ATO Interpretative Decision

ATO ID 2002/528

Goods and Services Tax

GST and cancellation of GST registration when an entity ceases to carry on its enterprise
FOI status: may be released

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If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Must the goods and services tax (GST) registration of the entity, a sole trader, be cancelled under subsection 25-55(2) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when the entity ceases to carry on an enterprise as a sole trader, but the enterprise is further carried on by a company that is wholly owned by the entity?

Decision

Yes, the GST registration of the entity, a sole trader, must be cancelled under subsection 25-55(2) of the GST Act, when the entity ceases to carry on its enterprise as a sole trader, but the enterprise is further carried on by a company that is wholly owned by the entity.

Facts

The entity is a sole trader who is registered for GST. The entity carried on its enterprise until 30 June 2001. At that point, the entity started a company. From 1 July 2001, the company carried on the enterprise formerly carried on by the entity. The company is wholly owned by the entity.

The entity, the sole trader, does not intend to carry on any enterprise for at least 12 months after 30 June 2001.

Reasons for Decision

Under subsection 25-55(2) of the GST Act, the Commissioner must cancel an entity's GST registration (even if the entity has not applied for cancellation of its registration) if the Commissioner:

•: is satisfied that the entity is not carrying on an enterprise; and
•: believes on reasonable grounds that the entity is not likely to carry on an enterprise for at least 12 months.

As at 1 July 2001, the entity, a sole trader, ceased to carry on the enterprise. From that point onwards, a company, which is an entity separate from the sole trader, carried on the entity's former enterprise.

In addition, there are reasonable grounds to believe that the entity, the sole trader, is not likely to carry on an enterprise for at least 12 months because the entity does not intend to carry on any enterprise for at least 12 months after 30 June 2001.

Accordingly, as the requirements in subsection 25-55(2) of the GST Act are satisfied, the GST registration of the entity must be cancelled when the entity ceases to be a sole trader, but the enterprise is further carried on by a company.

[Note: Where an entity ceases to be registered for GST and still holds assets for which it has claimed input tax credits, it may have an increasing adjustment in its concluding tax period (see section 138-5 of the GST Act).]

Date of decision: 29 November 2001

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
subsection 25-55(2)
section 138-5

Related ATO Interpretative Decisions
ATO ID 2002/529

Keywords
Goods & services tax
GST registration
Registration cancellation

Business Line: GST

Date of publication: 31 May 2002

ISSN: 1445-2782

history

	Date:	Version:
You are here	29 November 2001	Original statement
	22 June 2007	Archived

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