When you take possession of a mortgagor’s property to use your mortgage’s power of sale, you are considered a mortgagee in possession.

If any of the following applies, you are liable to pay GST on the sale of the property:

• You sell the property to settle the mortgage debt
• If the mortgagor had sold the property, the sale would subject to GST.
• The mortgage used for securing a loan may be registered or unregistered.

Even though there may be multiple mortgagees on the same property, not all of them end up in possession. In the sale contract for the property, which mortgagee is the mortgagee in possession exercising the power of sale should be specified.

Determining if & when the GST applies

As a mortgagee in possession, considering the following factors may help you establish if selling the property will result in a taxable sale, an input-taxed sale, a GST-free sale, or another sale where GST is not payable:

• the characteristics of the property and any premises situated on it
• the location of the property in Australia
• the mortgagor acquired and/or used the property for carrying on an enterprise
• the mortgagor is registered for GST or is required to be registered for GST
• if the building is occupied by tenants and is being sold as a going business

When is GST not payable?

When the mortgagor provided you with a written notice stating that the sale of the property wouldn’t be a taxable sale, had they sold it, and you as the mortgagee in possession won’t make a taxable sale or be required to pay any GST on it. Make sure the notice must include:

• The proof to support your claim
• Explain why the sale of the property wouldn’t be subject to GST

If you believe on a reasonable basis that the sale is not taxable and you are unable to get a written notice from the mortgagor, you will not be obliged to pay GST when selling the property.

This belief must be substantiated by the information available to you.

If you are unable to understand the GST complexities about mortgages, feel free to talk to our tax accountants for a consultation.