Edited version of your private ruling

Authorisation Number: 1012499875233

Ruling

Subject: GST and representative of an incapacitated entity.

Question

Do you have a GST liability in relation to the sale of the Properties?

Answer

Yes

Relevant facts and circumstances

E registered a managed investment scheme under the Corporation Act 2001 and registered for GST effective from ddmmyyyy.

F registered as Responsible Entity (RE) for the managed investment scheme and is trustee for E.

· F as trustee for E will be known as EF in this application and

· F as trustee for E (receiver appointed) will be known as EFR (Receiver appointed).

On ddmmyyyy, F, as undisclosed RE for E, entered into a Credit Facility Deed (CFD) with G in G's own right and in G's capacity of trustee for H. That is, E agreed to lend G up to $xx. Although the CFD was entered into by F, the funds were derived from E. Accordingly, the loan was made by F as undisclosed responsible entity for E.

Some relevant terms and conditions from the CFD are set out below:

· Security is defined to mean

o (a) this Credit Facility Deed and any security described in item X

o (b) …..

· Clause X provides that the lender agrees to lend the loan amount ($xx as specified at Item X of the Schedule to the CFD) to G.

· Clause X sets out relevant default events

· Clause X provides that upon any default the monies are immediately due and payable.

· Clause authorizes the lender to appoint a Receiver of the mortgaged property

· Clause X authorises the lender to exercise any powers, rights or privileges conferred by law, this Credit Facility Deed, the Security and/or any other collateral document or securities.

· Clause XX sets out that:

The Borrower and Guarantor/ Security Provider irrevocably nominates, makes, appoints and constitutes the Lender and every person for the time being filling the officer of directors of the Lender and every Receiver appointed by the lender severally to be the lawful Attorney or attorneys of the Borrower and any Guarantor/Security provider for the sole benefit of the Lender (the Attorney)

· Clause XX (a) imposes an obligation on G to comply with GST law

· Clause XX indemnifies the lender against any GST payable as a result of exercising its powers to sell properties owned by G;

In mmyyyy, G acquired a property for $xx million and on ddmmyyyy, G entered into a Development Management Agreement (DMA) with J as Development Manager. From this development, a number of lots were created including the relevant lots (the properties).

On ddmmyyyy the first default notice was issued to G.

On ddmmyyyy, the Supreme Court of XXX ordered:

· F be directed to wind up E pursuant to section 601ND of the Corporations Act 2001 (Corporations Act); and

· You take responsibility for ensuring that E is wound up in accordance with its constitution, pursuant to section 601NF(1) of the Corporations Act; and

· You be appointed as a receiver of the property of E until ddmmyyyy, pursuant to subsection 1101B(1) of the Corporations Act.

· The Order was to expire at 4.00 pm on ddmmyyyy.

On ddmmyyyy, the Supreme Court of XXX ordered:

· You be appointed as a receiver of the property of E, pursuant to subsection 1101B(1) of the Corporations Act.

· You be appointed as a receiver of the property of E, pursuant to subsection 601NF(2) of the Corporations Act.

You allowed contracts which were on foot at the date of your appointment as receiver of the fund to be settled in accordance with the contract terms.

You facilitated settlement of each of these transactions by signing the relevant transaction documents.

On ddmmyyyy the CFD in its original form was stamped at the YYYY Government department and the Registrar General, YYY stamped it (Registration number XX).

On ddmmyyyy, lots y and z settled

On ddmmyyyy the Supreme Court of XXX ordered F be restrained from doing specified acts in relation to the operation of E including dealing with any property held or controlled by F in its capacity as responsible entity of E or in its own capacity, other than in the ordinary and proper course of business.

On ddmmyyyy G through its duly authorised attorney, E (Receiver appointed), exchanged the sale contract for Lot x.

E as mortgagee of the properties received net proceeds of the sales after deductions of various priority costs.

On ddmmyyyy Lot x settled.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999

Division 58

Section 58-5

Section 58-10

Subsection 58-20

Section 195-1

Corporations Act 2001

Section 9

Section 50AA

Section 86

Reasons for decision

In this ruling,

· unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

· all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on the ATO website www.ato.gov.au

Section 58-5 provides that, while you are the representative of an incapacitated entity (IE) and making supplies in that capacity, those supplies are taken to be supplies made by the incapacitated entity (IE).

The terms 'representative' and 'incapacitated entity' are defined in section195-1.

The term 'incapacitated entity' is defined as including an entity that has a representative. A representative is defined to include:

(a) a trustee in bankruptcy; or

(b) a liquidator; or

(c) a receiver; or

(ca) a controller (within the meaning of section 9 of the Corporations Act 2001); or

(d) an administrator appointed to an entity under Division 2 of Part 5.3A of the Corporations Act 2001; or

(e) a person appointed, or authorised, under an Australian law to manage the affairs of an entity because it is unable to pay all its debts as and when they become due and payable; or

(f) an administrator of a deed of company arrangement executed by the entity.

The Supreme Court of XXX appointed you as a receiver of the property of the E. Accordingly, you meet the definition of representative and E meets the definition of incapacitated entity.

The property of E included the loans and securities, cash at bank together with the associated rights and obligations under the loans and securities held by you. This included the power of attorney as contained in clause XX of the CFD.

On ddmmyyyy, G defaulted on the mortgage. Therefore you were entitled to exercise the powers under clause X. Clause X authorizes the lender, E, to exercise any powers, rights or privileges conferred by law, this Credit Facility Deed, the Security and/or any other collateral document or securities.

In your capacity of representative of E, you used the POA under clause XX of the CFD to control the sale of the property of G. However, you are not a Receiver of G.

Therefore we need to look at whether you are a controller of G.

"Controller" is defined in section 9 of the Corporations Act 2001 (Corporations Act).

"controller" , in relation to property of a corporation, means:

(a) a receiver, or receiver and manager, of that property; or

(b) anyone else who (whether or not as agent for the corporation) is in possession, or has control, of that property for the purpose of enforcing a security interest;

and has a meaning affected by paragraph 434F(b) (which deals with 2 or more persons appointed as controllers) [emphasis added].

In regard to the definition of 'controller' in paragraph (b), section 86 of the Corporations Act states 'A thing that is in a person's custody or under a person's control is in the person's possession'. As per the definition in paragraph 9(b) above, this is regardless of whether or not the person is acting as an agent for the corporation.

'Control' is defined in section 50AA of the Corporations Act:

(1) For the purposes of this Act, an entity controls a second entity if the first entity has the capacity to determine the outcome of decisions about the second entity's financial and operating policies.

(2) In determining whether the first entity has this capacity:

(a) the practical influence the first entity can exert (rather than the rights it can enforce) is the issue to be considered; and

(b) any practice or pattern of behaviour affecting the second entity's financial or operating policies is to be taken into account (even if it involves a breach of an agreement or a breach of trust).

(3) The first entity does not control the second entity merely because the first entity and a third entity jointly have the capacity to determine the outcome of decisions about the second entity's financial and operating policies.

(4) If the first entity:

(a) has the capacity to influence decisions about the second entity's financial and operating policies; and

(b) is under a legal obligation to exercise that capacity for the benefit of someone other than the first entity's members;

the first entity is taken not to control the second entity.

You allowed the sale contracts for the properties owned by G, which were on foot at the date of your appointment to be settled. You facilitated settlement of each of these transactions by signing the relevant transaction documents. Therefore, you controlled the Property of G through the security interest that was in place over the property. Consequently, you are a representative of G.

As the Property was sold during the period of your appointment, the supply was made within the scope of your responsibility or authority as controller of the Property.

Section 58-20 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 for GST. In addition, section 58-10 states that a representative is liable to pay any GST that the incapacitated entity would, but for this section, be liable to pay on a taxable supply, to the extent that the making of the supply to which the GST relates is within the scope of the representatives responsibility or authority for managing the incapacitated entity's affairs.

Therefore, we need to look at whether the supply by the incapacitated entity, G, would be a taxable supply.

Under section 9-5, an entity makes a taxable supply if:

(a) the supply is for consideration

(b) the supply is made in the course or furtherance of an enterprise that the entity carries on

(c) the supply is connected with Australia, and

(d) the entity is registered or required to be registered for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

Divisions 38 and 40 provide for certain supplies to be GST-free and input taxed respectively. Divisions 38 and 40 do not apply to the supplies of the Properties.

In this case:

(a) the Properties have been sold, settling in mmyyyy and mmyyyy, for consideration

(b) the supply of the properties was made in the course or furtherance of an enterprise that G carried on

(c) the Properties are located in Australia, and

(d) G was registered for GST.

The sale is not GST-free or input taxed.

Accordingly, the sale satisfied all the requirements under section 9-5. Therefore you are required to be registered for GST, pursuant to section 58-20. As the sale satisfies all of the requirements of section 9-5 and was made within the scope of your responsibility or authority as controller of the Properties, your supply of the Properties were a taxable supply. Therefore, you are required to pay the GST on the supplies of the Properties pursuant to section 58-10.

The ATO will require you to set up a new running balance account under G's ABN where you will be able to report the GST on the supplies of the properties.