1. Basic concepts

1.1. Who is a representative under Division 58?

Non-interpretative - straight application of the law

• Division 58 applies to representatives of incapacitated entities. A representative is defined in the GST dictionary to be:
  • a trustee in bankruptcy; or
  • a liquidator; or
  • a receiver; or
  • a controller within the meaning of section 9 of the Corporations Act; or
  • an administrator appointed under Division 2 of Part 5.3A of the Corporations Act; or
  • a person appointed or authorised under an Australian law to manage the affairs of an entity because it is unable to pay all of its debts as and when they become due and payable; or
  • an administrator of a deed of company arrangement executed by the entity.

We consider that the term 'receiver' in this definition includes a receiver and manager.

• 'Liquidator' has the meaning given by subsection 6(1) of the ITAA 1936. It means the person who, whether or not appointed as liquidator, is the person required by law to carry out the winding-up of a company.

1.2. Who is an incapacitated entity under Division 58?

Non-interpretative - straight application of the law

The GST dictionary defines an 'incapacitated entity' to mean:

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

2. Registration requirements

2.1. What are the registration and notification requirements for a representative upon appointment under the GST Act?

Non-interpretative - straight application of the law

Under section 58-20, a representative of an incapacitated entity is required to be registered in that capacity if the incapacitated entity is registered or required to be registered. Note that this section has effect despite what is said in section 23-5 about who is required to be registered. Section 25-1 provides that you must apply, in the approved form, to be registered within 21 days after becoming required to be registered.

Subdivisions 260-B and 260-C of Schedule 1 to the TAA require a liquidator and receiver respectively to notify the Commissioner of Taxation of their appointment within 14 days. This notification is in addition to the obligations under Division 58.

When the representative ceases to be a representative of the incapacitated entity, they must notify the Commissioner in an approved form within 21 days after ceasing to be the representative of the incapacitated entity. The Commissioner will then cancel the representative's registration.

You can send your notifications of appointment and cessation as well as your request for GST registration in the capacity of a representative to the following address:

Australian Taxation Office
PO Box 9003
PENRITH NSW 2740

2.2. Is a representative of an incapacitated entity who is appointed over only part of the assets required to register under section 58-20?

Non-interpretative - straight application of the law

Section 58-20 applies to a representative that is appointed over only part of the assets of an incapacitated entity.

Section 58-20 states that a representative of an incapacitated entity is required to be registered in that capacity if the incapacitated entity is registered or required to be registered. There is no requirement under the GST legislation for a representative to have control over all the assets of the entity.

If more than one representative is appointed over the assets of the incapacitated entity, each representative will be required to register under section 58-20 if the incapacitated entity is registered or required to be registered.

2.3. Under Division 58, a representative of an incapacitated entity may be required to be registered. Upon registration, is the representative issued with a new ABN, or will the existing ABN of the incapacitated entity be used?

Non-interpretative

For all representatives that are not trustees in bankruptcy

Once a representative of an incapacitated entity registers for GST, the Commissioner (in his capacity as Registrar for the ABN) will allow the representative to use the incapacitated entity's existing ABN for transactions conducted in its capacity as the representative of the incapacitated entity. The ATO will set up a new running balance account under the incapacitated entity's ABN for each representative (as required) to cover post appointment liabilities and entitlements. These accounts are called Client Activity Centres (CACs) and each CAC created will be differentiated by a numerical suffix following the ABN, for example 123 456 789/1 for the incapacitated entity, 123 456 789/2 for the receiver and 123 456 789/3 for the provisional liquidator.

For trustee appointments under the Bankruptcy Act (this term includes trustees of bankrupt estates and controlling trustees under Part X), the trustee will need to apply for a separate ABN and register for GST, in the normal manner, in respect of each appointment as trustee under the Bankruptcy Act. This new ABN will be used for all matters arising under the administration.

You can apply for an ABN and GST registration online at the Business website (business.gov.au), alternatively you can apply for your ABN and GST registration using the Electronic Lodgement Service (ELS) or paper ABN forms (NAT 2939).

When completing the ABN applications, trustees should tick the 'Fixed Trust' box. At attachment A, the trustee should enter its own name and TFN. The registration process will generate a new ABN, TFN and GST role for the administration.

3. Tax periods

3.1. What is the applicable tax period for the representative upon their appointment?

Non-interpretative - straight application of the law

Under section 58-35, the tax periods applying to the incapacitated entity also apply to the representative.

The representative's first tax period as a representative commences on the day that they become a representative of the incapacitated entity. Similarly, the representative's concluding tax period ends at the end of the day on which the representative ceases to be a representative of the incapacitated entity.

3.2. What happens to the current tax period of the incapacitated entity when a representative is appointed?

Non-interpretative - straight application of the law

Section 27-39 provides that the tax period applying to an incapacitated entity at the time it becomes incapacitated (called the first tax period), ends at the end of the day before the entity became incapacitated. The next tax period starts on the day after the first tax period ends and concludes when the first tax period would have ended. Section 27-39 provides a mechanism to ensure that GST consequences flowing from pre and post-appointment transactions can be separated.

4. Joint and several liability

4.1. Where there are two or more representatives of the same incapacitated entity at the same time, are they jointly and severally liable for GST payable in their capacities as representatives of the same incapacitated entity?

Item 4.1 is a public ruling for the purposes of section 105-60 of Schedule 1 to the Taxation Administration Act 1953.

Where two or more representatives, are appointed in different capacities as representatives of the same incapacitated entity, each representative is liable for GST on taxable supplies and entitled to input tax credits for creditable acquisitions that are made within the scope of that representative's responsibility or authority for managing the incapacitated entity's affairs. The representatives are not jointly or severally liable to pay GST under subsection 444-70(1) of Schedule 1 to the TAA.

An example of this is where a receiver is appointed over an asset of company and a liquidator is separately appointed to wind up the company at the same time. With agreement of the liquidator, the receiver enters into a contract of sale and sells the asset that he/she was appointed over. The receiver will be liable for GST arising on the sale of the asset as the sale is within the scope of his/her responsibility or authority of his/her appointment. The liquidator will not have any GST consequences as the sale is not within the scope of the liquidator's responsibility or authority.

Where two or more representatives are appointed in the same capacity, the representatives are jointly liable for GST and jointly entitled to input tax credits for any taxable supplies and creditable acquisitions that are within the scope of their responsibility or authority for managing the incapacitated entity's affairs. Jointly appointed representatives acting in the same capacity are jointly and severally liable to pay GST under subsection 444-70(1) of Schedule 1 to the TAA.

5. In-specie distribution

5.1. Is an in-specie distribution made from a representative to a shareholder a taxable supply?

Item 5.1 a public ruling for the purposes of section 105-60 of Schedule 1 to the Taxation Administration Act 1953.

As part of the winding up of a company, the liquidator may distribute assets of the company in-specie to members of the company. This commonly happens in members' voluntary liquidations.

One of the requirements for a taxable supply is that there is a supply for consideration.1 In the case of an in-specie distribution by a liquidator to the shareholders of the company, there is no consideration for the supply. A shareholder is entitled to the shareholder's share of the company's surplus property after the liabilities of the company have been satisfied, unless the company's constitution provides otherwise.2 While a share may have associated rights to receive distributions on winding up, a shareholder does not provide consideration in the form of a release or surrender of those rights in return for a liquidator's distribution, whether the distribution is in cash or an in-specie distribution. No consideration is provided by the shareholder in those circumstances.

Although the in-specie distribution of assets by a liquidator to the shareholder is not for consideration, it may still be a taxable supply where Division 72 of the GST Act applies and the other requirements of a taxable supply are met. 3 Division 72 removes the requirement for consideration for a taxable supply in certain circumstances where the recipient is an associate. The meaning of an associate is defined in section 318 of the ITAA 1936.

Under subsection 58-5(1) any supply, acquisition or importation by an entity in the capacity of a representative is taken to be a supply, acquisition or importation by the incapacitated entity. Under subsection 58-5, an in-specie distribution by a liquidator to a shareholder is deemed to be a supply made by the company in liquidation to the shareholder. Therefore, an in-specie distribution to a shareholder may be a supply to an associate if the shareholder is an associate of the company in liquidation pursuant to section 318 of the ITAA 1936. For example, a shareholder that holds a majority voting interest in the company is an associate for the purposes of section 318 of the ITAA 1936.

Under section 72-5 a supply to an associate for no consideration, does not stop the supply from being a taxable supply if:

• the associate is not registered or required to be registered, or
• the associate acquires the thing supplied otherwise than solely for a creditable purpose.

Therefore, the liquidator who makes an in-specie distribution to a shareholder who is an associate (as defined under section 318 of the ITAA 1936) of the company is liable for GST calculated on the GST exclusive market value of the asset/s if:

• the associate is not registered or required to be registered or the associate acquires the thing supplied otherwise than solely for a creditable purpose
• the other requirements of a taxable supply are satisfied; and
• the distribution is neither GST-free or input taxed supply for the purposes of the GST Act.

Transitional provisions (Item 50 of Tax Law Amendment (2009 Measures No 5) Act 2009) will prevent Division 72 from applying to past supplies by representatives to associates of incapacitated entities for no consideration or inadequate consideration. The new provisions apply in respect of any such supplies made on or after 4 December 2009.

Further, in the case of members' voluntary liquidations, Division 72 will not apply to any supplies by representatives to associates of incapacitated entities where the members' voluntary liquidation commenced before 16 September 2009 (the date the Amending Act was introduced in Parliament).

6. Tax invoice

6.1. What name should appear on tax invoices issued to or by the representative so that they meet the requirements of the GST law?

For a tax invoice to be valid it must satisfy section 29-70. Section 29-70 also applies to a recipient created tax invoice.

A tax invoice issued by a representative on behalf of the incapacitated entity, must satisfy the information requirements of the GST legislation for the document to be a valid tax invoice.

A representative will be unable to claim input tax credits for creditable acquisitions if the representative does not hold a valid tax invoice for the creditable acquisition 4.

A tax invoice must, amongst other things, contain enough information to enable the identity and ABN of the supplier to be clearly ascertained (subparagraph 29-70(1)(c)(i)).

Where the total amount payable for the supply to which a tax invoice relates is $1,000 or more, or if the document was issued by the recipient, subparagraph 29-70(1)(c)(ii) requires the tax invoice to contain sufficient information to enable the recipient's identity or the recipient's ABN to be clearly ascertained.

Goods and Services Tax Ruling GSTR 2000/17 provides further guidance on this requirement. It states, at paragraphs 57 and 58:

'57. The term 'name' is not defined in the regulations and therefore takes its ordinary meaning. The Macquarie dictionary defines it to include 'a word or a combination of words by which a person, place, or thing, a body or class, or any object of thought, is designated or known'.

58. Therefore, the name of the supplier or recipient shown on the tax invoice may be its legal name, or the business or trading name.'

Subsection 58-5(1) provides that any supply, acquisition or importation by an entity in the capacity of a representative of an incapacitated entity is taken to be a supply, acquisition or importation by the incapacitated entity.

For representatives that act as agents for the incapacitated entity (for example liquidators, receivers, controllers and administrators), we will treat a document as a tax invoice if it shows the representative's identity and address or ABN instead of the incapacitated entity's identity or ABN. This will apply whether the incapacitated entity is the supplier or the recipient of the supply.

Generally, an incapacitated entity is legally bound to set out the type of administration it is under in its public documents, this is usually done as a suffix after its identity. Therefore, an incapacitated entity's identity in a tax invoice should refer to the incapacitated entity and the type of administration it is under, for example, 'XYZ Pty Ltd (in liquidation)' or 'ABC Pty Ltd (administrators appointed)'.

7. GST liability and adjustment notification requirements

7.1. Under what circumstances is a representative of an incapacitated entity required to notify the Commissioner of the liability or adjustment under section 58-60?

Non-interpretative - straight application of the law.

Subsection 58-60(1) provides that a representative must notify the Commissioner if they become aware or could reasonably be expected to become aware of:

• a GST liability or an increasing adjustment that the incapacitated entity has; and
• such liability or adjustment has not been taken into account in any BAS that has been lodged; and
• there was no previous notification of the liability, or adjustment, under this section.

The representative is required to notify the Commissioner of such amounts no later than the day prior to declaring a dividend to unsecured creditors. The representative is not required to notify under section 58-60 if the representative is a representative of a kind that does not have the capacity to declare dividends to unsecured creditors (for example a receiver).

The notification requirement under section 58-60 does not determine whether a representative has a GST liability or increasing adjustment. Section 58-10 is the provision that stipulates the circumstances under which a representative is liable for any GST, entitled to any input tax credit or has any adjustment. If the representative is not liable for the GST liability or increasing adjustment under section 58-10, then the representative is still not liable for such amounts whether or not the representative notifies the Commissioner of the GST liability or increasing adjustment. However, if a representative does not comply with section 58-60 an administrative penalty may arise under section 286-75 of Schedule 1 to the TAA.

7.2. What information needs to be provided to meet the requirements of notifying the ATO of a GST liability or an increasing adjustment (under section 58-60)?

Non-interpretative.

A written notice with the following information will satisfy the requirements for a notification under section 58-60:

• the name and ABN of the incapacitated entity
• the name and ABN (if different from the incapacitated entity) of the representative
• the date of the representative's appointment
• the amount of the GST liability or increasing adjustment and a brief explanation of what the GST liability/adjustment (or adjustments) relates to
• where available, the tax period (or periods) to which the GST liability or increasing adjustment relates; and
• a declaration that the information provided is true and correct.

The notification should be forwarded to:

Australian Taxation Office
PO Box 9003
PENRITH NSW 2740

Please note that notification of these types of liabilities and adjustments should not be reported on the business activity statement of either the representative or the incapacitated entity.

7.3. When should the notification of GST liability or increasing adjustments under section 58-60 be made?

Non-interpretative - straight application of the law.

Subsection 58-60(2) stipulates that the representative must notify the Commissioner of a GST liability or increasing adjustment that an incapacitated entity has no later than the day before a dividend to unsecured creditors is declared.

In cases where there is more than one dividend to be paid to creditors, for example an interim dividend followed by a final dividend, notification will be required the day prior to the declaration of each dividend. Each successive notification will only need to notify relevant liabilities or adjustments that have not been included in prior notifications.

Where a representative does not comply with section 58-60 an administrative penalty may arise under section 286-75 of Schedule 1 to the TAA for failing to lodge documents on time.

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