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Edited version of your written advice
Authorisation Number: 1013003783425
Date of advice: 20 May 2016
Ruling
Subject: GST and supplies in satisfaction of debts
Question
Is the sale of the relevant properties by the taxpayer as mortgagee in possession, taxable supplies under section 105-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer
Yes, the sale of the relevant properties by the taxpayer as mortgagee in possession will be taxable supplies under section 105-5 of the GST Act.
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
• You are an unlisted public company which manages an investment scheme. This scheme is operating in Australia and it is registered under Corporations Law.
• You loan funds to approved borrowers. The loans are secured against registered first mortgages over properties owned by the borrowers.
• When borrowers default on their loan commitments, you step in to sell mortgaged properties to recover loaned funds.
• You are exercising your power of sale after obtaining Order of Possession and Judgement Debt on a number of relevant properties.
• The properties are owned by the debtor.
• The debtor owes you money in respect of which you obtained the Order of Possession and Judgement Debt.
• The debtor is registered for GST and carries on an enterprise of investing in and developing land.
• The debtor was made bankrupt in 20XX.
• You have entered into a Contract of Sale to sell the X property.
• The X property has not yet been sold.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999:
• Section 105-5.
Reasons for decision
While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.
Summary
Section 105-5 of the GST Act is applicable and the supply of the relevant properties will be a taxable supply when supplied by the taxpayer as mortgagee in possession, because the properties would have been taxable supplies had the debtor supplied them.
Detailed reasoning
Subsection 105-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that:
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)
You loaned to the debtor the funds secured by first mortgages against the relevant properties. The debtor owes you a debt in respect of which you obtained the Order of Possession and Judgement Debt and, consequently, you are the mortgagee in possession of the above mentioned properties.
When you make a supply of the above mentioned properties as mortgagee in possession, you supply the property of the debtor toward satisfaction of the debt they owe you. Accordingly, the first limb, 105-5(1)(a), is satisfied.
The second limb, 105-5(1)(b), requires determining whether the supply would have been a taxable supply had the debtor made it. Section 9-5 of the GST Act defines taxable supply as follows:
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 the indirect tax zone; 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.
For a supply to be taxable all the elements mentioned above must be present. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.
The debtor is registered for GST and is carrying on an enterprise of investing in and developing land. Notwithstanding that the debtor is now bankrupt; supplies made in winding up of an enterprise are deemed to be carrying on an enterprise. Accordingly, paragraphs (b) and (d) of section 9-5 of the GST Act are satisfied.
The underlying properties are situated in Australia and, therefore, connected with the indirect tax zone. Accordingly, paragraph (c) of section 9-5 of the GST Act is satisfied.
The final element to consider is whether the supply is made for consideration.
In the case of the X property, you sold it for a consideration. The property is vacant land and there is no other indication that it should be GST-free or input taxed. Therefore, all elements of a taxable supply are present and, for that reason, it would have been a taxable supply had the debtor made it. Accordingly, your sale of the relevant property is taxable supply under section 105-5 of the GST Act.
In the case of the X property, you have not yet sold it. However, as it is vacant land and there is no other indication that it should be GST-free or input taxed, when you sell it for consideration all the elements of a taxable supply will be present. At the time of sale for consideration, it would be a taxable supply had the debtor made it. Accordingly, your proposed sale of the relevant property for consideration will be a taxable supply under section 105-5 of the GST Act.
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