Amendments to the GST law now in force have significant
consequences for mortgagees dealing with default accounts.
If a mortgagee becomes a controller of a company, it must lodge
a separate GST return as controller rather than including any GST
in the lender's return as has generally been the practice to
Mortgagees should avoid becoming liable to pay GST at all on
commercial rents by arranging for collection of rent without
becoming a controller or supplier.
Returning GST as a controller
The Tax Laws Amendment (2009 Measures No. 5) Act 2009
commenced on 4 December 2009 and amended the GST rules for
representatives of incapacitated entities. Certain key provisions
took effect retrospectively from 1 July 2000. The new measures
sought to ensure that representatives of incapacitated entities are
responsible for the GST consequences that arise during their
appointment. However, the amendments may have unexpected
consequences for a mortgagee in possession of property of a
Prior to these amendments, the GST obligations of a mortgagee
were limited to supplies of the mortgagor's property made by
the mortgagee in satisfaction of a debt. There was no obligation on
the mortgagee to be registered 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.
From 4 December 2009, the amendments expanded the definition of
'representative' to include a 'controller' within
the meaning of the Corporations Act 2001 (Cth). The
explanatory memorandum which accompanied the amending legislation
explained the effect of this amendment as follows:
"A consequential amendment will be made to the definition
of 'representative' in Division 195 to include a reference
to a 'controller'. A controller is a form of external
administrator relating to corporations and should therefore be
included as a representative for the purposes of the GST
Under the Corporations Act, a 'controller'
a receiver, or receiver and manager, of property of a
anyone else who (whether or not as agent for the corporation)
is in possession, or has control, of property of the company for
the purpose of enforcing a charge or mortgage.
As a result, a mortgagee who becomes a controller of a company
is now required to be registered in that capacity if the company is
registered or required to be registered. This will be unfamiliar
for most mortgagees who, in the past, may have accounted for GST on
sales of the debtor's property in their own activity
In addition, the Commissioner of Taxation may direct a
representative (including a controller of a company) to report on
behalf of an incapacitated entity if the incapacitated entity has
failed to lodge a GST return. However, a mortgagee in possession
may have the right to object against a direction to lodge GST
returns where the mortgagee does not have access to the books and
records of the company.
When is a mortgagee liable for GST on rental receipts?
Both before and after the amendments discussed above, a
mortgagee who takes possession of premises that are subject to an
existing lease must pay any GST on the rental received by the
Instead of taking possession, mortgagees may want to merely
direct rent to be paid to the mortgagee rather than attorning the
tenant. The mere payment of rent should not impose any GST
obligations on the mortgagee as the supply is still being made by
the mortgagor and the mortgagor is obliged to pay any GST.
To avoid taking on the obligations of a controller, a mortgagee
should ensure that a notice given to an existing lessee specifies
that the notice does not create or impose any obligations on the
mortgagee in connection with the lease.
The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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