GST and representatives entitlements
Date of advice: 6 December 2017
Published: April 2018

Ruling: Q1: Are you, the Liquidators for the Trustee for a Trust, entitled to the GST credits on the lease and other costs made out of the bank guarantee, in relation to the lease of a property, pursuant to paragraph 58-10 (1) (b) of the GST Act? | A1: Yes, in part – refer to reasons for decision.

Relevant facts and circumstances: Background Entity A as lessee, entered into an agreement with Entity B the Lessor) for the lease of a property dated ddmmyyy.. The Property is a Hotel. The Lease was to commence on the ddmmyyy and terminate on ddmmyyy. A copy of the lease was supplied. On ddmmyyyy the lease was assigned by Entity A to Entity C a trust (the Trust). The Trust is registered for GST and reports quarterly on a cash basis. The Trust exercised the option under the lease to extend the lease for a further five years. This was documented in a Deed of Extension of Lease (the Extension Deed) signed by the Guarantor. The Extension Deed, provided that the guarantor was jointly liable for the lease and that it was to provide a bank guarantee. On ddmmyyy two of the guarantors, submitted a resolution that Liquidators be appointed. The Liquidators were appointed on ddmmyyy. The Liquidators advised the ATO of their appointment and a GST registration was added to the Trust to account for their GST liabilities and credits for the period of their appointment. On ddmmyyy the Liquidators disclaimed the lease and the premises were vacated. On or around ddmmyyyy the Lessor made a claim against the Bank guarantee, the guarantors had put in place at the beginning of the lease. The claim was for unpaid rates, utilities and lease payments. The Lessor advised you, the Liquidators, that it had received $XX.00 as a result of its claim against the bank guarantee. The Lessor, issued a tax invoice, for the amounts outstanding to the Trust. The ABN on the invoice was invalid and the Landlords name was incorrect however you advised it had been a mistake and supplied the ABN of the landlord. The invoice did not show the GST payable however it did say that the rent due included GST.

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 27-39 | A New Tax System (Goods and Services Tax) Act 1999 Section 29-10 | A New Tax System (Goods and Services Tax) Act 1999 Division 58 | A New Tax System (Goods and Services Tax) Act 1999 Division 156 and | A New Tax System (Goods and Services Tax) Act 1999 Section 195-1.

Reasons for decision: Summary: In this reasoning, unless otherwise stated, ● all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) ● all reference materials referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au ● all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act | Detailed Reasoning - Division 58: Division 58 sets out how to ascribe activities of a representative of an incapacitated entity between the representative and the incapacitated entity for GST purposes. Section 195-1 provides that a representative relevantly includes a Liquidator. An incapacitated entity is defined to mean an entity that has a representative. Therefore the Trust meets the definition of an incapacitated entity. As you are a representative over the Trust, it is an incapacitated entity pursuant to section 195-1 of the GST Act. Section 58-20 relevantly provides that a representative of an incapacitated entity is required to be registered in that capacity if the incapacitated entity is registered or required to be registered for GST. The Trust was registered for GST at the time of your appointment and therefore you were required to be registered for GST. Our records indicate that you registered for GST. Section 58-10 (1) (b) relevantly provides that a representative of an incapacitated entity is entitled to any input tax credit that the incapacitated entity would be but for this section be entitled to for a creditable acquisition to the extent that the making of the acquisition to which the input tax credit relates is within the scope of the representatives responsibility or authority for managing the incapacitated entities affairs. In this situation: ● the incapacitated entity is registered for GST as are you ● The Lease was acquired in the course of the enterprise of the Trust and the Trust accounts on a cash basis. ● When the landlord claimed against the bank guarantee they received $XX.00. They then issued a tax invoice for the amount. As explained in ATO Interpretative Decision ATO ID 2012/7 Goods and Services Tax: GST and liability for a supply made by an incapacitated entity prior to the appointment of a representative , the mere subsequent receipt by the representative of the consideration for the supply that was made by the incapacitated entity before the appointment of 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 incapacitated entity's affairs. Similarly, the mere subsequent payment by the representative of the consideration for the acquisition that was made by the incapacitated entity before the appointment of the representative does not have the effect of bringing the 'making' of the acquisition within the scope of the representative's responsibility or authority for managing the incapacitated entity's affairs. Under section 58-10, what is important is whether the acquisition is within the scope of the representative’s responsibility or authority for managing the incapacitated entity’s affairs. Paragraph 58 of Goods and Services Tax Ruling GSTR 2000/35 Goods and services tax: Division 156 – supplies and acquisitions made on a progressive or periodic basis states that a supply or acquisition by way of lease is treated as a periodic or progressive supply or acquisition to which Division 156 applies. Under subsection 156-17(2), an acquisition that is made: ● for a period or on a progressive basis; and ● for consideration that is to be provided on a progressive or periodic basis; is treated, for the purposes of Division 58, as if each progressive or periodic component of the acquisition were a separate acquisition. | Detailed Reasoning - Lease: Pre-appointment Under section 27-39, the tax period for the Trust ended on ddmmyyy, ie the day before you were appointed. The period ddmmyyy to ddmmyyy, was before you were appointed and was not within the scope of your responsibility or authority for managing the incapacitated entity’s affairs. Therefore, you are not entitled to any input tax credits arising from those acquisitions. The incapacitated entity is entitled to any input tax credits arising from this acquisition. However, pursuant to section 29-10, the incapacitated entity cannot attribute the GST credits on this acquisition until it holds a valid tax invoice for this acquisition. Further, as the Trust accounts on a cash basis, it will only be entitled to an input tax credit where it has actually provided consideration. Post appointment – until disclaim of lease You were appointed on ddmmyyy. Upon your appointment, you had the opportunity to disclaim the Lease however it was not until ddmmyyy, you disclaimed the lease and vacated the Property. As the continuing acquisition of the Lease by the Trust from ddmmyyy to ddmmyyyy was within your scope or authority for managing the affairs of the Trust, you are entitled to the associated input tax credit for that period. This is consistent with example 1.6 in the Explanatory Memorandum to Tax Laws Amendment (2009 Measures No. 5) Bill 2009, which illustrates that, but for the fact that the entire month was prepaid, the representative would have been entitled to an input tax credit, on a pro-rata basis, for the month of appointment. However, as you report on a cash basis, pursuant to section 29-10, you cannot attribute the GST credits on this acquisition until you have provided consideration and hold a valid tax invoice for the acquisition. Post appointment – On DDMMYY, you disclaimed the lease and vacated the Property. Consequently, there was no supply to the incapacitated entity after this date. Therefore, neither you nor the incapacitated entity is entitled an input tax credit for this period. | Detailed Reasoning - Overdue rates and utilities: The Lessor, issued a tax invoice for the rent, rates and utilities to the Trust. Given the date of the invoice, and in the absence of any contrary evidence, it is reasonable to assume that the overdue rates and utilities relate to a period prior to your appointment. Therefore, the incapacitated entity is entitled to any input tax credits arising from this acquisition. However, pursuant to section 29-10, the incapacitated entity cannot attribute the GST credits on this acquisition until it holds a valid tax invoice for this acquisition. Further, as the Trust accounts on a cash basis, it will only be entitled to an input tax credit where it has actually provided consideration.

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