Who Should claim Input Tax in a Mortgagee Sale / Lease

Assets (e.g. property, equipment) belonging to a GST registered mortgagor may be sold or rented out by the mortgagee in satisfaction of a debt.

In the course of selling or renting a mortgaged asset, the mortgagee may incur GST on goods or services obtained from suppliers such as property managers or lawyers.

The mortgagee may claim GST on the expenses incurred if the supplies are contractually made to the mortgagee. Likewise, the mortgagor may make the GST claim if they the supplies are contractually made to the mortgagor.

Supplies Contractually Made to the Mortgagee

GST on the expenses incurred can be claimed by the mortgagee (subject to normal conditions for claiming input tax) via its GST return only if the supplies are contractually made to the mortgagee.

Supplies are contractually made to the mortgagee if the mortgagee:

  1. Chooses the supplier;
  2. Instructs the supplier about the supply; and
  3. Enters into a contractual relationship with the supplier for a right to have the supply made to the mortgagor - with the existence of such contractual relationship, the mortgagee would be liable to pay the supplier for the supply even though the supply was made to the mortgagor.

Whether the mortgagee on-charges/ off-sets the recovery of these expenses from the mortgagor's account is irrelevant. The mortgagee is still liable to pay the supplier.

Supplies Contractually Made to the Mortgagor

GST on expenses incurred on supplies that are contractually made to the mortgagor should be claimed by the mortgagor, subject to normal conditions for claiming input tax.

As an administrative concession, the mortgagee is allowed to off-set the input tax in the regulation 58/58A statement if the mortgagee:

  1. Can prove that it has paid for supplies made contractually to the mortgagor; and
  2. Is satisfied that the mortgagor did not make a similar claim of the GST in its GST return.

The amount of GST to be claimed shall be based on the suppliers' tax invoices addressed to the mortgagor.

Flowchart on Who Should Claim GST on Expenses

The following flowchart explains how to determine whether the GST incurred on expenses is the mortgagor's or mortgagee's input tax.

whoshouldclaimgst

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