Issue
Is the entity, a mortgagee in possession, making a taxable supply under subsection 105-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it sells the real property of a registered debtor in satisfaction of a debt?
Decision
Yes, the entity is making a taxable supply under subsection 105-5(1) of the GST Act when it sells the real property of a registered debtor in satisfaction of a debt.
Facts
The entity is a mortgagee in possession (a creditor) who is selling a debtor's property to a third party. The entity is selling the debtor's property to satisfy a debt that the debtor owes to the entity. The entity is not registered for goods and services tax (GST).
The debtor is a property developer who is registered for GST and the supply of the real property is the supply of new residential premises. The supply satisfies the requirements of section 9-5 of the GST Act and would be a taxable supply if the debtor sold the property.
Reasons for Decision
Subsection 105-5(1) of the GST Act provides that a supply made by a creditor in satisfaction of a debt is a taxable supply if: • the entity supplies the property of the debtor to a third party in satisfaction of a debt that the debtor owes to the entity; and • the supply, to the third party, would be a taxable supply if the debtor had made the supply.
In this case, the entity is selling a debtor's property, to a third party, to satisfy a debt that the debtor owes to the entity. In addition, the debtor is registered for GST and the supply satisfies the other requirements of section 9-5 of the GST Act. As such, the supply of the real property would be a taxable supply if the debtor made the supply.
Therefore, as the requirements of subsection 105-5(1) of the GST Act are satisfied, the entity is making a taxable supply when it sells the real property of a debtor in satisfaction of a debt. [Note: Although the entity is making a taxable supply under subsection 105-5(1) of the GST Act, in this instance, the entity is not registered or required to be registered for GST. Paragraph 105-5(2)(b) of the GST Act provides that where the requirements of subsection 105-5(1) of the GST Act are satisfied, it does not matter whether the creditor is registered or required to be registered for GST when it makes a supply in satisfaction of a debt. It is only the GST status of the debtor that is relevant.]