Find out when a mortgagee in possession is liable for GST on the sale of a property.
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You become a mortgagee in possession when you take possession of a mortgagor’s property to exercise your power of sale under the mortgage.
You are liable to pay GST on the sale of the property if:
- you sell the property to pay off the mortgagor’s debt, and
- the sale would have been subject to GST (a taxable sale) if the mortgagor had sold the property.
The mortgage securing the loan can be either registered or unregistered.
While there may be multiple mortgagees for the same property, they may not all become a mortgagee in possession. The sale contract for the property should state which mortgagee is the mortgagee in possession exercising the power of sale.
Determining if GST applies
As a mortgagee in possession, you need to determine if selling the property will result in a taxable sale, input-taxed sale, GST-free sale or other sale where GST is not payable.
To determine if the sale would have been taxable had it been made by the mortgagor, you should consider:
- if the mortgagor is registered, or required to be registered for GST
- if the property is located in Australia
- if the mortgagor acquired and/or used the property as part of carrying on an enterprise
- the characteristics of the property and any premises situated on it (Is it vacant land, new or existing residential premises, commercial residential premises or commercial premises?)
- if the property is tenanted and is being sold as part of a going concern
- if a buyer intends to carry on a farming business on farmland and a farming business was carried out on the land for at least 5 years prior to sale.
GST at settlement
From 1 July 2018, the buyer of new residential premises or potential residential land that’s a taxable sale is required to withhold the GST amount and pay it to us instead of to you as the mortgagee in possession.
Learn more about your GST at settlement obligations when selling new residential premises or potential residential land.
GST and the margin scheme
As mortgagee in possession, you can apply the margin scheme to calculate the GST payable if:
- you make a taxable sale of the property, and
- the mortgagor could have applied the margin scheme.
When GST is not payable
As a mortgagee in possession, you won’t make a taxable sale or be liable to pay GST when the mortgagor gives you a written notice stating that the sale of the property wouldn’t be a taxable sale, had they sold it. The notice must:
- state why the sale of the property wouldn’t be subject to GST, and
- include documentation as evidence to substantiate the claim.
If you are unable to obtain a written notice from the mortgagor, you won’t be required to pay GST when selling the property if you believe on a reasonable basis the sale isn’t a taxable sale. This belief must be supported by information available to you.
Example: mortgagee in possession sells farmland that is GST-free based on written notice from mortgagor
MIP Farmer Bank takes possession of Sarita’s farmland when Sarita encounters financial difficulties and defaults on her loan. Sarita purchased the farmland 7 years ago.
Craig, a fellow farmer and friend of Sarita, wants to purchase the farmland to expand his farming business. MIP Farmer Bank agrees to sell the farmland to Craig.
Sarita writes an email to MIP Farmer Bank, telling it that selling the farmland to Craig would be a GST-free sale if she sold it because:
- she has operated the farm for 7 years (being more than the minimum 5 years required under the GST exemption when selling farmland)
- Craig has advised he intends to carry on a farming business on the farmland.
Sarita attaches evidence to the email that substantiates both these points.
MIP Farmer Bank draws up a contract of sale that states:
- MIP Farmer Bank is exercising its power of sale under the registered mortgage, and
- the sale of the farmland is a GST-free supply.
MIP Farmer Bank isn’t liable to pay GST on the sale of the farmland to Craig as Sarita’s email meets the written notice requirements. Sunita isn’t liable to pay GST on the sale as she hasn’t made the sale.
End of example
Reporting and paying GST
If you are registered for GST
If you are registered, or required to be registered, for GST and you make a taxable sale when selling the property, you need to report this sale on your business activity statement (BAS) and pay any amount owing.
If the sale of the property is:
- subject to GST or GST-free, you can claim GST credits for expenses you incurred in making that sale, such as legal and conveyancing fees
- input-taxed, you are not entitled to claim credits for the GST included in the cost of expenses incurred in making the sale.
If you are not registered for GST
If you’re not registered or required to be registered for GST and you make a taxable sale as mortgagee in possession, you must contact us for tailored technical assistance to report the sale and arrange to pay any GST on the sale. The amount you have to pay may be reduced if the purchaser has withheld an amount at settlement and paid it to us.
Include the following information in your letter:
- your name and address and ABN (if you have one)
- a statement that you sold a property as mortgagee in possession
- a statement that you are not registered for GST, and you are not required to be registered for GST
- details about the mortgagor, including their name and ABN (if they have one)
- details about the property sold, including the street address, title information, purchaser details and sale price
- the amount of GST payable on the supply.
You’re not entitled to claim credits for GST included in expenses you incurred in selling the property if you’re not registered for GST, even if the sale is subject to GST or GST-free.
How to get assistance
If you need further assistance to understand your GST obligations as a mortgagee in possession, you can contact us for tailored technical assistance.
If you would like tailored advice on whether your sale of the property would be subject to GST, you can apply for a private ruling.
To help us respond to your private ruling application in a timely manner, send as much information as possible about the mortgagor and the property being sold.
You should include:
- the name, address and ABN of the mortgagor (if they have one)
- details of the enterprise the mortgagor carries on (if any)
- details of the mortgagor’s property (including title information, street address, description of the property, photographs and floor plans)
- information about the mortgagor’s intended and actual use of the property
- the date the mortgagor purchased the property and a copy of the purchase contract
- a copy of the loan contract showing you as the lender and mortgagee
- the date you exercised your power of sale over the property and a copy of the sale contract.
We may not be able to rule on your matter if you can’t provide us sufficient information on whether GST would apply if the mortgagor sold the property.
Source: gov.au
