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  • Issue 16 Incapacitated entities

    16.1 Is the definition of projected annual turnover, in relation to ceasing or scaling down an enterprise, intended to cover a representatives activities?

    Or are those activities that of a separate entity and registration will be dependent on either the turnover threshold or the commissioner's discretion?

    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 (section 147-5). Section 147-25 further provides that the tax periods applying to the representative in that capacity are the same tax periods that apply to the incapacitated entity.

    In determining projected annual turnover, supplies by way of transfer of ownership of capital assets and supplies as a consequence of ceasing or scaling down an enterprise are ignored. Many such supplies would typically be made by a representative in that capacity. In applying section 188-25, supplies are considered in relation to each enterprise carried on, rather than all enterprises carried on by a particular representative.

    16.2 Is the stock of a representative of an incapacitated entity held in "the ordinary course of business" thereby allowing a special credit to be claimed?

    Yes. We would apply the same criteria to a receiver and manager as we would to the original entity. If the goods are trading stock the special credit can be claimed, if they are something that is not trading stock such as capital assets that are being disposed of, then such a disposal would not be in the ordinary course of business.

      Last modified: 22 May 2014QC 28063