Edited version of your written advice

Authorisation Number: 1051183033011

Date of advice: 20 January 2017

Ruling

Subject: GST and sale of property by a mortgagee in possession

Question

Did you make a taxable supply pursuant to section 105-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when you supplied the property located at a specified location?

Answer

No

Relevant facts and circumstances

You entered into a loan agreement facility (the Loan Agreement) with Entity A (the Borrower) and Entity B (the Owners).

You held a mortgage (Mortgage Registration Number XXXXXXX) from Entity B over property located at a specified location (the Property).

Funds were made available to the Borrower under the Loan Agreement for the purpose of developing the Property by constructing X townhouses.

The development did not proceed and you exercised you rights under the Loan Agreement and sold the Property as mortgagee in possession.

The Owners provided you with written notification advising that the sale of the Property would not be a taxable supply if the supply of the Property had been made by the Owners providing the following details:

● the Owners are not registered for GST;

● the Owners acquired the Property in yyyy as their principal place of residence, concluding that the Owners are not carrying on an enterprise and not required to be registered.

Relevant legislative provisions

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

Section 9-5

Subsection 105-5(1)

Subsection 105-5(3)

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)

● reference material(s) referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au

Subsection 105-5(1) states:

You make a taxable supply if:

(a) you supply the property of another entity (the debtor) to a third entity in or toward the satisfaction of a debt that the debtor owes to you; and

(b) had the debtor made the supply, the supply would have been a *taxable supply.

(An asterisk denotes a defined term in section 195-1 of the GST Act.)

However, subsection 105-5(3) provides that the supply will not be a taxable supply if the debtor has given you 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.

A reference to the term 'taxable supply' in paragraph 105-5(1)(b) is a reference to the term as defined in section 9-5. Section 9-5 provides that you make a taxable supply if:

● you make the supply for consideration; and

● the supply is made in the course or furtherance of an enterprise that you carry on; and

● the supply is connected to the indirect tax zone (Australia); and

● you are registered or required to be registered for GST.

However the supply will not be a taxable supply to the extent the supply is GST-free or input taxed.

In this instance you have received written notification from the legal representative of the Owners that had the Owners made the supply of the Property, the supply would not have been a taxable supply as the sale would not have been in the course or furtherance of an enterprise that the Owners carried on (the sale is the realisation of the Owners principal place of residence) and that the Owners were neither registered nor required to be registered.

We consider that the written notification (with associated reasons) provided by the Owner's legal representative qualifies as a 'written notice' for the purposes of paragraph 105-5(1)(a). Furthermore, as required by paragraph 105-5(1)(a), the notification fully states the reasons why the supply would not be a taxable supply had the Owners made the supply.

Conclusion

You did not make a taxable supply pursuant to section 105-5 when you supplied the Property in your capacity as mortgagee in possession.