Edited version of private advice

Authorisation Number: 1051902756013

Date of advice: 29 September 2021

Ruling

Subject: GST and the sale of vacant land by a liquidator

Question 1

Will the Investors' payment of the liquidator's agreed professional fees and costs associated with the transfers be considered part of the consideration for the supplies of the specified lots?

Answer

The Investor's payment of the professional fees and costs that are incurred in the liquidator's role as administrator of property will form part of the consideration for the taxable sale of the vacant land.

Question 2

Will the liquidator have a liability for payment of GST for the sale of Lot XX? If so, how much will that liability be?

Answer

Yes. The liquidator will be liable for the amount of professional fees and costs associated with the transfer of the vacant land to the Investors

Question 3

Does the incapacitated entity have an outstanding liability for payment of GST for the sale of Lot XX? If so, how much is that liability?

Answer

Yes. The incapacitated entity will have a liability for payment of GST for the sale of Lot XX to the extent of any amounts received as Investor's contributions.

Question 4

Will the liquidator have a liability for payment of GST for the sales of Lots YY and ZZ? If so, how much will that liability be?

Answer

Yes. The liquidator will be liable for 1/11th of the consideration received to complete the transfer of the Lots.

Question 5

Does the incapacitated entity have an outstanding liability for payment of GST for the sales of Lots YY and ZZ? If so, how much is that liability?

Answer

Yes. The incapacitated entity will have a liability for payment of GST for the sale of Lots YY and ZZ to the extent of any amounts received as Investor's contributions.

Question 6

Will the liquidator have a liability for payment of GST for the sale of Lot AA? If so, how much is that liability?

Answer

Yes. The liquidator will only be liable for the amount of professional fees and costs associated with the transfer of the vacant land to the Directors.

Question 7

Does the incapacitated entity have an outstanding liability for payment of GST for the sale of the Allocated Lots (including Lot AA)? If so, how much is that liability?

Answer

Yes. The incapacitated entity will have a liability for payment of GST for the sale of the Allocated Lots to the extent of any amounts received as funding amounts.

Question 8

Will the liquidator have a liability for payment of GST for the sales of the other unsold lots if sales take place after liquidator's appointment? If so, how much will that liability be?

Answer

Yes. The liquidator's liability will be 1/11th of the consideration received for each sale of the unsold lots

Relevant facts and circumstances

An entity was in the business of property development. It was registered for GST and is still registered. The entity accounted on a cash basis for GST prior to the liquidator's appointment.

The project which is the genesis of this application is the subdivision and development of the land.

Investors were asked to make financial contributions to the entity in order for them to complete the purchase of the land and the subsequent subdivision and development works (Investors' Contribution).

Deeds of Agreement

To facilitate the Investors' Contributions, the entity entered into agreements with investors.

The Deeds of Agreement do not define what "development" means or whether it required the construction of a dwelling (or any other improvements) on the nominated lots. The transfer of the nominated lots to the Investors is contingent only on the payment of the Investors' Contribution and the subdivision of the land.

Directors' Deed of Agreement

In addition to the Deeds of Agreement, the entity also entered into an agreement with two of its directors.

In exchange for the Directors' Funding, under the Directors' Deed of Agreement the Directors were granted the legal benefit of lots from the plan of subdivision. Under the Directors' Deed of Agreement, the Directors were able to sell the Allocated Lots in the entity's name pursuant to a power of attorney and personally retain the sale proceeds. However, if the Allocated Lots were not sold within twelve months of the Directors' Deed of Agreement, then the Directors had to personally take a transfer of the Allocated Lots from the entity.

GST

The Deeds of Agreement and Directors' Deed of Agreement are silent on the subject of GST. Therefore, the Investors' Contributions and Directors' Funding are inclusive of GST.

Lots XX, YY and ZZ

The Deeds of Agreement were the subject of an Administrative Tribunal hearing in a proceeding brought by the Investors against the entity. The presiding Member ordered, among other things, that:

(a) the Investors had no current entitlements to the transfer of Lot YY or ZZ under the Deeds of Agreement because the Investors' Contributions had not been fully paid;

(b) the Investors had a current entitlement to the transfer of Lot XX under the Deed of Agreement because the Investors' Contribution had been fully paid; and

(c) Lot XX was to be transferred to the Investors.

The project ultimately failed and the entity was placed into liquidation. The liquidator was appointed official liquidator.

The liquidator has calculated that the outstanding Investors' Contributions for Lots YY and ZZ.

The liquidator is now seeking:

(a) payment from the Investors of agreed professional fees and costs associated with the transfer of Lot XX with a view to transferring the title to Lot XX to the Investors;

(b) payment from the Investors of:

(1) agreed professional fees and costs associated with the transfers of Lots YY and ZZ; and

(2) outstanding Investors' Contributions for Lots YY and ZZ with a view to transferring the titles to Lots YY and ZZ to the Investors; and

(c) to sell other unsold Lots in the Plan of Subdivision.

The liquidator does not propose to enter into separate contracts of sale for the transfer of the Lots pursuant to the Deeds of Agreement. Rather, the liquidator will be completing the transfers based on the Deeds of Agreement as the sale and purchase contract.

Allocated Lots

The entity is still the registered proprietor of Lot AA of the Allocated Lots. The remaining Allocated Lots were transferred from the entity prior to the appointment of the liquidator.

The liquidator has determined that the Directors' Funding was paid by the Directors to the entity's bank accounts. The remaining amount was paid to the trust account of the solicitors then acting for the entity and was held in the solicitors' trust account until it was retrieved by the liquidator.

The liquidator has determined that the Directors have paid the full Directors' Funding amount and the Directors have a legal entitlement to the transfer of Lot AA under the Directors' Deed of Agreement.

The liquidator is now seeking payment from the Directors of agreed professional fees and costs associated with the transfer of Lot AA with a view to transferring the title to Lot AA to the Directors.

The liquidator does not propose to enter into a separate contract of sale for the transfer of Lot AA. Rather, the liquidator will be completing the transfer based on the Directors' Deed of Agreement as the sale and purchase contract.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 29-5

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 section 58-60

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

Reasons for decision

Under section 58-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), any supply, acquisition or importation made by an entity in the capacity of a representative of another entity, that is an incapacitated entity is a supply, acquisition or importation by the other (incapacitated) entity.

Paragraph 58-10(1)(a) of the GST Act provides that a representative of an incapacitated entity is liable to pay any GST on taxable supplies that the incapacitated entity would normally be liable to pay to the extent that the making of the supply to which the GST relates is within the scope of the representative's responsibility or authority for managing the incapacitated entity's affairs.

Paragraph 58-10(2) of the GST Act provides that section 58-10(1) does not apply to the extent that the incapacitated entity received the consideration for the supply before the representative became a representative of the incapacitated entity.

"Incapacitated entity" is defined in section 195-1 of the GST Act to include:

[...]

(b) an entity that is in liquidation...

(c) an entity that has a representative

"Representative" is defined in section 195-1 to include:

[...]

(b) a liquidator

[...]

In this case the liquidator was appointed as liquidator of the entity. Accordingly, the liquidator meets the definition of representative and the entity meets the definition of an incapacitated entity.

Question 1

Under section 9-5 of the GST Act, 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 the indirect tax zone, 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.

On the information provided, the sale of the interest in the property will not be GST-free or input taxed.

The sale of the vacant land known as Lots XX, YY and ZZ is a taxable supply as all of the requirements of s9-5 are met.

Whether professional fees and costs incurred to enable the transfer of the Lots to the Investors will form a part of the total consideration for the supply of the vacant land will depend upon how those amounts are raised.

There is no clause in the relevant Deeds of Agreement that makes allowance for professional fees and costs.

However, Schedule 2 of the Bankruptcy Act 1966 provides an entitlement for remuneration if the professional fees and costs arise out of the necessary work performed by the trustee in relation to the administration of the debtor's estate.

As such, as the Investor's payment of the professional fees and costs that are incurred in the liquidator's role as administrator of the entity's property will form part of the consideration for the taxable sale of the vacant land.

Question 2

The facts state that the entity made taxable supplies prior to the appointment of the liquidator. As the supplies were made by the entity prior to the appointment of the liquidator, the making of the supplies clearly did not fall within the liquidator's responsibility or authority for managing the entity's affairs, at the time the supplies were made.

As the entity accounts for GST on a cash basis, any amounts paid as consideration for the supply of the land are attributable in the tax period they were received (paragraph 29-5(2)(b) of the GST Act).

Therefore, as the Investors' contribution had been fully paid for Lot XX, the liquidator will only be liable for the amount of professional fees and costs associated with the transfer of the vacant land to the Investors.

Question 3

The entity will have a liability for payment of GST for the sale of Lot to the extent of any amounts received as Investor's contributions.

As the entity accounts for GST on a cash basis, any amounts paid as consideration for the supply of the land are attributable in the tax period they were received.

Question 4

The transfer of Lots YY and ZZ is a taxable supply of vacant land. The liquidator will have a GST liability for any amounts received as consideration for that supply that falls within the scope of the liquidator's responsibility or authority for managing the entity's affairs.

The liquidator has determined the outstanding amount of Investor's contribution per lot. This amount combined with any relevant professional fees and costs (see Q1) will be the total the amount of consideration for the taxable supply of the land.

Therefore, the liquidator will be liable for 1/11^th of the consideration received.

Question 5

The entity will have a liability for payment of GST for the sale of Lots YY and ZZ to the extent of any amounts received as Investor's contributions.

As the entity accounts for GST on a cash basis, any amounts paid as consideration for the supply of the land are attributable in the tax period they were received.

Question 6

The liquidator has determined that the Directors have paid the full Directors' Funding amount and the Directors have a legal entitlement to the transfer of Lot AA under the Directors' Deed of Agreement.

Therefore, as the Directors' Funding amount has been fully paid for Lot AA, the liquidator will only be liable for the amount of professional fees and costs associated with the transfer of the vacant land to the Directors.

Question 7

The remaining Allocated Lots were transferred from the entity prior to the appointment of the liquidator. The entity will have a liability for payment of GST for the sale of the Allocated Lots to the extent of any amounts received as Directors' Funding amounts.

As the entity accounts for GST on a cash basis, any amounts paid as consideration for the supply of the land are attributable in the tax period they were received.

Question 8

The sale of the remaining lots in the hands of the liquidator will be taxable supplies of vacant land. As those sales will take place after the liquidator's appointment, there will be a liability for the liquidator of 1/11^th of the price payable by each purchaser.

As per paragraph 58-10(1)(a) of the GST Act, a representative of an incapacitated entity is liable to pay any GST on taxable supplies that the incapacitated entity would normally be liable to pay to the extent that the making of the supply to which the GST relates is within the scope of the representative's responsibility or authority for managing the incapacitated entity's affairs.