GST and sale of impounded livestock by a local council

Is the entity, a local council, making a taxable supply under either section 105-5 or section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when, under council by-laws it sells impounded livestock?

Yes, the entity is making a taxable supply under section 9-5 of the GST Act when, under council by-laws it sells impounded livestock. Section 105-5 of the GST Act does not apply, as the supply is not made in satisfaction of a debt.

The entity is a local council. The entity impounded stray livestock.

The council by-laws provide that the entity can sell the impounded livestock after a specified period if the owner of the livestock cannot be identified. After the specified period the entity sold the livestock at public auction. The purchaser of the livestock has full ownership of the livestock. The entity did not take ownership of the livestock.

Under the council by-laws the entity holds the proceeds from the sale of the livestock, less the costs of impounding and selling the livestock, on trust for the collection by the owner of the livestock once identified.

If the owner of the livestock had realised their livestock had strayed and been impounded, before the entity sold the livestock, they could have collected the livestock and would have been liable to pay the impounding fees.

The entity is not acting as an agent for the owner of the livestock when they sell the livestock.

The entity is registered for goods and services tax (GST).

Section 105-5 of the GST Act provides that a supply made by a creditor in satisfaction of a debt is a taxable supply if: • an 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.

The entity sold the livestock to a third party at public auction. Under the council by-laws the entity holds the proceeds from the sale of the livestock, less the costs of impounding and selling the livestock, on trust for the collection by the owner of the livestock once identified. As such, the entity did not make the supply in satisfaction of a debt that the owner of the livestock owed to the entity, which is the first requirement of section 105-5 of the GST Act. Even though the costs of impounding and selling the livestock were withheld from the proceeds of the sale, the sale was not made for the purpose of satisfying a debt. Section 105-5 of the GST Act does not apply to the sale and the rules in Division 9 of the GST Act must be considered.

Under section 9-5 of the GST Act, an entity makes a taxable supply if: • it makes a supply for consideration • the supply is made in the course or furtherance of an enterprise that it carries on • the supply is connected with Australia, and • the entity is registered or required to be registered for GST.

The sale of the livestock is for consideration. The entity makes the supply in the course of its enterprise that it carries on in Australia and is registered for GST.

Furthermore, the supply is neither GST-free under Division 38 of the GST Act nor input taxed under Division 40 of the GST Act. Therefore, the entity is making a taxable supply under section 9-5 of the GST Act when, under council by-laws it sells impounded livestock.