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.
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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 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 via its GST return (subject to the conditions for claiming input tax) only if the supplies are contractually made to the mortgagee.
Supplies are contractually made to the mortgagee if the mortgagee:
- Chooses the supplier;
- Instructs the supplier in matters relating to the supply; and
- Enters into a contractual relationship with the supplier for a right to have the supply made to the mortgagor. With the existence of such a contractual relationship, the mortgagee will be liable to pay the supplier for the supply even though the supply was made to the mortgagor
This is irrespective of whether the mortgagee on-charges/ off-sets the recovery of these expenses from the mortgagor's account. The mortgagee is still the party liable to pay the supplier.
Supplies contractually made to the mortgagor
GST on expenses incurred on supplies that are contractually made to the mortgagor can only be claimed by the mortgagor, subject to the conditions for claiming input tax.
As an administrative concession, the mortgagee is allowed to deduct the input tax against the output tax to be accounted for on the transaction, but only if the mortgagee:
- Can prove that it has paid for supplies made contractually to the mortgagor; and
- Is satisfied that the mortgagor did not make a similar claim of the input tax in its GST return.
The amount of GST to be claimed shall be based on the suppliers' tax invoices addressed to the mortgagor.
For more information on how to account for GST on such transactions, refer to the page on selling/ renting assets to recover debts.
Flowchart on who should claim GST on expenses
The following flowchart provides an illustration on who should claim input tax on expenses incurred in a mortgagee sale/ lease scenario.
