Edited version of your written advice

Authorisation Number: 1012678197898

Ruling

Subject: GST and real property

Question

Are you liable for the GST on Pre-Appointment Contracts where:

a) the purchaser failed to complete the Pre-Appointment Contract, you terminated the Pre-Appointment Contract and the deposit was forfeited

b) the purchaser failed to complete the Pre-Appointment Contract, you terminated the Pre-Appointment Contract and the deposit was wholly or partly forfeited. You entered into A Deed of Settlement and Release to agree upon a "negotiated deposit release";

c) The Pre-Appointment Contract was settled with no variation;

d) The Pre-Appointment Contract was settled but there was a variation to the price from what was initially agreed;

e) The Pre-Appointment Contract was rescinded and you entered into a new contract for either the same apartment with a reduced price, or a different (lower priced) property. The original deposit was refunded and then applied to the new contract.

Answers

a) No

b) No

c) Yes

d) Yes

e) Yes

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.

Entity A is the Trustee for Trust A, which developed a mixed use complex including a total of xxx apartments containing one to three bedrooms.

Entity A is registered for GST.

Around xxx of the apartments were pre-sold. However, a large number of buyers have failed to settle.

On ddmmyyyy, you were appointed receivers and managers over the Secured Property.

Prior to the appointment of the Receivers and Managers, Entity A entered into contracts of sale with individual buyers for apartments in the complex (the Pre-Appointment Contracts). The selling process for apartments in the tower was a 3 stage process:

• an initial deposit was paid

• at contract date, a balance deposit was paid - bringing the total deposit to 10%

• the balance of the purchase price was payable at settlement.

The contract included the following relevant clauses in relation to the deposit:

X.1 Time for payment

The Buyer must pay the Deposit to the Deposit Holder at the times shown in the Contract Particulars.

X.2 Deposit Holder's obligation

The Deposit Holder will hold the Deposit until a party becomes entitled to it. Where it applies, the Deposit Holder will hold the deposit as trustee under the Land Sales Act 1984.

X.4 Payment of Deposit

The party entitled to receive the Deposit and any interest on the Deposit is:

(a) if the Contract settles - the Seller is entitled to the Deposit and the Buyer is entitled to the interest on the Deposit;

(b) if the Contract is terminated without default by the Buyer - the Buyer; or

(c) if the Contract is terminated owing to the Buyer's default - the Seller

X.5 Entitlement to interest

The Buyer is presently entitled (within the meaning of the ITAA) to any interest accrued on the Deposit.

X.7 Rights after payment of Deposit

If this contract is terminated, the Buyer has no further claim once it receives the Deposit and any interest it is entitled to, unless the termination is due to the Seller's default.

The following scenarios involving the Pre-Appointment Contracts occurred in the post-appointment period:

a) The purchaser failed to complete the Pre-Appointment Contract, you terminated the Pre-Appointment Contract. The deposit was forfeited and retained by you.

a. You provided notices of rescission for some of the units. (various Lots)

b) The purchaser failed to complete the Pre-Appointment Contract, you terminated the Pre-Appointment Contract. The deposit was wholly or partly forfeited and retained by you. You entered into A Deed of Settlement and Release to agree upon a "negotiated deposit release".

a. You provided a Deed of Settlement and Release for some of the units. (various Lots)

c) The Pre-Appointment Contract was settled with no variation.

a. You provided a copy of a Contract for Sale. (Lot xxxx)

d) The Pre-Appointment Contract was settled but there was a variation to the price from what was initially agreed.

a. You provided a Deed of Confidentiality for Lot xxxx, which provides an example of where the Pre-Appointment contract was settled, but a Deed of Confidentiality was entered into that included a rebate that was applied at settlement (which may be paid, at the discretion of the seller, by way of a reduction in the purchase price payable by the buyer).

e) The Pre-Appointment Contract was rescinded and you entered into a new contract for either the same apartment with a reduced price (as in Scenario D or a different (lower priced) property - in either case a new deposit was accepted and the deposit under the Pre-Appointment contract was retained until settlement of the new contract. The old contract was cancelled / terminated and the old deposit was returned to the purchaser.

The Deed of Settlement and Release supplied for Lot xxxx included the following Recitals and clauses:

Recitals

A The Parties entered into the Old Contract.

B The Buyer failed to settle the Old Contract on the date nominated by entity A.

C On ddmmyyyy, Entity A terminated the Old Contract on the basis of the Buyer's breach and reserved its rights under the Old Contract.

D The Parties have agreed to settle their differences on the terms set out in this Deed

Clauses:

X (a) contemporaneously with entering into this Deed, the parties will enter into the New Contract

(c ) Adjustments to the Purchase Price under the New Contract will be made on the basis of the terms of the Old Contract

(d) A deposit of $xxx must be paid by the buyer in relation to the New Contract within xx days of it executing the new Contract

X.2 Bank Guarantee

At settlement of the New Contract, in exchange for the Purchase Price under the New Contract being paid to the vendor, the Deposit Holder will return the Bank Guarantee to the Buyer.

Bank Guarantee was defined as the bank guarantee in the amount of $xxxx issued by the Bank dated ddmmyyyy.

a) The purchaser failed to complete the Pre-Appointment Contract, you entered into a Deed of Rescission of the Pre-Appointment Contract. The parties agreed on a settlement amount under the Deed of Rescission. This private ruling request does not deal with this scenario.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 paragraph 9-15(1)(a)

A New Tax System (Goods and Services Tax) Act 1999 section 48-40

A New Tax System (Goods and Services Tax) Act 1999 section 58-5

A New Tax System (Goods and Services Tax) Act 1999 section 58-10

A New Tax System (Goods and Services Tax) Act 1999 Division 99

A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Reasons for decision

Note: In this reasoning, unless otherwise stated,

• all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

• all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act

On ddmmyyyy, you were appointed Receivers and Managers over Entity A in its own capacity and as trustee for Trust A.

Section 195-1 defines a representative to include a 'receiver' and an incapacitated entity (IE) to include 'an entity that has a representative'. Accordingly, you meet the definition of representative and Entity A and Trust A (Receivers and Managers appointed) meet the definition of incapacitated entity (IE).

The Federal Court decision in Deputy Commissioner of Taxation v PM Developments Ltd [2008] FCA 1886 (PM Developments) determined that, where an asset of an incapacitated entity remains vested in the entity and the representative of the entity makes a supply of the asset as agent for the incapacitated entity and the supply is a taxable supply - it is the incapacitated entity and not the representative that has the liability for GST.

However, section 58-10 now applies so that the representative has the GST related liabilities and entitlements to the extent that the supplies and acquisitions are within the scope of their authority for managing the IE's affairs.

Specifically subsection 58-10(1) provides:

(1) A *representative of an *incapacitated entity:

(a) is liable to pay any GST that the incapacitated entity would, but for this section or section 48-40, be liable to pay on a *taxable supply or a *taxable importation; and

(b) is entitled to any input tax credit that the incapacitated entity would, but for this section or section 48-45, be entitled to for a *creditable acquisition or a *creditable importation; and

(c) has any *adjustment that the incapacitated entity would, but for this section or section 48-50, have;

to the extent that the making of the supply, importation or acquisition to which the GST, input tax credit or adjustment relates is within the scope of the representative's responsibility or authority for managing the incapacitated entity's affairs.

For circumstances where the property is vested with the representative (e.g. a trustee in bankruptcy), section 58-5 operates so as any supply, acquisition or importation by the representative as the representative of the IE, is taken to be a supply, acquisition or importation by the IE. Section 58-10 then applies even where the property was vested, as outlined above.

Accordingly, the statutory question posed by section 58-10 does not direct an enquiry as to who made the supply. Rather it asks whether or not the relevant supply or acquisition falls within the scope of the representative's responsibility or authority for managing the incapacitated entity's affairs?

Prior to your appointment as representative, Entity A entered into contracts to sell approximately xxx apartments. The contract required the purchaser of the apartment to make an initial deposit on signing the contract to secure the future acquisition of the property and at contract date (acceptance), a balance deposit was paid bringing the total deposit to 10%.

The deposit was to be held by a stakeholder as security for the performance of the obligations under the contract, and was subject to forfeiture if the purchaser defaulted.

In Federal Commissioner of Taxation v. Reliance Carpet Co Pty Ltd [2008] HCA 22 (Reliance Carpet) the High Court noted that the term 'deposit' had several aspects. These aspects include that a deposit: could be counted towards the payment of the purchase price; be brought into account in assessment of damages (however, the forfeiture of a deposit held as security is not a payment in the nature of damages or liquidated damages); be a token provided by the purchaser as 'an earnest to bind the bargain'; and provide a form of security for performance by the purchase.

Goods and Services Tax Ruling GSTR 2006/2 Goods and services tax: deposits held as security for the performance of an obligation (GSTR 2006/2) discusses deposits held as security. This ruling has been amended in parts to reflect the decision made in Reliance Carpet.

Paragraph 20 of GSTR 2006/2 explains that for a payment to be considered a 'security deposit' for the purposes of Division 99, it should have the following characteristics:

• be held as a security for the performance of an obligation

• the contract, conduct and intent of the parties to the contract must be consistent with the payment being a security deposit

• be at risk of forfeiture upon failure to perform the obligation

• be a reasonable amount.

Therefore, we accept that the deposits had the characteristics of a security deposit for the purposes of Division 99.

The sale of the apartments is considered to be a sale under a standard land contract for the purposes of Goods and Services Tax Ruling GSTR 2000/28 Goods and services tax: attributing GST payable or an input tax credit arising from a sale of land under a standard land contract (GSTR 2000/28).

Paragraph 67 of GSTR 2000/28 provides that a deposit held under a standard land contract is not treated as consideration for a supply unless the deposit is either forfeited because of a failure to perform the obligation or applied as part of the consideration for the supply of land.

Contracts rescinded and deposits forfeited (Scenarios A and B)

When you were appointed, there were a number of contracts pending that had not settled. You issued a Notice of Rescission for several of these and the deposits were forfeited. Upon forfeiture, the deposits held as security were treated as consideration for a supply in accordance with Division 99.

In Reliance Carpet, the High Court considered a case where a contemplated supply did not proceed to completion. The parties entered into an Option Agreement with consideration of an option fee of $25,000 paid by the purchaser which granted the purchaser the option to purchase the property by written notice together with a payment of $297,500 being the deposit payable under the contract. By the operation of Clause 5 of that Option Agreement the parties became bound by the terms and conditions set out in the contract.

The High Court, at paragraph 28, reasoned that a characteristic of the deposit was that it operated as a security for the performance of the obligation of the purchaser to complete the contract and was liable to forfeiture on that failure. We consider the facts of Scenario A and B are consistent with the circumstances in Reliance Carpet and therefore this reasoning also applies to your particular circumstances.

At paragraph 33, the High Court reasoned that the payment of the deposit by the purchaser was within the definition of 'consideration' in paragraph 9-15(1)(a). The High Court further reasoned that by force of the Option Agreement, the payment of the deposit obliged the parties to enter into the mutual legal relations with the executory obligations and rights laid out in the contract. Those legal relations were directed to the completion of the contract by conveyance of the property to the purchaser by the vendor upon payment by the purchaser.

At paragraph 40, the High Court stated that upon forfeiture of the deposit due to the purchaser failing to complete the Contract, the 'supply' represented by the making of the Contract became a taxable supply.

In your case, a contract for the sale of land was entered into and a deposit was paid by the purchaser to the vendor. As in Reliance Carpet, upon execution of the contract, the parties entered into an obligation to do the things they were bound to do under the contract. Upon forfeiture, due to the purchaser failing to complete the contract, the deposit became consideration for the taxable supply represented by the making of the contract.

Accordingly, although it is considered that the Notice of Rescission is within your scope of authority for managing the IE's affairs, the taxable supply in this circumstance is the entering into the contract. The entering into the contract was by Entity A before your appointment as representative and you did not have any responsibility or authority for managing Entity A's affairs at that time. Therefore, you are not liable as representative for the GST on those supplies in Scenarios A and B as contended in Submission 1 of your private ruling application.

It is noted that upon forfeiture the deposit was paid to you. However, as explained in ATO Interpretative Decision ATO ID 2012/7 Goods and Services Tax: GST and liability for a supply made by an incapacitated entity prior to the appointment of a representative, the mere subsequent receipt by the representative of the consideration for the supply that was made by the IE before the appointment of the representative does not have the effect of bringing the 'making' of the supply within the scope of the representative's responsibility or authority for managing the IE's affairs.

Contracts settled with or without a variation to the price (Scenarios C and D)

In Submission 2 of the private ruling you contend that where a Pre-Appointment Contract proceeds to settlement in scenario (c) and (d) that Entity A is liable to pay the GST on the full settlement amount and the representatives are not liable as the supply is not within the scope of the representative's responsibility or authority for managing Entity A's affairs.

In your correspondence dated ddmmyyyy, you contend that it is not sufficient that the supply of the real property (i.e. settlement) occurs during the term of a receiver's appointment. Rather, you submit that it is necessary to look to the words of section 58-10 which refer to the making of a supply or an acquisition being within the scope of a representatives' responsibility or authority, and it is therefore crucial to consider who 'made' the supply. In this regard, you suggest that the "making" of the supply or an acquisition of real property occurs by virtue of entry into the contract by the company prior to the appointment of a representative and the supply is therefore 'made' by the IE, and is thus not within the scope of the representative's responsibility or authority.

In the Federal Court decision in PM Developments determined that it is the IE for the whole period, both pre and post appointment, that makes the supply unless the property is vested in the representative or in the case of bankruptcy.

Accordingly, it is agreed that it is Entity A in this case that makes the supply of the apartments, however, as per section 58-10 the question is whether it is within the scope of the representative's responsibility or authority for managing the IE's affairs.

Also in the correspondence of ddmmyyyy, you contend that a supply of real property that occurs pursuant to a contract entered into prior to the appointment of a receiver but which settles after the appointment of a receiver does not fall within the scope of the receiver's responsibility or authority for managing the IE's affairs and the IE remains liable for GST on the sale.

In support of this view you refer to the decision in Re Diesels & Components Pty Ltd [1985] 2 Qd R 456, 459 (Re Diesels) where it is stated that a validly made contract prior to the appointment of a receiver remains binding upon the company. However, it is necessary to consider the context in which this is stated.

Consistent with the decisions in Parsons v Sovereign Bank of Canada [1913] A.C. 160 and George Barker (Transport) Ltd v Eynon [1974] 1 W.L.R. the aforementioned statement in Re Diesels is made in the context of McPherson's J's conclusion that the appointment of receivers does not have the effect of discharging or terminating a contract. That is, the contract remains on foot and binding upon parties after the appointment of the receiver, however as also noted in Re Diesels it is open to the receiver to repudiate the pre-existing contract and expose the company to a claim for damages.

The fact that the contract remains on foot and continues to bind the parties post the appointment of a receiver does not mean that the various things done under the contract and in accordance with the terms of the contract are outside the scope of the receiver's responsibility for authority for managing the corporation's affairs.

In fact, having regard to the fact that a receiver has extensive powers under section 420 of the Corporations Act and acts as an agent of the company in relation to the property of the corporation to which they are appointed, and that they have superior rights in relation to that property against any other appointed representative, it would seem apparent that the various things done by the receiver pursuant to a pre-existing contract (including completion of the contract) are clearly within the scope of the receiver's responsibility for managing the corporation's affairs. This is further reinforced by the fact that, as noted previously, the receiver has the authority to repudiate the contract and expose the company to a claim for damages.

That is, as an agent of the company that remains bound by the pre-appointment contract, it is the responsibility of the receiver to complete the company's contractual obligations pursuant to the terms of the pre-appointment contract or, alternatively, to decide to repudiate the contract and expose the company to a claim in damages.

You have argued that 'positively adopting' a contract does not bring the 'making' of the supply within the scope of the representative's responsibility or authority. You have similarly argued that the inability to 'repudiate' a pre-existing contract supports the position that the making of that supply is then not within the scope of the representative's capacity.

The purchaser may have an equitable interest in the underlying land from the time of execution of the contract and repudiation may not be open to the representative, however, this does not detract from any equitable remedies available to the purchaser being enforced against the representative as agent of the incapacitated entity. It is the representative, by virtue of their appointment, that has control and authority to manage and deal with the relevant property and not the IE.

Importantly, as the apartments have not been vested with the representative's the supply is still made by Entity A. The question is whether it is Entity A or the Receivers and Managers that have responsibility for managing Entity A's affairs when the settlements occur.

Paragraph 15 of GSTR 2000/28 provides the following definition of 'settlement':

15. 'Settlement' refers to that stage in the completion of a standard land contract where the transfer in the purchaser's favour and certificate of title are exchanged for the purchase price. It is at this stage that the purchaser (or the purchaser's agent) obtains:

n unconditional possession of a registrable instrument of transfer; or

n an instrument of transfer that would be registrable once stamped.

As outlined above the settlement of the properties requires some action. Whether or not there is some obligation that prevents the representative from repudiating the pre-existing contract, there is action required for the settlement and therefore supply to occur.

In Entity A's case, based on the Deed of Appointment, the Receivers and Managers have the relevant responsibility and authority to undertake the settlement of the properties. It is also understood that they did undertake the settlements.

That is, following their appointment, the representatives of Entity A acted to effect the transfer of the relevant property at settlement (and supply occurs upon completion of the contract in accordance with Aurora Development's Pty Ltd v Commissioner of Taxation¹ and Central Equity Ltd v Commissioner of Taxation²).

The ATO position that, following their appointment, the representative has a level of control over the entity's assets and activities is supported by item 2.4 of the ARITA Code of Professional Practice, 3^rd Edition. The Glossary on the ARITA website also provides the following on a Receivers and Managers role:

Receivership

A company most commonly goes into receivership when a receiver or receiver and manager is appointed by a secured creditor who holds security over some or all of the company's assets. Their primary role is to collect and sell sufficient of the company's charged assets to repay the debt owed to the secured creditor.

Accordingly, it is our view that the supply of the apartments by Entity A under the pre-existing contracts is within the scope of the representative's responsibility or authority for managing the incapacitated entity's affairs.

Therefore, for the purposes of section 58-10, the making of those supplies (Scenarios C and D) was within the scope of your responsibility or authority for managing the IE's affairs. Accordingly, you are liable for the GST on those supplies, subject to the extent that one of the exceptions in subsections 58-10(2) to 58-10(6) may apply.

In Submission 3 of the private ruling, subject to the ATO concluding that the supply of the apartments was within the representative's scope of authority, it is contended that Entity A is liable to pay GST on the deposits received prior to the appointment of the representative.

Section 58-10 contains a number of exceptions to the general rule provided by subsection 58-10(1). The exception provided by paragraph 58-10(2)(a) is relevant to this issue and states:

(2) This section does not apply to the GST payable on a *taxable supply to the extent that one or more of the following apply:

(a) the *incapacitated entity received the *consideration for the supply before the *representative became a representative of the incapacitated entity;

In this case a security deposit of 10% was paid under the contract, which we consider to be a standard land contract as per paragraph 13 of GSTR 2000/28.

Subsection 99-10 (1), which deals with attribution of GST on deposits, states:

(1) The GST payable by you on a *taxable supply for which the *consideration is a deposit that was held as security for the performance of an obligation is attributable to the tax period during which the deposit:

(a) is forfeited because of a failure to perform the obligation; or

(b) is applied as all or part of the consideration for a supply.

The wording 'for which the consideration is a deposit that was held as security' indicates that the provision of the deposit is not the provision of consideration. The deposit does not become consideration until it is applied as all or part of the consideration for a supply.

The various rules regarding the timing of attribution as consideration for a deposit or security deposit are not in dispute. The issue in this case is whether the security deposits have been received prior to the appointment of the representative where they are held by a stakeholder.

In your correspondence you have referred to example 1.4 (ShedCo) of the Explanatory Memorandum to Tax Laws Amendment (2009 Measures No. 5) Act 2009 to support that the representative is not liable for the GST payable on the deposit. The ShedCo example reads as follows:

ShedCo Pty Ltd enters into a contract to construct and supply a shed. The contract price is $22,000, and upon entry into the contract ShedCo Pty Ltd receives a deposit of $2,200. Prior to the commencement of the construction of the shed an administrator is appointed to manage the affairs of ShedCo Pty Ltd.

The administrator agrees with the customer that the construction of the shed will continue. It is agreed that the $2,200 deposit paid to ShedCo Pty Ltd will be applied as part of the consideration for the shed.

The administrator will be liable for the GST applicable to the supply of the shed, but will not be liable to the extent of the $2,200 deposit paid to ShedCo Pty Ltd, prior to the administrator's appointment.

One of the questions raised is whether the deposit in the ShedCo example is a security deposit for the purposes of Division 99. It is agreed that the deposit in the example does have characteristics that align with the features of a security deposit, but is silent on whether the deposit is at risk of forfeiture.

However, it is considered that the key aspect the ShedCo example is highlighting is that the deposit was 'received' prior to the appointment of the administrator. This is supported by the paragraph prior to the example, which reads as follows:

1.29 Subsections 58-10(2) and (3) provide a number of exceptions from the general rule in subsection 58-10(1). In particular, the representative of an incapacitated entity is not liable for or entitled to any GST related amounts to the extent that consideration for a taxable supply or creditable acquisition was received or provided before the representative became a representative of the incapacitated entity. In these circumstances, the incapacitated entity would remain liable or entitled in respect of such amounts.

In the ShedCo example, the key point is that the entity actually receives the deposit, prior to the administrator's appointment. It is received on the basis that it will be applied as part of the consideration for the shed. It will presumably be refunded if ShedCo fails to supply the shed. Nonetheless, it is received by ShedCo.

Under paragraph 58-10(2)(a), the representative is not liable to the pay the GST payable on a taxable supply to the extent that the incapacitated entity received the consideration for the supply before the representative became a representative of the incapacitated entity..…

The Pre-Appointment Contracts include the following clauses:

X.1 Time for payment

The Buyer must pay the Deposit to the Deposit Holder at the times shown in the Contract Particulars.

X.2 Deposit Holder's obligation

The Deposit Holder will hold the Deposit until a party becomes entitled to it. Where it applies, the Deposit Holder will hold the deposit as trustee under the Land Sales Act 1984.

X.4 Payment of Deposit

The party entitled to receive the Deposit and any interest on the Deposit is:

a) if the Contract settles - the Seller is entitled to the Deposit and the Buyer is entitled to the interest on the Deposit;

b) if the Contract is terminated without default by the Buyer - the Buyer; or

c) if the Contract is terminated owing to the Buyer's default - the Seller

Clause X.1 indicates that the deposit was not paid to Entity A. Rather it was paid to the Deposit Holder. Nor can it be said that it was held for the benefit of any particular party. Clause X.2 indicates that the Deposit holder is to hold the deposit until a party becomes entitled to it. Further, as per clause X.4, the deposit was not paid to (or received by) any party to the contract until one of the scenarios in clause X.4 occurred.

GSTR 2006/2 discusses when a deposit is held and includes, as per paragraph 22, that the deposit is 'held' when it is paid to a person in the capacity of stakeholder and makes no difference whether that is the supplier or a third party. However, this is in the context of 'held' by the stakeholder and relevantly subsection 99-5(1) states "A deposit held as security …". This is different to the words used in paragraph 58-10(2)(a) which state "the incapacitated entity received the consideration …".

Neither 'held' nor 'received' are defined in the GST Act, however, Division 29 uses the words "consideration is received" in a number of places in reference to accounting on a cash basis. The ATO positon on when consideration has been received in the context of section 29-5 is provided in GSTR 2003/12 - Goods and services tax: when consideration is provided and received for various payment instruments and other methods of payment. In simple terms this provides that:

• cash is received when it is tendered

• a payment by cheque is received when it is posted or handed to the supplier, and

• for a bank transfer the payment is received when it is credited to the supplier's account.

The terms of some contracts such as standard land contracts frequently provide for the payment of a deposit to a third party stakeholder pending the outcome of the contract, i.e. whether or not it proceeds to completion. In your case, the deposit was paid to the third party stakeholder as per the contractual arrangements and relevant legislation. As per GSTR 2003/12, this indicates that the deposit has been received by the third party stakeholder, and is then held for the benefit of either the vendor or supplier depending on the outcome of the contract for sale.

In Reliance Carpet, at [19] and by way of footnote to that paragraph of the judgement, the High Court referred to section 27 of the Sale of Land Act 1962 (Vic) and noted that section 27 of that statute "provides for the purchaser to empower the release to the vendor "in his own right" of deposit moneys held by a legal practitioner or estate agent as a stakeholder. The High Court, however, then went on to refer to the decision in Hastingwood Property Ltd v Saunders Bearman Anselm [1991] Ch 114 (Hastingwood) at 123 where it was held that "in the absence of an arrangement or legislation to the contrary, neither vendor nor the purchaser has a proprietary interest in a deposit held by a stakeholder".

The decision in Hastingwood was also referred to with authority in Re Burman [1993] 1 Qd R 49 at 55 ('Re Burman'). That case at 54 also makes reference to the following extract from Lord Tenterden's judgement in Potters v Loppert [1973] Ch 399 at 586:

"if an agent receives money for his principal, the very instant he receives it, it becomes money of this principal. If, instead of paying it over to his principal, he thinks fit to retain it, and makes a profit of it, he may….be liable to account for the profit. Here, the defendant is not a mere agent, but a stakeholder. A stakeholder does not receive money for either party, he receives it for both and until the event is known, it is his duty to keep it in his own hands. If he think fit to employ it and make interest of it, by laying it out in the funds or otherwise, and any loss accrue, he must be answerable for that loss, and he if he is to answer for the loss, it seems to me that he has a right to any intermediate advantage which may arise".

In Re Burman, in reference to Lord Tenterden's statement referred to above, Ryan J then went on to say at 54:

"I consider that it is impossible, in the light of this statement, to conclude that a stakeholder of a contract deposit is a trustee for the deposit for the parties to the contract. He does not receive the deposit on trust, but he does, in my opinion, receive it upon terms requiring him to account to one or other of the parties to the contract depending upon the outcome of an event"

You referred to the Land Sales Act 1984 (Qld), the Legal Profession Act 2007 (Qld) and the Contracts of Sale, arguing that they override the common law position in Re Burman and Hastingswood that the stakeholder does not generally hold the deposit on trust. Under section 18 of the Land Sales Act 1984 (Qld), when a recognised entity (i.e. stakeholder) is paid an amount that is to be held in a prescribed trust account, they are required to hold the amount in the prescribed trust account until a party to the contract or instrument becomes entitled. In other words, if under the terms of a contract, an IE does not become entitled until settlement, then in the absence of specific legislation applying, the incapacitated entity does not receive the deposit until settlement.

The reference to the Legal Profession Act 2007 (Qld) in subsection 17(3) of the Land Sales Act 1984 (Qld), simply clarifies that the monies deposited with a stakeholder under the terms of a land sale contract are trust monies that are subject to all of the trust account rules and restrictions provided for by the Legal Profession Act 2007 (Qld).

Having regard to the conclusions in Re Burman and Hastingwood about the status of a deposit paid to a stakeholder pending the outcome of an event, it is considered that subject to legislation or express contractual terms to the contrary, for the purposes of the exception in paragraph 58-10(2)(a), a deposit is not received by an IE when it is paid to and is continuing to be held by a stakeholder pending completion of a contract or forfeiture.

With reference to the ShedCo example, ShedCo does hold the amount as a deposit, but importantly it also states that they have received the deposit. That is, the exception in paragraph 58-10(2)(a) is only triggered if an amount is 'received'.

As per paragraph 28 (and 86 and 87) of GSTR 2000/28, it provides that Division 99 still continues to apply even if the stakeholder releases the deposit to the vendor prior to the completion of the standard land contract. Accordingly, although not yet attributable as a security deposit it is considered that this aligns to the ShedCo example as having been 'received' prior to settlement. If the release of the deposit occurred prior to the appointment of the representative, then the exception in paragraph 58-10(2)(a) would apply.

However, in cases where a deposit is released by a stakeholder post the appointment of a representative in relation to the settlement of a contract that was entered into prior to the representative's appointment, the exception in paragraph 58-10(2)(a) does not apply. Instead, the representative, under subsection 58-10(1) is liable for any GST payable in relation to the supply to the extent of the total consideration for the supply including the deposit.

In Scenarios C and D you received the deposits as representative upon settlement from the stakeholder, which you then applied as consideration for the supplies of the properties. You also received the balance of the consideration for the supplies of properties.

Therefore, you are liable as representative for the GST on the total consideration, including the deposit, for those supplies under Scenarios C and D.

Pre-Appointment Contracts rescinded and new contracts entered into post-appointment (Scenario E)

Under the terms of the Recitals and clauses in the Deed of Settlement and Release supplied for Lot xxxx, the Old Contract was rescinded and, at settlement of the New Contract, the Bank Guarantee was refunded to the Buyer. Accordingly, in relation to the Old Contract, the deposit was not forfeited.

You controlled all aspects of the New Contract with the Buyer, including the purchase price of $xxxxx and the new deposit of $xxxx. At settlement on ddmmyyyy, the new security deposit was applied as part of the consideration for the supply of real property that you controlled. Therefore, you are liable for GST on this supply and all other supplies under this scenario. Your GST liability is calculated on the total price, including the deposit.

¹ [2011] FCA 232 at [255].

² [2011] FCA 908 at [69].