Edited version of your private ruling

Authorisation Number: 1012039730679

This edited version of your ruling will be published in the public register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.

Ruling

Subject: GST and incapacitated entities

Questions

1. Are you, in your capacity as Receiver Manager of Entity C, General Partner in the C Partnership, liable to report and remit GST on the supply of the real property that occurred during the period that you were appointed Receiver Manager?

2. Are you entitled to apply the margin scheme to any taxable supplies of the real property?

A If so, what value do you use for calculating the margin?

Answers

1. Yes, you, in your capacity as Receiver Manager of Entity C General Partner in the C Partnership, are liable to report and remit GST on the supply of the real property that occurred during the period that you were appointed Receiver Manager.

2. Provided you meet the requirement of Division 75 of the GST Act, you can use the margin scheme to calculate the GST payable on your supplies of the real property.

A You may use either the consideration method or the valuation method to calculate your margin.

Relevant facts and circumstances

· You were appointed as Receiver Manager (RM) of Entity C and registered Entity C for GST.

· Entity C is a general partner in a limited partnership known as the C Partnership. C Partnership was determined under the Limited Partnership Deed (Partnership Deed) which details the obligations of the parties. The C Partnership is registered for GST and was conducting a property development enterprise.

· Entity C, as the general partner in the Partnership, acquired real property before the start of GST. An apartment block was developed on the property.

· Your agent, provided a copy of the Deed of appointment of receiver (the Deed).

o You were appointed, pursuant to the powers under the Charge Deed.

· The Background provides the following information:

o Entity C borrowed money for the financing of an existing land facility and for construction of the property.

o The written agreement between the Borrower and the Financer included Security documents. Pursuant to the Security Documents, the Borrower granted security in favour of the Appointer over the Charged Property. Money secured by the Security documents (including but not limited to the Charge) had fallen due and become presently payable and the Borrower has failed to pay the same.

o The Financer, issued a Letter of Demand to Entity C for the amount outstanding to be paid at a specified date and time. Payment has not been made by the Borrower.

· As RM, you took possession of the remaining unsold units in the Apartment block not yet sold by the Partnership. You have sold a number of the apartments as new residential premises and continue to procure purchasers in respect of those units yet to be sold.

· Your agent advised that the sales of the apartments are not ineligible for application of the margin scheme.

· Upon appointment, you immediately registered Entity C for GST purposes. On the BAS for this registration the RM reported its costs associated with the receivership such as fees for lawyers and accounting and costs associated with managing the receivership and the sale of the apartments.

· Your agent advised in an email that:

o Another financer held first ranking mortgages in relation to the property.

o The financer that appointed you obtained no return against their debt in this matter and the proceeds of sale were all used in discharging the debt of the first mortgagee.

· All contracts for sales made by you as RM to date show the vendor as Entity C (Receiver Appointed)

Relevant legislative provisions

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

Reasons for decision

Question 1

Registration for GST

The GST payable on taxable supplies made by a Receiver Manager (RM) 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 58-20 of the GST Act provides that a representative of an incapacitated entity is required to be registered in that capacity if the incapacitated entity is registered or required to be registered. Section 58-20 has effect despite section 23-5 (which is about who is required to be registered).

You have been appointed RM of a partner, who holds title to a charged property on behalf of a partnership.

A RM meets the definition of representative as set out in section 195 of the GST Act. Therefore we need to look at whether there is an incapacitated entity (IE) and which entity is incapacitated.

You have been appointed to be the Receiver of the Charged Property and to take possession of the real property in which Entity C holds legal title.

Entity C is a general partner in a limited partnership. The Partnership Agreement sets out that the actions of Entity C bind the Partnership.

The Partnership was developing the Property. However, it became unable to pay its debts, in particular, its mortgage repayments. Although Entity C holds legal title to the Property, it does so on behalf of the Partnership.

When the Financer issued the demand letter, it was issued to Entity C in its capacity as General Partner of the Limited Partnership. It was the Partnership that was required to pay and could not pay. Therefore it is the Partnership that is incapacitated.

The Partnership is registered for GST and was carrying out the development enterprise on the Property acquired by the Partnership. Under the terms of the Partnership Deed, any dealings by Entity C were on behalf of the Partnership. In accordance with this, the GST payable on sales made prior to your appointment was reported by the Partnership.

As any dealings by Entity C were on behalf of the Partnership, your dealings as RM of Entity C were also on behalf of the Partnership. As the Partnership was registered, section 58-20 of the GST Act requires you to register for GST in your capacity as RM of Entity C, General Partner in the C Partnership.

Reporting GST payable

Section 58-5 of the GST Act provides that, while you are representative and selling goods and supplying services, those supplies are taken to be supplies made by the incapacitated entity.

Section 58-10 of the GST Act provides, amongst other things, that you, as a representative of an IE, are liable to pay any GST that the IE would but for section 58-10 or section 48-40 be liable to pay on the taxable supply, to the extent that the making of the supply to which the GST relates is within your scope or authority for managing the IE's affairs.

The effect of Division 58 of the GST Act is that you, as representative of an IE, are liable for GST in respect of taxable supplies which are taken to have been made by the IE during the course of your appointment, as representative of the IE.

You have advised, and we accept, that the supplies of the apartments are supplies of new residential premises. Therefore, pursuant to section 9-5 of the GST Act, they are taxable supplies.

Consequently, any supplies of the apartments made while you were appointed are taken to be supplies of The Partnership. Therefore, you are liable for any GST on those supplies.

The ATO website contains a document called "Representatives of incapacitated entities" which provides the following guidelines in regards to the registration procedures for a representative of an incapacitated entity.

Once a representative of an incapacitated entity registers for GST, the Commissioner (in his capacity as Registrar for the ABN) will allow the representative to use the incapacitated entity's existing ABN for transactions conducted in its capacity as the representative of the incapacitated entity. The ATO will set up a new running balance account under the incapacitated entity's ABN for each representative (as required) to cover post appointment liabilities and entitlements. These accounts are called Client Activity Centres (CACs) and each CAC created will be differentiated by a numerical suffix following the ABN, for example 123 456 789/1 for the incapacitated entity, 123 456 789/2 for the receiver and 123 456 789/3 for the provisional liquidator.

Therefore, you will be required to request that a CAC account be set up on the partnership ABN to account for your transactions as RM.

We understand that you registered Entity C for GST and created a CAC 2 account on that GST registration to report your supplies. This procedure is incorrect, because Entity C was not registered, nor required to be registered. Any GST payable or input tax credits reported under Entity C's CAC account need to be cancelled and reported on the additional CAC account created under the Partnership ABN.

Are you entitled to apply the margin scheme to any taxable supplies of the charged property and if so what value do you use for calculating the margin?

Provided you meet the requirement of Division 75 of the GST Act, you can use the margin scheme to calculate the GST payable on your supplies of the apartments.

Normally, the amount of GST you must pay when you sell property as part of your business is equal to one-eleventh of the total sale price. However when you use the margin scheme, the amount of GST you must pay when you sell property is equal to one-eleventh of the margin.

Your margin is usually the difference between what you sell the property for and what you originally paid for the property (consideration). However, as the IE acquired the property before 1 July 2000 (the start of GST), you may instead calculate the margin as the difference between the selling price and the market value of the property as at 1 July 2000 (valuation method).