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Edited version of your written advice
Authorisation Number: 1013009362131
Date of advice: 17 May 2016
Ruling
Subject: GST and sale by mortgagee
Question
Was the sale of the vacant land by the mortgagee in possession a taxable supply under section 105-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer
Yes.
Relevant facts and circumstances
• Entity A is the registered proprietor of the vacant land.
• Entity A (borrower/debtor) obtained a loan from Entity B (creditor) to purchase the land and has provided the land as security to the creditor. The borrower defaulted on the loan repayments and owed a debt to the creditor.
• Entity B, as the mortgagee exercising its power of sale under the mortgage contracted to sell the property to a third party purchaser.
• Entity B sold the debtor's property in satisfaction of a debt that the debtor owed to it.
• The creditor has been unable to verify whether or not the debtor was registered or required to be registered for GST at the time of sale; and whether or not the sale of the land by the debtor would have been in the furtherance of an enterprise.
• The creditor has been unable to obtain any information from the debtor on the GST treatment of the sale.
• The creditor has been unable to obtain information to determine that the sale of the land would not have been a taxable supply if the debtor had made the supply.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 105-5.
Reasons for decision
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 made in satisfaction of a debt owed to the creditor. Section 105-5 of the GST Act provides that a supply made by a creditor in satisfaction of a debt is a taxable supply if:
• an entity supplies the property of the debtor to a third party in satisfaction of a debt that the debtor owes to the entity, and
• the supply, to the third party, would be a taxable supply if the debtor had made the supply.
However, pursuant to subsection 105-5(3) of the GST Act, the supply of a debtor's property by a mortgagee in possession is not a taxable supply if:
• the debtor has given to the mortgagee a written notice stating that the supply would not be a taxable supply if the debtor were to make it. The notice must state fully the reasons why the supply would not be a taxable supply; or
• if such a notice cannot be obtained, the mortgagee in possession believes on the basis of reasonable information that the supply would not be a taxable supply if the debtor were to make it.
In this case, Entity A has defaulted on the loan repayments. The property of the debtor is sold to a third party purchaser by Entity B as mortgagee in possession in satisfaction of a debt owed by the debtor to the creditor.
Subsection 105-5(3) of the GST Act is not satisfied as the Entity B has not been able to obtain either of the following:
• a notice from the debtor stating that the supply would not be a taxable supply if the debtor were to make it; or
• any information to determine that the sale of the land would not have been a taxable supply if the debtor had made the supply.
Therefore, as the supply of vacant land is neither GST-free nor input taxed, the supply of the land by the creditor is a taxable supply under section 105-5 of the GST Act. The creditor is liable for the GST payable on the supply of the debtor's property.