ATO Interpretative Decision

ATO ID 2004/35

Goods and Services Tax

GST and renting property by a mortgagee in possession
FOI status: may be released
Status of this decision: Decision Current
CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Is the entity, a mortgagee in possession, making a taxable supply under subsection 105-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it leases out commercial property belonging to a debtor that is registered for goods and services tax (GST)?

Decision

Yes, the entity is making a taxable supply under subsection 105-5(1) of the GST Act when it leases out commercial property belonging to a debtor that is registered for GST.

Facts

The entity is a mortgagee in possession (a creditor). The entity is in possession of a debtor's commercial property as mortgagee in possession.

The entity is entitled under the mortgage to sell or lease the property and apply the proceeds towards satisfaction of the debt that the debtor owes to the entity. The entity leases out the commercial premises to a third party.

The entity and the debtor are registered for GST. If the debtor had leased out the commercial property, the supply would have been a taxable supply under section 9-5 of the GST Act.

Reasons for Decision

Subsection 105-5(1) of the GST Act provides that a supply made by an entity is a taxable supply if:

(a)
the entity supplies the property of the debtor to a third party in satisfaction of a debt that the debtor owes to the entity; and
(b)
had the debtor made the supply, the supply would have been a taxable supply.

A lease of commercial property is a grant of real property and is a supply for the purposes of the GST Act (paragraph 9-10(2)(d) of the GST Act).

The entity is leasing the debtor's commercial property to a third party and applying the proceeds towards the debtor's debt to the entity. Therefore, the entity is supplying the debtor's property to a third party in satisfaction of a debt that the debtor owes to it. The requirement in paragraph 105-5(1)(a) of the GST Act is satisfied.

The debtor is registered for GST. Had the debtor leased out the commercial premises, the supply would have been taxable under section 9-5 of the GST Act. Therefore, the requirement in paragraph 105-5(1)(b) of the GST Act is also satisfied.

Accordingly, the entity is making a taxable supply under subsection 105-5(1) of the GST Act when it leases out the commercial property of a debtor that is registered for GST.

Date of decision:  13 September 2002

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 9-5
   subsection 105-5(1)
   paragraph 105-5(1)(a)
   paragraph 105-5(1)(b)

Keywords
Goods and services tax
GST special rules
GST supplies in satisfaction of debt
GST supplies & acquisitions
Taxable supply

Siebel/TDMS Reference Number:  3142709

Business Line:  Indirect Tax

Date of publication:  16 January 2004

ISSN: 1445-2782