Edited version of your written advice

Authorisation Number: 1012694011440

Ruling

Subject: GST and incapacitated entity

Question 1

Are the Liquidators of X (in Liq) and Liquidators of X as Trustee (in Liq) required to remit goods and services tax (GST) in respect of the sale of units owned by Y(de-registered) in the Liquidator's capacity as liquidators of the mortgagee exercising power of sale?

Answer

Yes, the Liquidators of X as Trustee (in Liq) are required to remit GST in respect of the sale of units owned by Y(de-registered) in their capacity as representatives of X who is the incapacitated mortgagee exercising power of sale.

Question 2

Is X (in Liq) in its own capacity or on behalf of A (In Liq), required to remit GST in respect of the sale of units owned by Y(de-registered) in its capacity as mortgagee exercising power of sale?

Answer

No. X (in Liq) in its own capacity or on behalf of A (in Liq), is not required to remit GST in respect of the sale of the units owned by Y(de-registered).

Question 3

If the sales of units owned by Y (de-registered) are not subject to GST can the liquidators obtain a refund of GST previously overpaid?

Answer

On the basis of the answer to Question 1, this question is no longer applicable.

Relevant facts and circumstances

A, now in liquidation, was registered by S. X, now in liquidation, was the responsible entity for A (in Liq).

X as Trustee for A (in Liq) ('X as Trustee (in Liq)') received funds from investors which were then lent by it on behalf of A (in Liq) to third party borrowers. The loans made by X as Trustee (in Liq) were predominately for the purpose of funding the construction of premises. X as Trustee (in Liq) as the responsible entity held all security interests on behalf of A (in Liq).

A (in Liq) was a scheme which is explained as per the Product Disclosure Statement.

The loans were in most instances secured by a first registered mortgage, fixed and floating charges and related party guarantees.

On a date an order was made by the Court ("the Order") that:

• L & M be appointed joint and several Liquidators to wind up X (the "Liquidators");

• A be wound up in accordance with an Act; and

• L & M appointed as the persons to take responsibility for ensuring that A is wound up.

• The Court added to the Order "X" (in Liq) be appointed to wind up the scheme".

The Liquidators notified the ATO of their appointment and were registered for GST in this regard.

Y had borrowed funds, from X as Trustee (in Liq), and provided security over the project which involved the construction premises (the Project).

In late 9999 X as Trustee (in Liq) as creditor intended to exercise its power of sale with respect to the Project through the Liquidators of X as Trustee (in Liq).

In late 9999 the Liquidators of X as Trustee (in Liq) issued a Notice of Exercise of Power of Sale under Registered mortgage Number 0 to Y. In late 9999 the Liquidators of X as Trustee (in Liq) took possession of the Property.

Y was deregistered early 9999+1.

At the time that the Liquidators of X as Trustee (in Liq) took possession of the Project it was over % complete such that the Liquidators of X as Trustee (in Liq) were only required to do a small number of things in order to have a certificate of completion issued so as to allow for the registration of the strata plan so that it could sell the individual units in realisation of the security held by X as Trustee (in Liq).

The extent of work that was required to be done by the Liquidators of X as Trustee (in Liq) can be summarised as follows:

• Council inspection of the project;

• completion of the finishing's in some units (i.e., installation of bath tubs / a kitchen, some fans etc.);

• attending to some minor drainage issues; and

• cleaning and maintenance of the pool / grounds.

No debt forgiveness arose on the Liquidators of X as Trustee (in Liq) in taking possession of the Property and the Liquidators of X as Trustee (in Liq) received no consideration from the owner of the Property or any other entity.

In correspondence the Liquidators of X as Trustee (in Liq) provided a table summarising the physical characteristics of the units and identifying remaining works to be undertaken.

The contracts for the sale of the units in the Project that have settled to date were all entered into after 9999+2. Units were sold to purchasers by the Liquidators of X as Trustee (in Liq) exercising its power of sale as mortgagee in possession (on behalf of A). The sales were undertaken under the authority and direction of the Liquidators of X as Trustee (in Liq).

The GST treatment and Business Activity Statement ("BAS") relates to A (in liq). That is, the GST on sales was accounted for in the BAS for A by the Liquidators of X as Trustee (in Liq).

All contracts for the sale of the units did not specify that GST was payable in addition to the agreed purchase price. A term of the contract stated that unless otherwise specified the purchase price includes any GST payable on the supply of the property to the buyer.

Each of the purchasers was one or more individuals and based on ABN lookup searches it is understood that they are not registered for GST. Further, no tax invoice was provided to the purchasers.

There are units remaining that the Liquidators of X as Trustee (in Liq) expect to sell in the future.

A (in Liq) and X(in Liq) have separate ABNs and are registered for GST on a monthly and quarterly basis respectively.

The liquidators are separately registered for GST in their representative capacities for X(in Liq) and A (in Liq).

Relevant legislative provisions

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

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

A New Tax System (Goods and Services Tax) Act 1999, Division 105

Reasons for decision

Question 1

All legislative references are from the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) unless otherwise stated.

Summary

Under subsection 58-10(1) 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 to and is within the scope of the representative's responsibility or authority for managing the incapacitated entity's affairs.

In this case, L & M have been appointed liquidators of X, and also as liquidators of X as Trustee (In Liq). Accordingly, they are the representatives of X, and of X as Trustee (In Liq) who are both incapacitated entities within the definitions in section 195-1.

In their capacity as Liquidators of X as Trustee (in Liq) they are liable for the GST on supplies of the units in question, settled during the period of their appointment, under section 58-10.

We do not consider that Division 105 applies in relation to the Liquidators of X as Trustee (in Liq) making the taxable supplies because Y, as the debtor, is no longer an incapacitated entity nor an entity given that it was de-registered as an entity in early 9999+1. The sale by the Liquidators of X as Trustee (in Liq) is a sale by X (in Liq) as Trustee for A (In Liq) in accordance with section 58-5. The liability to pay any GST moves to the Liquidators of X as Trustee (in Liq) in accordance with section 58-10.

Detailed reasoning

Division 58 sets out how to ascribe activities of a representative of an incapacitated entity between the representative and the incapacitated entity for GST purposes.

Section 58-5 provides, amongst other things, that subject to this Division, any supply by an entity in the capacity of a representative of another entity that is an incapacitated entity is taken to be a supply by the other entity.

Paragraph 58-10(1)(a) 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

...

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.

and under paragraph 58-10(5)(a) provides:

(5)  An *incapacitated entity or, if the incapacitated entity is a *member of a *GST group, the *representative member of that group:

(a)  is not liable to pay the GST on a *taxable supply or a *taxable importation to the extent that a *representative of the incapacitated entity is liable under this section to pay the GST on the supply or importation.

Note: The terms marked with an asterisk are defined in section 195-1 of the GST Act.

Under subsection 58-10(1) 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 to and is within the scope of the representative's responsibility or authority for managing the incapacitated entity's affairs. In this case the sale of the units fall within the liquidators' authority, as Liquidators of X as Trustee (in Liq), as set out in both the Court order by which they were appointed and their powers under section 477 of the Corporations Act 2001.

Exceptions for certain taxable supplies occur where an incapacitated entity received consideration for the supply before the representative became a representative of the incapacitated entity. In this case X, as Trustee for A, received no consideration before the liquidators were appointed.

Prior to the appointment of the liquidators on 9999-1, X as Trustee for A was a creditor who was owed monies by Y and was also the mortgagee, per registered mortgage Number 0, over the securities being the Project property held by Y. X was the responsible entity and Trustee of A, a scheme.

Generally, where an entity makes a supply of property of a debtor in satisfaction of debts that the debtor/mortgagor owes that entity, Division 105 would apply to determine whether the supply by that entity is a taxable supply, and any GST liability.

In this case we consider that Division 58 applies rather than Division 105, as the debtor is not an incapacitated entity, nor even an entity given its de-registration in 9999+1.

From the facts supplied, an order was made by the Court to appoint joint and several Liquidators to wind up X, to wind up A, and that X be appointed to wind up the scheme.

For GST purposes:

an 'incapacitated entity' includes an entity that is in liquidation or receivership; or an entity that has a representative.

a 'representative' includes a liquidator; a receiver; 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.

Under the court order, X became an incapacitated entity and the Liquidators were appointed to wind up X and A. Accordingly, the appointed liquidators are a representative and X(in Liq) and X as Trustee (in Liq) for A (in Liq) is an incapacitated entity within the meaning of the GST Act.

Now we need to consider if the making of the supplies of the home units in question were within the liquidator's scope of responsibility or authority for managing the affairs of X as Trustee (in Liq).

From the date of appointment to 9999-2 it is evident that Liquidators of X as Trustee (in Liq) acted within their scope of authority and responsibility for X as Trustee (in Liq) to wind up A and as Trustee for A. The Liquidators of X as Trustee (in Liq):

• took steps to re-assign the registered mortgage from W to X as Trustee (in Liq) 9999+1.

• issued a Notice of Exercise of Power of Sale under Registered mortgage Number 0 to Y.

• on 9999+1 took possession of the Property

• arranged Council inspection of the project;

• arranged completion of the finishing's in some properties (i.e., installation of bath tubs / a kitchen, some fans etc.);

• attended to some minor drainage issues;

• arranged cleaning and maintenance of the pool / grounds;

• obtained a certificate of completion issued by the local government so as to allow for the registration of the strata plan; and

• authorised the sale of some properties to date.

We consider that the Liquidators of X as Trustee (in Liq) undertook all things necessary to obtain possession, complete the home units and authorised their sale on behalf of the incapacitated entity in order to maximise return in the realisation of the Property. The Liquidators of X as Trustee (in Liq) acted within their scope of responsibility or authority for managing the affairs of X as Trustee (in Liq) in relation to the sale of the units in question and the winding up of both X as Trustee (in Liq) and A(in Liq).

Accordingly, the sales of the home units, that is, the making of the supplies to which the GST relates, was within the liquidator's scope of responsibility or authority for managing the affairs of X as Trustee (in Liq).

Consequently, the Liquidators of X as Trustee (in Liq) are liable to pay the GST in relation to the supply of all units in question in accordance with Division 58 as all the units to date have been settled within the time of their appointment. No part of the consideration was received by X as Trustee (in Liq) prior to the liquidator's appointment.

Division 58 does not consider whether the supply by the Liquidators of X as Trustee (in Liq) would have been a taxable supply by the Debtor however, subsection 58-10(1) does consider whether the incapacitated entity would be liable to pay GST on a taxable supply. Consequently, the question of whether the supply would have been a taxable supply by X as Trustee (in Liq) falls under general provisions.

Section 9-5 defines what is a taxable supply. This section states:

You make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c) the supply is *connected with Australia; and

(d) you are *registered, or *required to be registered.

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

In this case:

(a) the properties have been sold, settling between 9999+4 and 9999+5, for consideration

(b) the supply of the home units were made in the course or furtherance of an enterprise that X as Trustee (in Liq) carried on or would have carried on had it not been placed into liquidation by the Court

(c) the properties are located in Australia, and

(d) X as Trustee (in Liq) is registered for GST.

The sale of the properties to the third party purchasers are not GST-free under any provision of the GST Act, and the sales are not input taxed as we consider them to be sales of new residential premises, in accordance with Goods and Services Tax Ruling GSTR 2003/3 Goods and services tax: when is a sale of real property a sale of new residential premises? and as defined in section 40-75, and therefore excluded from being an input taxed supply pursuant to paragraph 40-65(2)(b) which states:

(2) however, the sale is not input taxed to the extent that the *residential premises are:

…

(b) *new residential premises other than those used for residential accommodation (regardless of the term of occupation) before 2 December 1998.

Accordingly, as the sales satisfied all of the requirements under section 9-5 and were made within the scope of responsibility and authority of the appointed Liquidators of X as Trustee (in Liq), the supplies of the properties are taxable supplies. Therefore, the Liquidators of X as Trustee (in Liq) are required to pay GST on supplies of the properties in question pursuant to section 58-10.

Question 2

Summary

Under the court order, X as Trustee (in Liq) became an incapacitated entity and the liquidators were appointed to wind up X, X as Trustee for A as well as A. Accordingly the liquidators are a representative and X as Trustee for A (in Liq) is an incapacitated entity within the meaning of the GST Act and is also the incapacitated responsible entity for A (In Liq).

The Liquidators of X as Trustee (in Liq) authorised the sale of the properties from 9999+4 and they have all, to date, been settled during their appointment.

The sales of the properties, that is the making of the supplies to which the GST relates, were within the scope of the liquidators responsibility or authority for managing the affairs of X as Trustee (in Liq).

Therefore, the Liquidators of X as Trustee (in Liq), are required to remit GST in respect of the sale of home units in the Project, pursuant to Division 58, in their capacity as representative of X as Trustee (in Liq). Accordingly, X as Trustee (in Liq) is not required to remit the GST in its own capacity.

Please refer to the detailed reasoning in relation to Question 1 for further reasoning.