Edited version of private advice

Authorisation Number: 1051808776168

Date of advice: 26 February 2021

Ruling

Subject: GST and bank guarantees

Question

Are you entitled to input tax credits pursuant to paragraph 58-10(1)(b) of the A New Tax System (Goods and Services) Tax Act 1999 (GST Act) in respect of the payment by the Bank to the Landlord of the two bank guarantee amounts, in your capacity as:

(a)  Administrators of Entity B and or,

(b)  Liquidators of Entity B (in Liquidation)?

Answer

No. In respect of the payment by the Bank to the Landlord of the two bank guarantee amounts neither the Administrators nor the Liquidators are entitled to an input tax credit under 58-10(1)(b) of the GST Act.

Relevant facts and circumstances

Entity B (the Tenant or Incapacitated Entity (IE)) entered into a lease with the Landlord dated ddmmyyyy (Lease Agreement) for commercial premises located in Australia (the Property). A copy of the Lease Agreement has been provided as part of this request.

The Tenant is registered for GST on a monthly basis and accounts on a non-cash basis.

Upon entering the Lease Agreement, the Tenant was required to provide the Landlord with two Bank Guarantees

A copy of the Bank Guarantees has been provided as part of this ruling request.

The Landlord called upon the Bank to pay Guarantee no 1 on ddmmyyyy and Guarantee no 2 on ddmmyyyy.

The Tenants bank account statement shows an amount of $XX.00 withdrawn on ddmmyyyy and a further amount of $XX.00 on ddmmyyy. These amounts are equivalent to the two Bank Guarantees.

On ddmmyyy the agent of the Landlord provided an update to the Tenants Lawyer, on various matters. Copies of this correspondence was submitted as part of the ruling appllication

Administration

On ddmmyyyy, you were appointed Joint and Several Administrators of the Tenant by resolution of the company's directors. You advised the Commissioner of your appointment upon which the Commissioner provided you with the new running balance account under the Client Activity Centre 002 (CAC2). You chose to account for GST on a cash basis.

On ddmmyyy an e-mail was sent on behalf of the Administrators to the agent of the Landlord notifying of the appointments of the Administrators.

On ddmmyyyy the agent of the Landlord sent an e-mail to the agent of the Administrator providing an update on the tenancy and bank guarantees

In response to this e-mail the agent of the Administrator requested additional information. Other correspondence followed and copies were supplied as a part of the ruling application.

The Administrators made an acquisition of rent during their period of appointment and provided consideration to the Landlord (the rent payments) up until ddmmyyyy on the property.

On ddmmyyyy the Administrators of the Tenant provided advice that they were vacating the premises and had no further obligations in relation to the premise beyond what had been agreed.

Following this notification neither the Administrators or Liquidators occupied the premises and the lease was terminated.

Liquidation

On ddmmyyyy at a meeting of creditors you were appointed as Joint and Several Liquidators commencing ddmmyyyy. As such your appointment as Administrators ceased.

The Liquidators advised the Commissioner of their appointment, upon which the Commissioner provided the Liquidators with the new running balance account under CAC3. The Liquidators chose to account on a cash basis.

On ddmmyyyy the agent of the Liquidator advised the Commissioner that:

...the landlords claim against the cash bond held and second bank guarantee would likely be for future loss of rent to the end of the lease or until a new tenant is found, or for make good.

The description of the scheme set out above is based on information provided by the applicant in the following documents, which are to be read in conjunction with the facts set out above:

•   Lease Agreement

•   Bank Guarantees

Reasons for decision

•   all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

•   all reference materials referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au

•   all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act

Pursuant to paragraph 58-10(1)(b) a representative of an incapacitated entity (IE) is entitled to any input tax credits that the IE would be entitled to for a creditable acquisition to the extent that the making of the acquisition is within the scope of the representatives responsibility or authority for managing the incapacitated entities affairs.

A representative is defined in section 195-1 to include a Liquidator and an Administrator.

An incapacitated entity is defined in section 195-1 to include an entity that has a representative.

In this case, you were appointed as Administrators from ddmmyyyy to ddmmyyyy. After this period, you commenced their role as Liquidators till the current time.

You are therefore considered a representative for the purposes of Division 58 of the GST Act and the Tenant is considered to be an incapacitated entity.

Pursuant to paragraph 58-10(1)(b) representatives are entitled to input tax credits (ITC's) for any creditable acquisition that the IE made pursuant to section 11-20, where the acquisition is within the scope of their responsibility or authority for managing the IE's affairs.

Relevantly an entity makes a creditable acquisition pursuant to paragraph 11-5 (b) when it is the acquirer of a taxable supply. Where there is no acquisition then there is no entitlement to ITCs.

While you were Administrators of the IE you leased the premises from the Landlord and provided consideration. This acquisition by the Administrator has been reported in the BAS of the Administrator (i.e. under CAC2) and the relevant input tax credit claimed.

However, the Commissioner has been asked to consider if the Administrator and/or Liquidator is entitled to an input tax credit in respect of the payment of the two Bank Guarantees. These Bank Guarantees where called upon by the Landlord following a dispute regarding outstanding lease amounts owed by the Tenant under the Lease Agreement.

As explained above paragraph 58-10(1)(b) allows a representative of an incapacitated entity an input tax credit in respect of a creditable acquisition that is within the scope of their authority. In this case the relevant supply which has occurred under the Lease Agreement is to the Tenant prior to the appointment of the Administrator and/or Liquidator. As such neither the Administrator nor the Liquidator are the recipient of the taxable supply made under the Lease Agreement prior to their appointment over the IE.

The mere provision of the funds by the Bank during the period that the representative was appointed does not have the effect of bringing the 'making' of the acquisition within the scope of the representative's responsibility or authority for managing the incapacitated entity's affairs.

Therefore the acquisition under the Lease Agreement does not fall within the representative's responsibility or authority for managing the incapacitated entities affairs.

As such, no entitlement to ITCs would arise for the Administrator or the Liquidator under 58-10(1)(b) in respect of creditable acquisitions under the Lease Agreement that may be made by the IE.

The amounts sought under the two bank guarantees that are in excess of the amount of any unpaid pre-appointment rent are understood to be for covering the Landlord for any remaining commitments under the Lease Agreement.

The remaining commitments under the Lease Agreement as set out in the email dated ddmmyyy will not give rise to any creditable acquisitions for the representative as they relate to losses suffered by the Landlord as a result of the termination of the lease. As such, no entitlement to ITCs would arise in respect of any remaining commitments or any amounts sought to cover such remaining commitments.

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