Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)CHAPTER 2 - WHO IS IN THE GST SYSTEM
This chapter explains when you:
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- can choose to be in the GST system;
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- are required to be in the GST system;
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- can choose to leave the GST system; and
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- are required to leave the GST system.
CHAPTER SUMMARY
| Entity | In the legislation you are the entity. See 2.1. |
| Enterprise | You must be carrying on an enterprise to be able to register for GST. See 2.2. |
| Registration | You must be registered to be part of the GST system. See 2.6. |
| Required to be registered | If you are required to be registered, the GST system applies to you even if you are not actually registered. See 2.20. |
| Cancellation | You can cancel your registration in certain circumstances. See 2.24. In certain circumstances your registration must be cancelled. See 2.28. |
ENTITY
2.1 When the legislation and explanatory memorandum refers to you , it is generally referring to the entity. An entity is defined at section 195-1 to mean:
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- an individual;
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- a body corporate;
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- a corporation sole;
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- a body politic;
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- a partnership;
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- any other unincorporated association or body of persons;
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- a trust; and
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- a superannuation fund.
ENTERPRISE
2.2 An entity may be registered for GST if it is carrying on an enterprise. Section 9-20 defines enterprise. An entity (you) can carry on more than one enterprise, and can carry on more than one type of enterprise.
2.3 Enterprise has been defined very broadly. Several of the things included as enterprises are included not so that they charge GST on their supplies, but so that they can become registered and obtain input tax credits.
2.4 Hobbies or recreational activities and activities where there is no reasonable expectation of profit or gain are specifically excluded from being enterprises. The wages and salaries of employees are not subject to GST. This is why paragraph 9-20(2)(a) specifically takes out of enterprise the activities of employees or other people subject to the Pay As You Earn (PAYE) system. Subsection 9-20(2)
2.5 However, if a partner of a law firm accepts a directorship of a company in their capacity as partner of the law firm, a supply is made to the company from the law firm. The partner is not acting as an employee of the company. Therefore, even though the payment of directors fees is subject to PAYE, the payment of the fees should be subject to the GST. This is an example of what the proviso to paragraph 9-20(2)(a) covers.
REGISTRATION
2.6 Whether or not you are in the GST system depends upon whether you are registered or required to be registered. A registration system is necessary for the administration of the GST to ensure that GST is only collected by those required to do so. Registration also helps you to know whether someone you deal with is entitled to include GST in the price they charge you.
2.7 Division 23 provides who must be registered and who may be registered. This is discussed at 2.8 and 2.13. Division 25 provides how you register and how your registration can be cancelled. This is discussed at 2.15 and 2.23.
WHO MUST BE REGISTERED
2.8 Whether or not you are required to be registered depends on whether you are carrying on an enterprise -- see 2.3 for the meaning of enterprise . If you are not carrying on an enterprise you cannot become registered unless you intend to carry on an enterprise -- see 2.14. If you are carrying on an enterprise, whether or not you are required to be registered depends on your annual turnover. Sections 23-5 and 23-10 .
Annual turnover -- registration turnover threshold
2.9 If you are carrying on an enterprise, you are required to be registered for GST if your annual turnover is at or above $50,000. This $50,000 amount is the registration turnover threshold . The registration turnover threshold can be increased from $50,000 by regulation. Section 23-5 and subsection 23-15(1) . Annual turnover is discussed at 7.33.
2.10 If your current annual turnover is less than $50,000 and you believe your projected annual turnover will be less than $50.000, you may not be required to be registered. If your projected annual turnover is $50,000 or more, or your current annual turnover is $50,000 or more, you will be required to be registered. You will be required to be registered if the Commissioner is not satisfied that your projected annual turnover will be less than $50,000. Section 23-5 and subsection 23-15(1) .
2.11 If you are carrying on an enterprise, you are not required to be registered if your current annual turnover and your projected annual turnover are below $50,000. However, you will be required to be registered if the Commissioner is satisfied that your projected annual turnover is above $50,000. Sections 23-5, 23-15 and 188-20.
2.12 If you are a non-profit body carrying on an enterprise you are required to be registered for GST if your annual turnover is at or above $100,000. All of the above rules apply, except that the registration turnover threshold is $100,000. Section 23-5, 188-20 and subsection 23-15(2) .
WHO MAY BE REGISTERED
2.13 Even if you are not required to be registered for GST you can choose to register if you are carrying on an enterprise. Subsection 23-10(1).
2.14 You may also choose to register if you are not carrying on an enterprise but intend to do so in the future. Subsection 23-10(2).
HOW YOU BECOME REGISTERED
Subdivision 25-A deals with how you can register and how the Commissioner can register you.
2.16 Generally, you register by applying to the Commissioner for registration. You must apply in the form approved by the Commissioner -- paragraph 25-5(1)(a) and section 25-10 .
When you must apply for registration
2.17 If you are not already registered, you must apply for registration within 21 days of becoming required to be registered -- section 25-1 . There is a penalty for failing to apply for registration when you are required to do so -- new section 42 of the Taxation Administration Act 1953 . If you are carrying on an enterprise the Commissioner must register you if you apply -- subsection 25-5(1) . If the Commissioner is not satisfied that you are carrying on an enterprise you cannot be registered -- paragraph 25-5(1)(b) .
When you may apply for registration
2.18 You can apply for registration before you start an enterprise provided that you satisfy the Commissioner that you intend to start an enterprise -- paragraph 25-5(1)(b) .
2.19 Generally, the date of effect of your registration will be the date you put in your application. However, there are provisions which enable the Commissioner to specify another date. Section 25-10
When you have not applied for registration
2.20 The Commissioner can register you if he or she is satisfied that you are required to be registered even if you have not applied -- subsection 25-5(2) . The Commissioner will decide the date of effect -- paragraph 25-10(a).
2.21 The Commissioner must notify you of decisions about your registration. Subsection 25-5(3)
Backdating Registration
2.22 If the date of effect of your registration is backdated by the Commissioner, any supplies, importations and acquisitions made by you between the date of effect and the date of the decision are included in the GST system -- section 25-15 .
How your registration is cancelled
2.23 Subdivision 25-B deals with how you can cancel your registration and how the Commissioner can cancel your registration.
2.24 Generally your registration is cancelled by you applying to the Commissioner for cancellation. You must apply in the form approved by the Commissioner -- paragraph 25-55(1)(a) .
When you must apply for cancellation
2.25 You must apply for cancellation, within 21 days of ceasing to carry on your enterprise. There is a penalty for failing to apply for cancellation when you are required to do so -- new section 42 of the Taxation Administration Act 1953 .
2.26 Generally, the Commissioner will cancel your registration if you apply but you must have been registered for at least twelve months before you apply for cancellation. Subsection 25-55(1).
When you can apply for cancellation
2.27 You can apply for cancellation of your registration, even if you are still carrying on an enterprise, if you are not required to be registered (for example, your annual turnover drops below $50,000). If you apply for cancellation in these circumstances the Commissioner must cancel your registration. Subsection 25-55(1) .
When you have not applied for cancellation
2.28 If you have ceased to carry on any enterprise and the Commissioner does not believe on reasonable grounds that you are likely to carry on any enterprise within 12 months of the cessation, the Commissioner must cancel your registration. The Commissioner can do this even if you have not applied for your registration to be cancelled. Subsection 25-55(2) .
Notification of decisions
2.29 The Commissioner must notify you of a decision about whether or not to cancel your registration. The notice must specify the date of effect of the decision. Subsection 25-55(3)
Backdating cancellation
2.30 If the date of effect of cancellation of your registration is backdated by the Commissioner, any supplies and acquisitions made by you between the date of effect and the date of the decision are not included in the GST system -- section 25-65 .