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Edited version of private ruling
Authorisation Number: 1011658829727
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Ruling
Subject: GST and sale of property by a mortgagee in possession
Question 1
Are you liable to pay in relation to the sale of commercial property as mortgagee in possession?
Answer 1
Yes you are liable to remit 10% of the value of the taxable supply.
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 held a first mortgage over a commercial property.
The mortgagor defaulted and so you took possession of the property and sold it for $X.X million plus GST as mortgagee in possession. The total GST was $XXX,XXX, including the GST on adjustments.
This amount which has been retained in trust by the court pending resolution of this matter.
The property was owned by a company registered for GST and currently in receivership. The property was subject to one other registered mortgage and a registered charge over the company's assets.
As mortgagee in possession, you received $YYY,YYY in full satisfaction of your debt. The balance of the sale price after payment of the adjustments has been paid into the Supreme Court for determination with respect to the competing interests of the second mortgagee and a third party being the registered charge holder over the company's assets.
You have confirmed with us that if your debtor would have sold the property it would have been a taxable supply.
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 9-70,
A New Tax System (Goods and Services Tax) Act 1999 Section 9-75 and
A New Tax System (Goods and Services Tax) Act 1999 Section 105-5 .
Reasons for decision
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 taxable supply.
Further, subsection 105-5(2) of the GST Act provides that it does not matter whether:
a) you made the supply in the course or furtherance of an enterprise that you carry on, or
b) you are registered or required to be registered.
In your case
§ you are selling the debtor's property to a third party, in satisfaction of a debt that the debtor owes to you
§ the debtor is registered for GST and had the debtor made the supply it would have met the requirements of section 9-5 of the GST Act.
However, subsection 105-5(3) of the GST Act provides that the supply is not a taxable supply if:
a) the debtor has given you a written notice stating that the supply would not be a taxable supply if the debtor were to make it, and stating fully the reasons why the supply would not be a taxable supply, or
b) if you cannot obtain such a notice-you believe on the basis of reasonable information that the supply would not be a taxable supply if the debtor were to make it.
In your case the debtor did not provide you with a written notice that the supply would not be a taxable supply and in fact confirmed to you that if they made the supply it would be a taxable supply subject to GST. You also advised that there is no reasonable information to enable you to reach the conclusion that the supply would not be a taxable supply if the debtor were to make it.
Therefore, as the exception in subsection 105-5(3) of the GST Act does not apply, and the requirements of subsection 105-5(1) of the GST Act are satisfied, you made a taxable supply when you sold the real property of the debtor in satisfaction of the debt owed to you.
You therefore have the obligation to report and remit all of the relevant GST on the supply of the commercial property.