Edited version of private advice

Authorisation Number: 1051771029310

Date of advice: 6 November 2020

Ruling

Subject: GST and sale of property by a mortgagee in possession

Question 1

Is the 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)?

Answer

Yes. The Mortgagee in Possession is making a taxable supply under subsection 105-5(1) of the GST Act.

Question 2

If the answer to Question 1 is 'Yes', can the Mortgagee in Possession apply the margin scheme under Division 75 of the GST Act?

Answer

Yes, the Mortgagee in Possession is entitled to use the margin scheme provided that:

a.    the supply of the real property would have been a taxable supply if the Debtor had made the supply, and

b.    if the Debtor had sold the real property, could have chosen to apply the margin scheme under section 75-5 of the GST Act.

Question 3

If the answer to Question 2 is 'Yes', for the purposes of subsection 75-10(2) of the GST Act, what comprises the relevant 'consideration for your acquisition' of the Debtor's Property?

Answer

For the purposes of calculating the margin under subsection 75-10(2) of the GST Act, the Commissioner considers the relevant consideration is in reference to the Debtor's acquisition of the Property.

Question 4

If the answer to Question 1 is 'Yes', for the purposes of Subdivision 14-E of Schedule 1 to the Tax Administration Act 1953 (TAA 1953), is it the Mortgagee in Possession's ABN that is to be provided to purchaser(s) / recipient(s) (as the maker of the taxable supply under Division 105)?

Answer

Yes, for the purposes of Subdivision 14-E of Schedule 1 to the TAA 1953, it is the Mortgagee's in Possession ABN that is to be provided to purchaser(s) / recipient(s).

Question 5

Is the answer to Questions 1, 2 and 4 are each 'Yes', is the Mortgagee in Possession entitled to:

a.    the credit-payment relating to the taxable supply of property under section 18-60 of Schedule 1 to the TAA 1953, and

b.    the refund for any amount by which the remitted amount exceeds the GST payable by the Mortgagee in Possession (having regard to the application of the margin scheme)?

Answer

Yes, the Mortgagee in Possession is entitled to:

a.    the credit-payment relating to the taxable supply of property; and

b.    subject to Division 3A of Part IIB of the TAA 1953, the refund of an amount by which the credit-payment exceeds the GST payable by the Mortgagee in Possession.

Question 6

If the answer to Question 1 is 'Yes', is the Mortgagee in Possession entitled to claim input tax credits for the acquisition made from the Builder from the date of effect of the novation of the Building Contract?

Answer

Yes, the Commissioner accepts that for any building Works (i.e. Building Services) provided by the Builder to the Mortgagee in Possession from the date of entry into the Deed of Novation, the Mortgagee is the acquirer of these services and will be entitled to claim the relevant input tax credit. However, any payments made by the Mortgagee in Possession to the Builder for Works provided prior to the entry into the Deed of Novation do not give rise to an input tax credit.

This ruling applies for the following period:

1 December 20XX till quarter ending 30 December 20XX

The scheme commences on:

8 July 20XX

Relevant facts and circumstances

The Mortgagee in Possession is an individual and is registered for GST in the Indirect Tax Zone (Australia).

The Mortgagee in Possession (as Lender) has provided a loan (Loan) to a Company (the Borrower). A copy of the Loan Agreement between the Lender and Borrower has been provided as part of this ruling request.

The Borrower is conducting an enterprise of developing property for the purpose of selling new residential premises and commercial premises.

The Borrower has entered into a building contract (Building Contract) with a Builder to acquire building Works (Building Services). A copy of the Building Contract has been provided as part of this ruling request.

The Borrowed defaulted on the Loan and the Mortgagee in Possession exercised the right to take possession of the Borrowers property.

Since taking possession of the Borrowers property the Mortgagee in Possession and the Builder have entered into an arrangement (new Contract) under which the Mortgagee in Possession has agreed to pay the Builder the outstanding costs owed by the Borrower under the Building Contract. In addition, the Builder will continue to provide Works from the date of entry into the new Contract on largely the same terms and condition of the Building Contract

Following the Mortgagee in Possession taking possession of the property the Borrower has ceased to be registered for GST and is no longer a registered company under the Corporations Act 2001

Upon completion of the development the Mortgagee in Possession will enter into sale contracts with purchasers to supply the newly constructed residential premises

Assumption

The supply of the developed property by the Borrower would have been a taxable supply if the Borrower has made the supply. The Borrower, if it had sold the real property, could have chosen to apply the margin scheme under section 75-5 of the GST Act.

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 11-5,

A New Tax System (Goods and Services Tax) Act 1999 section 11-10,

A New Tax System (Goods and Services Tax) Act 1999 section 11-15

A New Tax System (Goods and Services Tax) Act 1999 section 11-20;

A New Tax System (Goods and Services Tax) Act 1999 section 17-5;

A New Tax System (Goods and Services Tax) Act 1999 section 23-5;

A New Tax System (Goods and Services Tax) Act 1999 section 31-5;

A New Tax System (Goods and Services Tax) Act 1999 Division 37;

A New Tax System (Goods and Services Tax) Act 1999 section 75-5;

A New Tax System (Goods and Services Tax) Act 1999 section 75-10;

A New Tax System (Goods and Services Tax) Act 1999 Division 105;

Tax Administration Act 1953 Subdivision 14-E

Tax Administration Act 1953 sections 14-250 and 14-255 of Schedule 1

Tax Administration Act 1953 section 18-60 of Schedule 1

Tax Administration Act 1953 Division 3A of Part IIB

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