The supply chain in an auction would basically involve four parties, namely:
I. The Owner
The owner is the person who owns the property or goods that were put up for auction. In this guide, the owner of the goods put up for auction would be referred to as the “owner”.
II. The Auctioneer
Another important party in the auctioning chain of supply is the auctioneer who acts as an agent to dispose of any property or goods through an auction on behalf of the principal. However, almost all auctioneers would be acting in their own name without disclosing the identity of the owner.
Therefore, under the general rule for agents, auctioneers would be regarded as the principals making the supplies. However, the GST Act 2014 regards supplies made by an auctioneer acting on his own name as supplies made by the principal who is a taxable person. However, the auctioneer whether or not he is a taxable person, shall be liable for tax payable on the supply if the goods are acquired from a taxable person.
III. The Financier
The financier is a person or institution which had provided a loan or credit facility to finance the purchase of a property or goods. In the event of default in payment by the buyer or borrower, such property or goods would be repossessed by the financier who would dispose the property or goods to recover the loan. The financier would come into picture when the auctioned goods are financed and repossessed by the financier.
IV. The Bidder
A person who has successfully bid for a property or goods in an auction would be referred to as the “bidder”.
GST Liability in the Auction Supply Chain
Ownership of Goods
Ownership of goods sold under an auction never passes to the auctioneer. This is because the auctioneer only acts as an agent for the owner or financier. Although goods will be auctioned on behalf of an owner or a financier, the auctioneer will be held responsible to account for tax if the auctioned goods belong to a taxable person.
Output Tax on Auctioned Goods
The GST status of the owner would determine whether goods that were auctioned off should be charged output tax. If the owner is a taxable person, any goods auctioned on his behalf would be subjected to output tax.
If the owner is not a taxable person, then no output tax is due on the goods that were auctioned off.
If the auctioneer is not a taxable person, but the owner is a taxable person, output tax is still chargeable. However, commission charged by the auctioneer is not subject to tax.
Input Tax on Auctioned Goods
The auctioneer cannot claim input tax credit on the goods that were auctioned off as the input tax credit would have been claimed by the owner at the time he acquired the goods.
Output Tax on Commission
Services rendered by an auctioneer to an owner or financier are taxable supplies. Thus, commissions earned by an auctioneer would be liable for output tax if the auctioneer has reached the prescribed threshold. The auctioneer in such a case must register himself as a GST registered person.
Input Tax Credit on Incidental Services
An auctioneer, who is a GST registered person, is allowed to claim tax credit on any GST incurred by him which is incidental to his business as an auctioneer.
The treatment of GST on taxable goods that are auctioned off and commission earned by an auctioneer can be summarized as below:
|
Scenario |
Status Of Owner |
Output Tax |
Auctioneer |
Payment Form |
|
1 |
Taxable Person |
Chargeable |
Registered Person |
GST-03 Return |
|
2 |
Taxable Person |
Chargeable |
Non-Registered Person |
Prescribed Form |
|
3 |
Non-Taxable Person |
Not Chargeable |
Registered Person |
GST-03 Return (only on the commission earned by the auctioneer) |
|
4 |
Non-Taxable Person |
Not Chargeable |
Non-Registered Person |
– |
In conclusion, as a potential bidder in any auction fairs after the effective date of GST which is expected to be on 1 April 2015, one must ensure that the GST implication on the items being auctioned as this is an added cost to the overall bid price. The commission earned by the auctioneer may also be subjected to GST and this might be an additional cost to the bid price which should be taken into consideration by any bidder. One must not bid blindly and not be fooled just by the bid price. The GST implication is important to note as the proposed GST rate is 6%.
Article is written by Ng Choon Jin, CA(M), FCCA, ACTIM, Executive Director of S.L. NG Tax Services Sdn Bhd. Log on to www.slng2u.com for more information. The article represents his personal views.
