+ Mortgagee sales and GST

Printer Friendly Version

S105-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act) provides that you make a taxable supply if:

a) you supply property of another entity (the debtor) to a third party in or towards the satisfaction of a debt that the debtor owes to you; and

b) had the debtor made the supply, the supply would have been a taxable supply.

One of the interesting effects of the GST Act is that it gives the Commissioner of Taxation a de facto priority for any GST liability on the sale of mortgaged property over both secured and unsecured creditors of the defaulting mortgagor. This is because Div 105 operates to place the GST liability on the mortgagee personally rather than on the mortgagor. This means that the interests of the first mortgagee (and presumably the second mortgagee where the first mortgagee is fully paid) have been placed behind those of the Commissioner.

However, where there is no mortgagee sale (and there is a sale by the mortgagor instead), then the first (and subsequent) mortgagees rank in priority to the Commissioner. Accordingly, a mortgagee may be better off leaving the mortgagor to undertake the sale and account to the mortgagee from the sale proceeds.

Back