Edited version of your private ruling

Authorisation Number: 1012421029663

Ruling

Subject: GST: supply of real property by a representative

Question

Are you, in your capacity as Liquidator for the Entity (in Liquidation), liable to report and remit the GST payable on the supply of the property located in Australia?

Answer

No

Relevant facts and circumstances

In 200X, a trustee company (entity) acquired property and commenced construction of a commercial building.

The entity borrowed money from a Bank to purchase the Property, granting a mortgage over the Property in favour of the Bank. The entity also granted the Bank a fixed and floating charge over all of its present and future assets.

In March 200Y, the Property was taken to auction and contracts were exchanged with a related party for the sale of the Property.

Australian Securities & Investment Commission (ASIC) records show that in July 200Y, you were appointed as Administrator of the entity. The appointment ceased shortly after that day.

ASIC records also show that on the day you ceased your role as Administrator, you were appointed Liquidator.

In August 200Y, the Bank instructed their lawyers, to appoint Receivers and Managers to the trustee company with respect to the Property for which they had a security interest.

Later that month, Receivers and Managers were appointed in relation to the Property.

The deed of appointment of the Receivers and Managers set out that

· the mortgagor has committed monetary and non-monetary defaults.

· the Bank wishes to enforce the Charge and appoint the Receivers and Managers of the Charged property.

The Receivers and Managers advised you that:

· were appointed Receivers and Managers of the Company on ddmmyyyy pursuant to the provisions contained in a registered debenture charge created by the Company in favour of the Bank.

· As a consequence of the appointment we will take full responsibility for the management and operations of the company and control of all assets.

Following the appointment of the Receivers and Managers, it was ultimately resolved that the original sale of the property to the related party was the most viable method of extinguishing the debt.

The contract for the sale of the Property was settled on a specified date. The settlement statement recorded that the sale was between the trustee and the related party.

The final ASIC statement lodged by the Bank appointed Receivers and Managers shows that they were in control from August 200Y to the settlement date. The statement also shows that:

· when they were appointed the amount outstanding on the certain charge number was $X.XX and

· at the end of their appointment the amount outstanding was $X.XX plus interest.

The settlement statement you supplied showed that portion of the sale proceeds from the sale of the property was paid to the Bank.

You lodged documents with ASIC showing that you received $XX.XX for the sale of the property and that you paid out the same amount to the Bank.

In your application for a private ruling, you advised that the Receivers and Managers ceased their role as Receivers and Managers immediately prior to settlement.

The Commissioner ruled that you, in your capacity as Liquidator for the entity (in Liquidation), were liable to report and remit the GST payable on the supply.

Later, your agent lodged an objection to the Private Ruling. Your agent provided the following additional information:

· Your agent advised that the ASIC document prepared by you were incorrectly prepared by your staff.

· Your agent produced a letter from the Bank's solicitors to your solicitors, dated the day before settlement, whereby the Banks solicitors advised that "Following confirmation of settlement, we will immediately retire the Receivers and Managers."

· Your agent advised that you did not receive notification of the resignation of the Receivers and Managers until after settlement.

You subsequently supplied a letter from your solicitor which states "As far as I am aware the receivers and managers remained in control of the property transaction until settlement was completed."

The Bank terminated the appointment of the Receivers and Managers. There are two versions of the Notice of Termination of Receivership (the Termination Notice):

· Version 1 is dated the day after settlement. The number xx (the day after settlement) has subsequently been deleted and replaced by the number xw (the date of settlement). This version is signed only by the Bank.

· Version 2 is dated the day of settlement, but was not signed by the Receivers and Managers until the day after settlement.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Division 58

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1

Reasons for decision

The GST payable on taxable supplies made by a representative during their term of appointment is dealt with under Division 58 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Section 58-5 of the GST Act provides that, while you are the representative of an incapacitated entity (IE) and making supplies in that capacity, those supplies are taken to be supplies made by the incapacitated entity (IE).

An incapacitated entity is defined in the GST Act to include an entity over which a representative is appointed.

A representative is defined in the GST Act to include a liquidator or a receiver.

Paragraph 58-10(1)(a) of the GST Act provides amongst other things that a representative of an IE is liable to pay any GST that the IE would, but for section 58-10 or section 48-40, be liable to pay on a taxable supply, to the extent that the making of the supply is within the scope of the representative's responsibility or authority for managing the IE's affairs.

On the facts available, we consider the entity (in liquidation) satisfies the definition of an incapacitated entity and you are their representative, for the purposes of Division 58 of the GST Act.

Accordingly, it is relevant to consider whether the Property that was sold during the period of your appointment as the liquidator was a supply made by you within the scope of your responsibility or authority in managing the affairs of the entity (in liquidation).

Australian Taxation Office (ATO) issues register 'Representative of incapacitated entities' (available on the ATO website www.ato.gov.au) includes at issue 4.1 an explanation that where two or more representatives are appointed in different capacities as representatives of the same incapacitated entity, each representative is liable for GST on taxable supplies and entitled to input tax credits for creditable acquisitions that are made within the scope of that representative's responsibility or authority for managing the incapacitated entity's affairs. The representatives are not jointly or severally liable to pay GST under subsection 444-70(1) of Schedule 1 to the Taxation Administration Act 1953

Issue 4.1 also sets out an example:

...where a receiver is appointed over an asset of company and a liquidator is separately appointed to wind up the company at the same time. With agreement of the liquidator, the receiver enters into a contract of sale and sells the asset that he/she was appointed over. The receiver will be liable for GST arising on the sale of the asset as the sale is within the scope of his/her responsibility or authority of his/her appointment. The liquidator will not have any GST consequences as the sale is not within the scope of the liquidator's responsibility or authority.

When the Receivers and Managers were appointed by the Bank, they became a representative as defined in section 195-1 of the GST Act. However, for a representative to be liable to GST under the GST Act, the transaction must be made within the scope of their responsibility or authority as Receivers and Managers.

Based on the facts, the Property had been mortgaged to the bank as a security over the loan debt that the IE had with the Bank. During the term of your appointment as the liquidator of the entity, the Bank appointed receivers and managers to secure the loan payment. When the Property was sold the proceeds were paid to the Bank towards satisfaction of the loan debt.

Whilst both versions of the Termination Notice purport to have been prepared on the day of settlement, only the second copy is signed and dated by the Receivers and Managers, which makes this a more credible version. The signature is dated the day after settlement, indicating that their termination took place on that date.

As the termination of the appointment of the Receivers and Managers did not occur until after the day of settlement, the supply and settlement of the property was made within the scope of their responsibility or authority as Receivers and Managers.

Even if the termination of the appointment of the Receivers and Managers took place on the day of settlement, the evidence is that the supply of the property was authorised by them and was within the scope of the Receivers and Managers' responsibility or authority for managing the IE's affairs.

Therefore, as outlined in issue 4.1, we consider the sale of the Property was not made within the scope of your responsibility or authority in managing the affairs of the IE. That is, the requirements of paragraph 58-10(1)(a) of the GST Act are not satisfied.

Accordingly, you, in your capacity as the liquidator of the entity are not liable to pay the GST on the supply of the property.

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