Edited version of private ruling

Authorisation Number: 1011696298162

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Ruling

Subject: Representative of an incapacitated entity

Question

Are the Receivers entitled to claim input tax credits for certain acquisitions they have made/will make in connection with the incapacitated entity's mortgaged properties?

Answer

Yes, the Receivers are entitled to claim input tax credits for certain acquisitions they have made/will make in connection with the incapacitated entity's mortgaged properties, where it is within their responsibility or authority to do so.

Relevant facts and circumstances

Entity A provides property development services as well as financial planning advice, property investment advice and other related services,

The Bank provided Entity A with financial accommodation for the purpose of purchasing and developing two properties. The Bank therefore had a mortgage over both properties (Mortgaged Properties),

Entity A defaulted in repaying the Bank,

Pursuant to a Deed of Appointment the Bank appointed the Receivers of Entity A, an incapacitated entity,

Pursuant to two separate Deeds of Appointment the Bank also the Receivers and to be agents for the Bank as mortgagee in possession of the Mortgaged Properties with all the powers and authorities given by the terms of the Mortgages and at law,

Pursuant to a Variation Deed the parties clarified the intention and scope of the two appointments of the Receiver/Agent appointed by the Bank in relation to the Mortgaged Properties and narrowed the scope of their responsibility and authority so that as Receivers they could not sell the property but as agents of the Bank they could sell the property,

The Receivers have included in their business activity statement (BAS) some minor costs incurred in connection with the Mortgaged Properties. However, more substantial costs are yet to be incurred,

The costs that are anticipated to be incurred by the Receivers in connection with the Mortgaged Properties will include:

§ construction and development costs,

§ building costs,

§ real estate costs; and

§ legal costs,

The Receivers have not included, and do not intend to include, any costs in their BAS that were incurred and paid by Entity A prior to their appointment,

The subsequent sale of the Mortgaged Properties by the Agent will be a taxable supply of new residential premises, or a supply of a GST-free going concern,

Entity A operates on a cash basis.

The Receivers have notified the ATO and are registered in the capacity of the representative of the incapacitated entity resulting in another CAC account being created under the incapacitated entity's GST registration.

Reasons for decision

These reasons for decision accompany the Notice of private ruling for the Receivers for Entity A an incapacitated entity.

Division 58 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) sets out how to ascribe activities of a representative of an incapacitated entity between the representative and the incapacitated entity for GST purposes.

In particular, supplies, acquisitions and importations, and associated acts and omissions, by the representative are treated as having been made by the incapacitated entity where they are within the scope of the representative's responsibility or authority.

Under subsection 58-5(2) of the GST Act, any act, or any omission, of an entity in the capacity of a representative of another entity that is an incapacitated entity is taken to be an act or omission of the other entity, but only for the purposes of determining any liability or entitlement under the GST law. This section continues to apply even where the other entity ceases to be an incapacitated entity.

Under subsection 58-10(1) of the GST Act a representative of an incapacitated entity is liable to pay any GST that the incapacitated entity would be liable to pay on a taxable supply and is entitled to any input tax credits that the incapacitated entity would be entitled for a creditable acquisition, provided it relates and is within the scope of the representative's responsibility or authority for managing the incapacitated entity's affairs. Exceptions for certain taxable supplies are where an incapacitated entity received consideration for the supply before the representative became a representative of the incapacitated entity. Likewise exceptions for certain creditable acquisitions apply to an input tax credit for a creditable acquisition to the extent that the incapacitated entity provided the consideration for the acquisition before the representative became a representative of the incapacitated entity. Where there is an exception mentioned above the GST liability and entitlement are with the incapacitated entity.

An incapacitated entity is not liable to pay GST on a taxable supply to the extent the representative is liable to pay the GST and likewise, an incapacitated entity is not entitled to claim an input tax credit to the extent the representative is entitled.

In this circumstance, the representative has the responsibility or authority provided under the Deed of appointment of Receivers and Managers and Variation of Deed of appointment of Receivers and Managers, to incur costs in connection with the Mortgaged Properties. In particular for costs incurred for construction, development, building, real estate and legal services.

Where the costs satisfy the requirements of section 11-5 of the GST Act the representative will be entitled to any input tax credits that the incapacitated entity would be entitled to for a creditable acquisition, provided it relates and is within the scope of the representative's responsibility or authority for managing the incapacitated entity's affairs. Hence, where the representative acquires anything solely or partly for use in the incapacitated entity's enterprise for a creditable purpose (other than making supplies that would be input taxed), the supply of the acquisition is a taxable supply, consideration is provides for the acquisition, and the incapacitated entity is registered for GST, the representative will be entitled to claim the input tax credits.

Therefore, the Receivers as the representative of the incapacitated entity will be entitled to claim input tax credits for creditable acquisitions made within their authority.