Selling / Renting Assets to Recover Debts

Assets (e.g. property, equipment) belonging to a business may be sold or rented by a third party such as a creditor, to recover a debt. When the third party sells or leases an asset in satisfaction of a debt, he must account for GST on the sale proceeds or lease payments if the asset owner is GST-registered.

  1. Selling or Renting Asset Under Mortgage Loan

  2. A GST-registered business (mortgagor) pledged his property to a lender (mortgagee) as security for a mortgage loan.

    When the mortgagor fails to pay the loan, the mortgagee seizes the property. The mortgagee then sells or rents the property in satisfaction of the mortgagor's debt.

    In this scenario, the third party is the mortgagee.

    For more information on claiming input tax incurred in relation to the sale or renting out of mortgaged assets, please refer to Determining mortgagor's or mortgagee's input tax .

  3. Selling of Asset Under Hire Purchase Agreement

  4. A GST-registered business (hirer) enters into a hire purchase agreement with a financier.

    If the hirer defaults on payment in a hire purchase agreement, the financier repossesses the asset and sells the asset in satisfaction of the hirer's debt.

    In this scenario, the third party is the financier.

    Please refer to Hire purchase for more details.

  5. Auctioneer Appointed by Creditor to Sell Asset

  6. An auctioneer is appointed by the creditor (e.g. mortgagee, financier) to sell an asset owned by a GST-registered business.

    In this scenario, the third party is the auctioneer.

Selling Assets to Recover Debts

When the asset owner (e.g. mortgagor, hirer) is GST-registered, the third party (e.g. mortgagee, financier, auctioneer) is required to charge and account for GST on the sale of assets.

This is regardless of whether the third party is GST-registered or not.

To account for GST, the third party must:

  1. Provide a statement to IRAS to report the sale made in satisfaction of debt. The statement should contain the following details:
    1. The third party's name, address and GST registration number (if applicable);
    2. The asset owner's name, address, and GST registration number;
    3. The date of the sale; and
    4. The description and amount payable before GST, the GST rate, the GST amount, and the total amount payable including tax.
    The third party is encouraged to use the specimen statement GST Payment for Supply made in Satisfaction of Debt-Pursuant to Regulation 58 or 58A (40KB).
  2. Pay the GST amount due to IRAS within 21 days from the date of the sale, i.e., the date on which the binding agreement to sell the asset is concluded.
  3. Forward a copy of this statement to the owner and buyer of the asset. If the buyer is GST-registered, he would be entitled to claim the GST paid on the purchase as input tax based on the statement.

The owner of the asset should not report the sale transaction in his GST return as the third party has accounted for the supply and GST in the statement.

 

Expenses Contractually Supplied to the Owner

In the course of selling the asset, the third party may purchase goods and services from suppliers such as property managers or lawyers.

The GST incurred on expenses that are contractually supplied to the owner may be deducted against the amount of output tax to be accounted for in the statement. The amount of GST deductions shall be based on the suppliers' tax invoices addressed to the owner.

Expenses Contractually Supplied to the Third Party

Any expenses incurred that are contractually supplied to the third party can only be claimed, subject to normal input tax claim conditions, by the third party via his GST return.

Supplies are contractually made to the third party if the third party:

  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 owner - with the existence of such contractual relationship, the third party would be liable to pay the supplier for the supply.

Whether the third party on-charges / off-sets the recovery of these expenses from the owner's account is not relevant. The third party is still liable to pay the supplier.

Renting Assets to Recover Debts

When the owner (e.g. mortgagor, hirer) is GST-registered, the third party (e.g. mortgagee, financier) is required to charge and account for GST on the renting of assets.

This is regardless of whether the third party is GST-registered or not.

To account for GST, the third party must:

  1. Provide a statement to IRAS to report the rental made in satisfaction of debt. The statement should contain the following details:
    1. The third party's name, address and GST registration number (if applicable);
    2. The owner's name, address, and GST registration number;
    3. The owner's prescribed GST accounting period; and
    4. The description and amount payable before GST, the GST rate, the GST amount, and the total amount payable including tax.

    The third party is encouraged to use the specimen statement GST Payment for Supply made in Satisfaction of Debt-Pursuant to Regulation 58 or 58A (40KB).

  2. Pay the GST amount due to IRAS within 21 days from the end of each prescribed accounting period of the owner.
  3. Forward a copy of the statement and all original tax invoices to the owner for his record keeping.
  4. The third party may issue tax invoices directly to the tenant for the rental on behalf of the owner. He should state that the tax invoice is issued on behalf of the asset owner and indicate the owner's GST registration number on the tax invoices.

The owner should not report the rental transactions in his GST returns as the third party has accounted for the taxable supplies and GST in the statements.

Expenses Contractually Supplied to the Owner

In the course of renting out the asset, the third party may purchase goods and servicesfrom suppliers such as utilities providers or property managers.

The GST incurred on expenses that are contractually supplied to the owner may be deducted against the amount of output tax to be accounted for in the statement.

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

Expenses Contractually Supplied to the Third Party

Any expenses incurred that are contractually supplied to the third party can only be claimed, subject to normal input tax claim conditions, by the third party via his GST return.

Supplies are contractually made to the third party if the third party:

  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 owner - with the existence of such contractual relationship, the third party would be liable to pay the supplier for the supply.

Whether the third party on-charges / off-sets the recovery of these expenses from the owner's account is not relevant. The third party is still liable to pay the supplier.

RATE THIS PAGE

  • Strongly Disagree
  • Strongly Agree

Information is easy to understand.

Information is useful.

Information is easy to find.

 
Please email us if you would like us to respond to your enquiries.