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Edited version of your written advice
Authorisation Number: 1012807128750
Ruling
Subject: GST and sale of a property as a mortgagee in possession
Question 1
Is the sale of a property by an entity as the mortgagee in possession, a taxable supply?
Answer
No. The sale of the property by an entity as the mortgagee in possession is not a taxable supply based on the information provided. Please refer to the reasons for decision.
Question 2
Is the entity as the mortgagee in possession exercising its power of sale liable to pay the goods and services tax (GST) on the sale of the above property?
Answer
No. The entity as the mortgagee in possession exercising its power of sale is not liable to pay GST on the sale of the property as the sale is not a taxable supply.
This ruling applies for the following periods:
N/A
The scheme commences on:
N/A
Relevant facts and circumstances
• The entity is registered for goods and services tax (GST) and exercising its power of sale pursuant to its registered mortgage entered with the mortgagor.
• The entity sold a property as a mortgagee in possession under the registered mortgage entered into with the mortgagor as per contract of sale.
• The property is a residential premise and was sold as an input taxed supply.
• The mortgagor is not registered for GST or do not have an Australian Business Number (ABN) as per Australian Business Register (ABR).
• At the time the entity advanced the mortgage amount to the mortgagor, the residential property erected on the property was in a dilapidated condition.
• The mortgagor advised the entity that they were intended to negotiate a joint venture agreement with the adjoining land owner for the development of the property.
• At the time that the property was sold, there has been no improvement or development on the property and joint venture agreement was not entered into.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 - section 40-65
A New Tax System (Goods and Services Tax) Act 1999 - subsection 105-5(1), (2) and (3)
Reasons for decision
Question 1
Division 105 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) deals with supplies made by creditors of property belonging to a debtor, where the supply is in satisfaction of a debt owed to the creditor.
Subsection 105-5(1) and (2) of the GST Act state that you make a taxable supply if you supply the property of another entity (debtor) to a third entity in or towards the satisfaction of a debt that the debtor owes to you; and had the debtor made the supply, the supply would have been a taxable supply. It does not matter whether you made the supply in the course or furtherance of an enterprise that you carry on; or you are registered or required to be registered.
In this case, the entity has made the supply of the property to a third party (the purchaser of the property) towards the satisfaction of the debt owed by the mortgagor the owner of the property. However, it should be determined that if the owner of the property had made the supply to the third party, whether the supply would have been a taxable supply to satisfy subsection 105-5(1) of the GST Act.
Based on the information provided, the mortgagor is not registered for GST and the Commissioner does not have sufficient facts to determine whether the mortgagor is required to be registered for GST. Therefore, it is considered that the supply of the property would not have been a taxable supply if the owner of the property (the mortgagor) was to make the supply of the property to the third party.
Subsection 105-5(2) of the GST Act is not relevant in this case as the entity made the supply in the course of their enterprise and they are registered for GST.
Subsection 105-5(3) of the GST Act also should be considered to determine whether the supply of the property was not a taxable supply. A supply is not a taxable supply if the debtor has given the creditor a written notice stating that the supply would not be a taxable supply if the debtor were to make it and stating fully the reasons why the supply would not be a taxable supply. If the creditor cannot obtain such a notice, the creditor may reach a belief on the basis of reasonable information that the supply would not have been a taxable supply if the debtor were to make it.
The property purchased by the mortgagor was a residential property. They acquired this property with an intention of acquiring the adjoining property and to conduct property development on both properties. However, there was no improvement or development conducted on the property at the time the entity sold the property to the third party. Sale of a residential property is an input taxed supply as per section 40-65 of the GST Act.
Therefore, it is the view of the ATO that the supply of the property by the entity as a mortgagee in possession to the third party was not a taxable supply.
Question 2
Since it is considered that the sale of the property was not a taxable supply as explained in question 1, the entity is not required to remit GST to the ATO on the sale of the property to the third party.