On Tuesday 14 February 2012, the Government released draft
legislation aimed at resolving a conflict between two competing
divisions of the GST law. If passed, the draft legislation will
give legislative support to the administrative position recently
adopted by the Tax Office concerning the GST reporting obligations
of mortgagees in possession of company owned property.
On 4 December 2009, the GST rules for representatives of
incapacitated entities were amended to ensure that representatives
of incapacitated entities would be responsible for the GST
consequences arising during their appointment. Those 2009
amendments brought about unexpected consequences for a mortgagee in
possession of company owned property. Concern about the potential
impact of these earlier amendments on mortgagees was initially
flagged in a Gadens Lawyers Tax Update in March
Prior to the 2009 amendments, the GST obligations of a mortgagee
were limited to supplies of the mortgagor's property by the
mortgagee in satisfaction of a debt. There was no obligation on the
mortgagee to register for GST in that capacity, nor was there any
obligation for the mortgagee to report to the Tax Office in
relation to the mortgagor's GST affairs. However, following the
amendments made on 4 December 2009, the definition of
'representative' was expanded to include a
'controller' within the meaning of the Corporations
Act 2001 (Cth), which may include a mortgagee in possession of
company owned property. This meant mortgagees in possession were
potentially required to register and report for GST in a similar
manner to receivers and liquidators.
The draft legislation released by Treasury earlier this week
seeks to ensure that mortgagee sales are governed by Division 105
(supplies in satisfaction of debts) rather than Division 58
(representatives of incapacitated entities). This allows consistent
treatment of mortgagee in possession sales for both corporate and
non-corporate debtors, and ensures that mortgagees are not required
to register in relation to each new mortgagee sale file. GST on
mortgagee sales should be reported in the lender's usual
business activity statement.
The key amendment proposes to insert a new section 58-95 in
Division 58 of the GST Act as follows:
58-95 Division does not apply to the extent that the
representative is a creditor of the incapacitated
This Division does not apply in relation to a representative of
an entity to the extent that paragraph 105-5(1)(a) will apply to a
supply by the representative of the entity's property.
Note: For example, if the representative:
is a mortgagee in possession of the entity's property;
is not a representative of the entity for any other reason; the
representative need not register under section 58-20 if it will
supply that property in or towards the satisfaction of a debt owed
to it by the entity.
While the heading for draft section 58-95 indicates that the
provision should have general application, the body of the draft
section excludes the operation of Division 58 to the extent there
is a supply covered by the mortgagee in possession
There may be adverse implications where a mortgagee in
possession incurs costs on behalf of the debtor. For example, a
mortgagee may incur construction costs completing a property
development. Division 105 does not entitle a mortgagee to input tax
credits for things it acquires in its capacity as agent of the
mortgagor, rather the provisions in Division 105 merely impose a
liability on the mortgagee for sales made by the mortgagee while in
possession of the debtor's property. This mismatch means a
lender may be liable for GST on mortgagee sales while the
(potentially insolvent) debtor retains the entitlement to input tax
credits for costs incurred by the mortgagee on the debtor's
Of course this begs the bigger question about whether the law
should be amended so that mortgagees are not personally liable for
GST on the sale of a debtor's property.
The closing date for submissions in relation to the draft
legislation is Tuesday, 13 March 2012.
Exemptions or concessions on stamp duty could apply when contemplating the purchase or transfer of NSW real estate.
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