In Anderson and Commissioner of Taxation  AATA 167 the Tribunal found that the trustee of a family trust, was liable for GST in respect of the sale of property by the trust where the trust was in financial trouble and the proceeds of the sale were paid directly to the mortgagee. The contract of sale was entered into by the applicant, in his capacity as trustee, and the mortgagee did not formally enter into possession.
The Tribunal rejected the applicant’s contention that the trustee was an “incapacitated entity” for the purposes of the GST Act, principally because the applicant was a natural person and could not be placed into liquidation or receivership, and was not a bankrupt. Also, the evidence did not establish that the mortgagee sold the property as mortgagee in possession. Rather, the properties were sold by the trustee with the mortgagee’s consent (and also by reason of the pressure of the mortgagee), but that was not enough to engage the provisions of Division 105.
An interesting contention of the applicant was that he had retired as trustee on 9 December 2009 (the contract of sale was entered into on 26 March 2009 and the sale completed on 18 November 2009) and therefore the trustee was not liable for the GST [which does not crystallise until the end of the quarter]. The Commissioner questioned whether the applicant had actually retired as trustee, but contended that it did not matter because the Tribunal only needed to decide whether “the trustee” is liable and that the question whether a particular individual was liable to pay any amount was not squarely before the Tribunal. The applicant was unable to point to any reason why the trustee was not liable for GST.
The Tribunal observed that if the Commissioner were to commence recovery proceedings in a Court against a particular individual, such as the applicant, in his personal capacity, the following questions would arise:
- first, if an individual incurs a liability in one capacity – as trustee, say – which is distinct from his personal capacity, why can the Commissioner extract payment from the individual in his personal capacity in respect of the other entity’s debts?
- second, if Mr Anderson can satisfy a court he had actually resigned in December 2009 before the end of the relevant quarter, he may escape any liability because it is accepted GST liability only crystallises at the end of a quarterly period
In considering the above questions, it is relevant to note PSLA 2012/2 ‘Change of Trustee’ outlining the approach to be taken by the Commissioner in recovering income tax and GST liabilities of a trust where there is a change of trustee following a income tax year or a tax period. My post discussing the PSLA can be accessed here.
The Commissioner takes the view that any liability to GST is a personal liability of the trustee and remains a personal liability of a retiring trustee (although the retiring trustee may have rights to seek indemnity from the assets of the trust – to the extent that there are such assets).
However, if the applicant did resign as trustee on 9 December 2009, the approach of the PSLA appears to be that it is the new trustee (in this case the applicant’s mother) who is personally liable for the GST as she was trustee at the time the debt crystallised (i.e. at the end of the quarterly tax period).
The AAT has affirmed a liability of a taxpayer, as trustee of a trust, to pay GST with respect to the sale of 2 lots in a property development. The taxpayer was appointed as trustee of The Anderson Family (No 2) Trust (“the No 2 Trust”).
The taxpayer’s parents had been involved in a property development project. The project was subject to a mortgage and a second mortgage. However, after running into financial difficulties among other things, a decision was made to transfer the project to the taxpayer and his brother in their capacity as trustees of the No 2 Trust.
The development ran into difficulty once the trustees began to sell the lots in 2009. The second mortgagee sent a notice on 23 July 2009 demanding repayment. The trustees were unable to satisfy the demand. The taxpayer said he assumed the second mortgagee had taken possession of the property and that he was obliged to provide reasonable assistance.
The taxpayer contended that the liability to pay did not arise and should not fall on him in particular for 2 reasons:
- the trustee was an “incapacitated entity” for the purposes of the GST Act and that the second mortgagee was the “controller” of the property; and
- he retired as trustee on 9 December 2009.
The AAT rejected both arguments.
- The AAT held the taxpayer was not an “incapacitated entity” as defined under s 195.1 of the GST Act.
- Further, it said whether or not the taxpayer effectively retired on 9 December 2009 made no difference to the liability of the trustee “in that capacity”. The AAT said GST liability arises on the day when the taxable supply occurred and that in this case, the taxable supply occurred on settlement of the 2 subject lots. The AAT said the taxpayer was still the trustee at those points of settlement (he did not retire until 9 December 2009 at the earliest).
(Re Anderson and FCT  AATA 167, AAT, File No: 2014/2653, McCabe SM, 23 March 2015.)
[LTN 57, 25/3/15] [IT 25/3/15]
Extract from s195-1 of the GST Act
incapacitated entity means:
(a) an individual who is a bankrupt; or
(b) an entity that is in liquidation or receivership; or
(c) an entity that has a *representative.