Edited version of private advice

Authorisation Number: 1052147480131

Date of advice: 22 August 2023

Ruling

Subject: Sale of shares in land held under company title

Relevant facts and circumstances

X was the lender under the original loan documents entered around 20XX for the borrower.

Around 20XX, X assigned all of its interest in the loan to its related entity as per the Deed of Assignment and is now the lender to the borrower.

XX is in default under a loan agreement with XX plus interest and enforcement expenses.

Under the various agreements, which form part of the loan agreement, X is empowered to sell the shares that XX owns in a related entity; having taken possession of XX's shares to exercise their power of sale under the mortgage.

The contract for the sale of shares for a company title lot between lender and the buyer provides that, on completion, the seller will give the buyer vacant possession of the Property, a duly executed transfer of the shares with the relevant share certificates and evidence of the approval by other shareholders of the company of the transfer of shares to the buyer.

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 9-10

A New Tax System (Goods and Services Tax) Act 1999 section 40-5

A New Tax System (Goods and Services Tax) Regulations 2019 sub-section 40-5.02

A New Tax System (Goods and Services Tax) Regulations 2019 sub-section 40-5.09

Reasons for decision

Section 9-5 of the GST Act provides that 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, for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. There are no factual elements that would give rise to GST-free supplies under Division 38 of the GST Act.

Subsection 9-10(1) of the GST Act provides that a supply is any form of supply whatsoever. Subsection 9-10(2) then lists some examples of supplies and includes a financial supply at subsection 9-10(2)(f) of the GST Act.

Section 40-5(1) of the GST Act states that a financial supply is input taxed and sub-section 40-5(2) provides that financial supply has the meaning given by the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations).

Section 40-5.02 of the GST Regulations provides that an interest in relation to a financial supply is anything that is recognised at law or in equity as any form of property, for example:

•         A debt or a right to credit;

•         An interest conferred under a public or private superannuation scheme;

•         A mortgage over land or premises;

•         A right under a contract of insurance or a guarantee;

•         A right to receive a payment under a derivative; and

•         A right to future property.

The term 'debt' is defined in Goods and Services Tax Ruling 2002/2 Goods and services tax: GST treatment of financial supplies and related supplies and acquisitions (GSTR 2002/2) as an amount due from one entity to another or a presently existing obligation to pay an ascertainable amount at a future time.

For common law purposes, the essence of a loan is that it involves the obligation to repay the amount borrowed (Commissioner of Taxation v. Radilo Enterprises Pty Ltd (1997) 72 FCR 300; 97 ATC 4151; (1997) 34 ATR 635) and it requires the existence of a debtor-creditor relationship.

Subsection 40-5.09(1) of the GST Regulations provides that the provision, acquisition or disposal of an interest or under a table item of subsection 40-5.09(3) of the GST Regulations is a financial supply if:

(a)  the provision, acquisition or disposal is:

                    (i)        for consideration;

                   (ii)        in the course or furtherance of an enterprise; and

                  (iii)        connected with Australia; and

(b)  the supplier is:

                    (i)        registered or required to be registered for GST; and

                   (ii)        a financial provider in relation to the supply of the provision, acquisition or disposal of the interest (a supply by a financial supply facilitator is not a financial supply).

In your case, you are the provider of a loan, therefore, a financial supply provider as defined under section 40-5.06 of the GST Regulations. X is in default under a loan agreement. You are selling X's shares in land held under a company title. The buyers will not own the title to the land however, they will be the holder of X ordinary shares in XX.

The sale of shares is a financial supply as per Item 10 in the table in subsection 40-5.09(3) of the GST Regulations. You meet the requirements in subsection 40-5.09(1) of the GST Regulations as the shares are supplied for consideration, in the course or furtherance of an enterprise, and are connected with Australia (sub-section 40-5.09(3) of the GST Regulations).

You are registered for GST and a financial supply provider under subparagraph 40-5.09(1)(b)(ii) of the GST Regulations.

Therefore, you meet all of the requirements in section 40-5.09 of the GST Regulations. The sale of the securities will be an input taxed financial supply under subsection 40-5.09(3) Item 10 of the GST Regulations. The company titled land will be regulated by the constitution of XX. The buyer will be the shareholder in XX holding the shares and it will have vacant possession of the land.

Further, GSTR 2002/2, Schedule 2 - supplies of financial interests and related supplies by financial supply providers and financial supply facilitators, Table D, line D18A states that interests in Company Titles Schemes is an input taxed supply.

Therefore, there is no GST payable on the sale of the shares which is an input taxed supply.