Edited version of your written advice

Authorisation Number: 1051218080711

Date of advice: 27 April 2017

Ruling

Subject: goods and services tax (GST) and residential premises and going concerns

Question 1

Are you entitled to an input tax credit on your purchase of property X (the property)?

Answer

No.

Question 2

Are you liable for GST on the rent?

Answer

No.

Question 3

Do you have any GST liability under the circumstances you have set out in relation to the property?

Answer

Yes. You have an increasing adjustment under section 135-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Question 4

Can you cancel your GST registration?

Answer

You are not required to be registered for GST under section 23-5 or section 144-5 of the GST Act.

Certain factors would be considered by the Australian Taxation Office (ATO) in deciding whether to cancel your GST registration and the date of effect of the cancellation. See reasons for decision for further information.

You will need to specify a desired date of effect of cancellation when you make your application to cancel.

Question 5

What would be the consequences of you cancelling your GST registration?

Answer

If you cancel your GST registration, you will no longer be required to complete GST labels of Business Activity Statements (BAS). There are no other GST implications of cancelling your GST registration. The cancellation of GST registration will not itself result in any GST liability for you. However, see advice relating to question 3.

Relevant facts and circumstances

You are registered for GST.

You report GST on a quarterly basis.

You do not have GST turnover of $75,000 or more.

You are not a taxi driver.

You purchased a property located in Australia (the property). Settlement date was (date). The vendor was registered for GST for the transaction.

The property includes a liveable dwelling (house), as stated in the sale contract. The house was in the past used as a home for a very large family (the X family).

The house was shifted by a previous owner to its current site.

You do not know if there were any previous sales of the house before the sale of the property to you.

The house has many rooms, that is:

● X large bedrooms

● a storage room

● a large central living area

● a reception room at the front of the house,

● a full sized kitchen (not just a kitchenette),

● a bathroom, which contains a bath, shower, toilet, basin, toiletries cupboard and towel racks

● a second toilet

● a laundry (which includes old concrete type laundry tubs)

The façade of the building looks like a house style façade.

There is a carport.

The real estate agent advertisement describes specific details of property:

The house has common office furniture and equipment in it, such as desks, office chairs, shelving, filing cabinets, computers and photocopier. However, no part of the house itself has been modified to convert it to a commercial or office style room.

The vendor did not substantially renovate the house.

The vendor leased out the property to a commercial tenant (X), which used it as an office for a business. The specified expiry date under the lease contract document is (date). The property was sold to you subject to that existing tenancy. The sale contract includes a lease schedule. You have continued to lease the property to that tenant from settlement date.

The property sale contract includes the question 'Is this a sale of a Going Concern?' An 'X' was inserted in the 'yes' box to the right of this question.

You did not charge and collect GST on the first rent payment you received. You did not issue a tax invoice to the tenant for the first rent payment you received. You told the tenant that you were not registered for GST.

On (date), you went to the real estate agent and requested that the tenant receive a copy of your monthly account which identified rental money and their GST.

Circumstances relating to your decisions to register, de-register and re-register for GST:

● After you viewed the property while on the market, you paid a deposit (X). Later, the real estate sales person completed a sale contract. The sales person commented that because of the $75,000, no GST would be involved, but GST may be involved because of the tenant's business activity, calling it a going concern. The negotiated price was X. You and the vendor signed the contract.

● The tenant and their solicitors drew up a new lease agreement stating: rent (X) p.a. plus GST. You and the tenant signed this agreement.

● You employed a solicitor to act for you. They advised that you should get an ABN.

● You went to your accountant's office and obtained an ABN and registered for GST.

● You had no knowledge or experience whatsoever in regard to the GST system. So you gave authority to the real estate agent to manage your account. You also rang the ATO relating to GST on the purchase price. You were told that no GST applied to the transaction, and therefore you wondered why you needed to be registered for GST.

● As at settlement day, everything was sorted out, except for uncertainty about the GST.

● Your accountant contacted you and queried about getting your BAS and GST sorted. You advised that you had deregistered your GST role and was thinking of doing the same with your ABN. (A.T.O phone advice).

● The accountant advised that the vendor of the property is registered for GST and you were advised to be registered also. GST was registered so that the vendor could not add GST onto the purchase price. The accountant recommends that you stay registered for GST.

● So you requested the accountant to re-register you for GST. Another 10% of the purchase price i.e. (X) is unaffordable. You had already told the tenant not to pay GST and to just pay the basic rent. Then you went back and apologised requesting that they pay the Y shortfall. The tenant agreed.

● So no GST was imposed by the vendor. Your GST registration 'protected you', so you were led to believe.

Your BAS reporting

● You reported X at label 1A (GST on sales label) of your (X) quarter BAS. You reported X at label 1B (input tax credit label) of that BAS.

● You reported X at label 1A of your X quarter BAS. You reported X at label 1B of that BAS.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1)

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 11-5

A New Tax System (Goods and Services Tax) Act 1999 section 11-15

A New Tax System (Goods and Services Tax) Act 1999 section 23-5

A New Tax System (Goods and Services Tax) Act 1999 section 23-15

A New Tax System (Goods and Services Tax) Act 1999 section 23-65

A New Tax System (Goods and Services Tax) Act 1999 section 25-10

A New Tax System (Goods and Services Tax) Act 1999 section 25-15

A New Tax System (Goods and Services Tax) Act 1999 section 25-55(1)

A New Tax System (Goods and Services Tax) Act 1999 section 25-55(2)

A New Tax System (Goods and Services Tax) Act 1999 section 25-57(1)

A New Tax System (Goods and Services Tax) Act 1999 section 25-57(2)

A New Tax System (Goods and Services Tax) Act 1999 section 25-60(1)

A New Tax System (Goods and Services Tax) Act 1999 section 29-20

A New Tax System (Goods and Services Tax) Act 1999 section 38-325

A New Tax System (Goods and Services Tax) Act 1999 section 40-35

A New Tax System (Goods and Services Tax) Act 1999 section 40-65

A New Tax System (Goods and Services Tax) Act 1999 section 40-75

A New Tax System (Goods and Services Tax) Act 1999 Division 129

A New Tax System (Goods and Services Tax) Act 1999 section 135-5

A New Tax System (Goods and Services Tax) Act 1999 section 144-5

A New Tax System (Goods and Services Tax) Act 1999 section Division 188

Reasons for decisions

Question 1

Summary

You are not entitled to an input tax credit on your purchase of the property because;

● you did not acquire the property for a creditable purpose

● the sale of the property to you was not a taxable supply

Detailed reasoning

You make a creditable acquisition if you meet the requirements of section 11-5 of the GST Act, which states:

You make a creditable acquisition if:

(a) you acquire anything solely or partly for a *creditable

purpose: and

(b) the supply of the thing o you is a *taxable supply; and

(c) you provide, or are liable to provide, *consideration for the

supply; and

(d) you are *registered or *required to be registered.

(*Denotes a term defined in section 195-1 of the GST Act)

Acquisition for creditable purpose

You acquire something for a creditable purpose if you meet the requirements of section 11-15 of the GST Act.

Subsection 11-15(1) of the GST Act states;

You acquire a thing for a creditable purpose if you

acquire it in *carrying on your *enterprise.

Subsection 11-15(2) of the GST Act states:

However, you do not acquire the thing for a creditable purpose to the

extent that:

(a) the acquisition relates to making supplies that would be *input taxed; or

(b) the acquisition is of a private or domestic nature.

You acquired the property in carrying on your leasing enterprise.

However, leasing out residential premises 'to be used predominantly for residential accommodation' is input taxed under section 40-35 of the GST Act.

Paragraphs 9 and 10 of GSTR 2012/5 discuss the meaning of 'residential premises to be used predominantly for residential accommodation' for the purposes of the GST Act. They state:

9. The requirement in sections 40-35, 40-65 and 40-70 that premises be 'residential premises to be used predominantly for residential accommodation (regardless of the term of occupation)' is to be interpreted as a single test that looks to the physical characteristics of the property to determine the premises' suitability and capability for residential accommodation.

10. The requirement for residential premises to be used predominantly for residential accommodation does not require an examination of the subjective intention of, or use by, any particular person. Premises that display physical characteristics evidencing their suitability and capability to provide residential accommodation are residential premises even if they are used for a purpose other than to provide residential accommodation (for example, where the premises are used as a business office).

In accordance with paragraphs 9 and 10 of GSTR 2012/5, it is just the physical characteristics of the relevant premises that are relevant and not any other things, for example, zoning or what it is being used for at a particular time.

Paragraphs 14 and 15 of GSTR 2012/5 elaborate on the physical characteristics of residential premises to be used for residential accommodation, for the purposes of the GST Act. They state:

14. 'Residential premises' are not limited to premises suited to extended or permanent occupation. Residential premises provide 'living accommodation', which does not require any degree of permanence. It includes lodging, sleeping or overnight accommodation.

15. To satisfy the definition of residential premises, premises must provide shelter and basic living facilities. Premises that do not have the physical characteristics to provide these are not residential premises to be used predominantly for residential accommodation.

In accordance with GSTR 2012/5, the addition of office furniture and minor fittings to a house so that office activities can be conducted from the house is not sufficient to transform the physical character of the house from residential to commercial. Paragraphs 44 and 45 state:

Example 9 - the addition of furniture and minor fittings is not sufficient to modify physical characteristics

44. Rebecca is a solicitor. She lives in a terrace house that is not new residential premises, and decides to convert a room at the front of the house into an office for her practice. Rebecca arranges the installation of an electricity point and telephone line for the place in the room where she intends to set-up a printer and facsimile machine. She fits the room out with book shelves, filing cabinets, desk, office chairs, a table for the printer and facsimile machine, and suitable floor coverings. She also has an advertising sign placed outside the front door of her house. Rebecca does not modify any of the other rooms in the house.

45. These changes are not sufficient to modify the physical characteristics of the terrace house into premises other than residential premises to be used predominantly for residential accommodation. The furniture and fittings that Rebecca has brought into the room do not change the physical characteristics of the house itself. Also, the installation of an electricity point and telephone line, and the placement of a sign outside the house, are not sufficient modifications to alter the physical characteristics of the premises so that they are no longer residential premises to be used predominantly for residential accommodation. If Rebecca sells or leases the premises she will be making a wholly input taxed supply under section 40-65 or section 40-35 respectively.

Your property in its entirety has the physical features that make it suitable for use as residential accommodation. As in the scenario in example 9 above, the changes made by commercial occupants in your case are not sufficient to modify the physical characteristics of the house into premises other than residential premises to be used predominantly for residential accommodation.

The fact that the current tenant is using the property for commercial purposes - as an office, does not prevent the property from being classified as 'residential premises to be used predominantly for residential accommodation' for the purposes of the GST Act.

Hence, the property is 'residential premises to be used predominantly for residential accommodation', for the purposes of section 40-35 and 40-65 of the GST Act, and therefore you are making an input taxed supply by leasing out the property.

You purchased the property in order to make input taxed supplies (leasing out the property). Therefore, you did not purchase the property for a creditable purpose and the requirement of paragraph 11-5(a) of the GST Act is not met.

Taxable supply to acquirer

In accordance with paragraph 11-5(b) of the GST Act, one of the requirements for an acquisition to be creditable is that the purchaser received a taxable supply.

A supplier makes a taxable supply if it meets the requirements of section 9-5 of the GST Act, which states:

You make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an

enterprise that you carry on; and

(c) the supply is *connected with the indirect tax zone; and

(d) you are registered or required to be registered.

However, the supply is not a *taxable supply to the extent that it is

*GST-free or *input taxed.

(Indirect tax zone means Australia).

The vendor in your case meets the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act. That is:

● the vendor sold the property for consideration (the sale price)

● they vendor made the sale in the course or furtherance of their leasing enterprise

● the supply was connected with Australia (as the property is located in Australia), and

● the vendor was registered for GST for the transaction.

Therefore, what remains to be determined is whether the sale of the property is GST-free or input taxed (the two categories of GST exemption).

The relevant GST exemption provisions in respect of the sale of the property to you are section 40-65 of the GST Act (input taxed sales of residential premises) and section 38-325 of the GST Act (GST-free supplies of going concerns).

To the extent that a supply would otherwise be both GST-free and input taxed, the supply is generally classified as GST-free and not input taxed (in accordance with subsection 9-30(3) of the GST Act).

Therefore, if the sale of the property to you would have otherwise been both a GST-free supply of a going concern and an input taxed sale of residential premises, the sale would be classified as GST-free.

Input taxed sale of residential premises

A sale of premises is input taxed under section 40-65 of the GST Act to the extent that they are residential premises 'to be used predominantly for residential accommodation' with the exception of:

● commercial residential premises (such as a hotel or motel), and

● *new residential premises other than those used for residential accommodation before 2 December 1998.

Section 40-75 of the GST Act defines 'new residential premises'. It states:

(1)*Residential premises are new residential premises if they:

(a) have not previously been sold as residential premises (other than

*commercial residential premises) and have not previously

been the subject of a*long-term lease; or

(b) have been created through *substantial renovations of a building, or

(c) have been built, or contain a building that has been built to replace

demolished premises the same land.

Paragraphs (b) and (c) have effect subject to paragraph (a).

(2) However, the residential premises are not new residential premises if, for the

period of at least 5 years since:

(a) if paragraph (1)(a) applies (and neither paragraph (1)(b) nor paragraph (1)(c) applies) - the premises first became residential premises; or

(b) if paragraph (1)(b) applies - the premises were last substantially renovated; or

(c) if paragraph (1)(c) applies - the premises were last built;

the premises have only been used for making supplies that are *input taxed because of paragraph 40-35(1)(a) of the GST Act.

The property in your case is residential premises to be used predominantly for residential accommodation, for the purposes of the GST Act due to its physical characteristics (in accordance with paragraph 40 of GSTR 2012/5). Therefore, the sale of the property to you would have been input taxed, provided that it was not new residential premises at that time (other than new residential premises used for residential accommodation before 2 December 1998).

The house has not been substantially renovated by the vendor.

Paragraph 40 of GSTR 2003/3 considers the scenario where a residential building is built on a particular block, but later relocated to a different, vacant lot. It states:

40. Where a residential building is relocated from one block of land to a different vacant block, we consider that the building and new block of land become new residential premises. The land and building, as a 'package', have not previously been sold together, or the subject of a long-term lease. It may also be necessary to consider whether the supply of the now vacant land after the removal of the building is a taxable supply in its own right. The vacant land is not residential premises.

In accordance with paragraph 40 of GSTR 2003/3, once the house in your case was relocated from another lot to the current lot, the house and the current lot together became new residential premises for the purposes of the GST Act. It is not known if the sale of the land and house together to you was the first sale of that land and house as a package.

The sale of the property to you would meet the requirements for input taxed treatment as a sale of residential premises under 40-65 if the land and house as a package had been sold before, that is, if the vendor who sold the property to you purchased that land and house as a package at some time in the past. Under such circumstances, the sale of the property to you would be a sale of residential premises other than new residential premises.

The sale of the property to you would also meet the requirements for input taxed treatment under section 40-65 of the GST Act if the vendor purchased the land at some time in the past, relocated the house to that site and leased the current property out for a continuous period of at least 5 years. Under such circumstances, the sale to you would be a sale of residential premises other than new residential premises.

Additionally, the sale of the property to you would meet the requirements for input taxed treatment under section 40-65 of the GST Act if the vendor purchased the land at some time in the past, relocated the house to that site before 2 December 1998 and the house was used for residential accommodation between the time of relocation and 1 December 1998. Under such circumstances, the sale to you would be a sale of new residential premises used for residential accommodation before 2 December 1998.

GST-free supply of going concern

A supply of a going concern may be GST-free under subsection 38-325(1) of the GST Act. There are no other provisions of the GST Act under which the sale of the property to you could be GST-free.

Subjection 38-325(1) of the GST Act states:

The *supply of a going concern is GST-free if:

(a) the supply is for *consideration; and

(b) the recipient is *registered or *required to be registered; and

(c) the supplier and the recipient have agreed in writing that the

supply is of a going concern.

Subsection 38-325(2) of the GST Act defines supply of a going concern. It states:

A supply of a going concern is a supply under an arrangement under

which:

(a) the supplier supplies to the *recipient all of the things that are

necessary for the continued operation of an *enterprise; and

(b) the supplier carries on, or will carry on, the enterprise until the

day of the supply (whether or not as a part of a larger

enterprise carried on by the supplier).

Paragraph 75 of Goods and Services Tax Ruling GSTR 2002/5 set out the two elements that are essential for the continued operation of an enterprise. It states:

75. Two elements are essential for the continued operation of an enterprise:

● the assets necessary for the continued operation of the enterprise including, where appropriate, premises, plant and equipment, stock-in-trade and intangible assets such as goodwill, contracts, licences and quotas; and

● the operating structure and process of the enterprise consisting of the commercial or economic activity relevant to the type of enterprise being conducted, for example, ongoing advertising and promotion.

Paragraphs 149 to 151 of GSTR 2002/5 discuss the 'all things necessary for the continued operation of an enterprise' requirement in relation to leasing enterprises. They state”

149. The term 'carrying on an enterprise' includes doing anything in the course of the commencement or termination of the enterprise. A supplier may carry on an enterprise to the day of the supply for the purposes of paragraph 38-325(2)(b) during the period of commencement or termination of an enterprise.

150. A supplier is unable to supply all of the things that are necessary for the continued operation of an enterprise unless the relevant enterprise is not only being 'carried on', but is also operating. Where an enterprise engaged in an activity ceases to carry on that activity and the assets are in the course of being sold off, the enterprise is being 'carried on', but is not operating.

151. The activity of leasing a building which has previously been leased to a tenant remains an 'enterprise' of leasing for the purposes of section 9-20 during the period of temporary vacancy when a new tenant is being actively sought by the building owner. However, where a building has not previously been leased to a tenant, but is being actively marketed, an 'enterprise of leasing' is not operating until the activity of leasing actually commences. The activity of leasing commences when at least one tenant enters into an agreement to lease or occupies the building.

The vendor in your case leased the property up to the time of settlement of sale. Therefore, it was operating a leasing enterprise up to that time.

In accordance with paragraph 107A of GSTR 2002/5, where the identified enterprise is one of property leasing, the supply of the property subject to the existing leases is all that is required to satisfy paragraph 38-325(2)(a) of the GST Act.

The vendor in your case suppled to you a property subject to an existing tenancy. Therefore, the requirement of paragraph 38-325(2)(a) of the GST Act is met.

Additionally, the vendor leased out the property up to the time of settlement. Therefore, the requirement of paragraph 38-325(2)(b) of the GST Act is met.

Hence, the vendor supplied a going concern to you under subsection 38-325(2) of the GST Act.

We shall now consider whether the supply of this going concern meets the requirement of subsection 38-325(1) of the GST Act.

The property was sold to you for consideration. Therefore, the requirement of paragraph 38-325(1)(a) of the GST Act is met.

You were registered for GST when you purchased the property. Therefore, the requirement of paragraph 38-325(1)(b) of the GST Act is met.

In your case, the vendor and purchaser agreed in writing that the sale of the property subject to the existing tenancy was the sale of a going concern. Therefore, the requirement of paragraph 38-325(1)(c) of the GST Act is met.

As the sale of the property meets the requirements of subsection 38-325(1) of the GST Act, the sale is a GST-free supply of a going concern. If the sale meets the requirements for input taxed treatment under section 40-65 of the GST Act, the GST-free treatment under subsection 38-325(1) of the GST Act would override input taxed treatment in accordance with subsection 9-30(3) of the GST Act. Therefore, the sale of the property is not taxable and you do not meet the requirement of paragraph 11-5(b) of the GST Act, regardless of whether the requirements of subsection 40-65 of the GST Act are met. This non-taxable status cannot be changed by any action you or the vendor might take in the future.

Consideration

The purchase price you paid for the property is consideration for the sale. Therefore, you meet the requirement of paragraph 11-5(c) of the GST Act.

Registered or required to be registered for GST

In accordance with section 25-15 of the GST Act, if the Commissioner decides under section 25-10 of the GST Act, as the date of effect of your registration (your registration day), a day before the day of the decision, then you are taken for the purpose of determining whether an acquisition you made on or after that day was a creditable acquisition to have been registered from and including your registration day.

In accordance with section 25-65 of the GST Act, if the Commissioner decides under section 25-60 of the GST Act, as the date of effect of the cancellation of your registration (your cancellation day), a day before the date of the decision, your registration is taken for the purpose of determining whether an acquisition you made on that date was a creditable acquisition to have been cancelled from and including your cancellation day.

You registered for GST; then cancelled your GST registration. You later re-registered for GST with effect from (date) and your GST re-registration is still active. Therefore, you are taken to have been registered for GST at the time of acquisition of the property (date) for the purpose of determining whether you meet the requirement of paragraph 11-5(d) of the GST Act. Therefore, you meet that criterion.

Conclusion

You are not entitled to an input tax credit on your purchase of the property because;

● you did not acquire the property for a creditable purpose

● the sale of the property to you was not a taxable supply

Question 2

Leasing out the property is an input taxed supply. Therefore, this supply is not taxable. Hence, GST is not payable on the rental income you receive.

Question 3

Subsection 135-5(1) of the GST Act requires a purchaser of a GST-free supply of going concern to make an increasing adjustment if they intend that some or all of the supplies made through the enterprise to which the supply of the going concern relates will be supplies that are neither taxable supplies nor GST-free supplies. An increasing adjustment is a type of GST liability to the ATO.

You acquired a GST-free going concern, being a leasing enterprise. You are making supplies through that enterprise, that is, leasing out the residential premises, and these supplies are neither taxable nor GST-free supplies (they are instead input taxed).

Therefore, you have an increasing adjustment liability to the ATO.

In accordance with subsection 135-5(2) of the GST Act, the increasing adjustment amount is 10% of the settlement adjusted purchase price of the property.

In accordance with ATO Interpretative Decision ATO ID 2007/72 Goods and Services Tax GST and attribution of an increasing adjustment for a recipient of a GST-free supply of a going concern, the adjustment is reported as a positive amount at label 1A of the BAS for the (X) quarter, as that is the tax period in which you purchased the property.

Question 4

Summary

You are not required to be registered for GST.

You may apply for cancellation of GST registration and the ATO will consider the circumstances at that time to decide whether to cancel that registration.

Detailed reasoning

When the Commissioner must cancel GST registration

Subsection 25-55(1) of the GST Act states:

The Commissioner must cancel your *registration if:

(a) You have applied for cancellation of registration in the

*approved form; and

(b) at the time you applied for cancellation of registration, you

had been registered for at least 12 months; and

(c) the Commissioner is satisfied that you are not *required to be registered.

Subsection 25-55(2) of the GST Act states:

The Commissioner must cancel your *registration (even if you have not applied for cancellation of your registration) if:

(a) the Commissioner is satisfied that you are not *carrying on an

*enterprise; and

(b) the Commissioner believes on reasonable grounds that you are

not likely to carry on an enterprise for at least 12 months.

When the Commissioner may cancel your GST registration

Subsection 25-57(1) of the GST Act states:

The Commissioner may cancel your *registration if:

(a) less than 12 months after being registered, you apply for

cancellation of registration in the *approved form; and

(b) the Commissioner is satisfied that you are not *required to be

registered.

Subsection 25-57(2) of the GST Act states:

In considering your application, the Commissioner may have regard

to:

(a) how long you have been *registered; and

(b) whether you have previously been registered; and

(c) any other relevant matters.

Deciding the date of effect of cancellation

In accordance with subsection 25-60(1) of the GST Act, the Commissioner must decide the date on which the cancellation under subsection 25-55(1) or (2) or section 25-57 takes effect.

In accordance with section 23-5 of the GST Act, an entity is required to be registered for GST if:

● they are carrying on an enterprise; and

● their GST turnover is $75,000 or more a year.

Additionally, in accordance with section 144-5 of the GST Act, taxi drivers are required to be registered for GST.

In accordance with Division 188 of the GST Act, as your leasing of residential premises is an input supply, the rent is not included in GST turnover.

You don't have GST turnover of $75,000 or more and you are not a taxi driver. Therefore, you are not required to be registered for GST under section 23-5 of the GST Act or section 144-5 of the GST Act.

An entity must cease to operate on a GST-registered basis before the ATO will consider cancelling their GST registration.

An entity is considered to have ceased operating on a GST-registered basis from a certain date if, from that date, the entity:

● did not hold themselves out to other businesses as being registered for GST

● did not issue any tax invoices or adjustment notes

● did not claim any input tax credits, special transitional credits or indirect transitional credits, and·

● has made a declaration to the ATO that satisfies all of the above points.

Also, the ATO will not cancel GST registration if the entity is still collecting GST.

If the entity has reported a positive GST amount (not zero) at label 1A of a given BAS, the GST registration will not be cancelled with effect from a date within the tax period to which the BAS relates as the entity was thereby participating in the GST system during that tax period.

You are entitled to be registered for GST (as you are carrying on an enterprise), but are not required to be registered for GST. Additionally, you have been registered for GST for less than 12 months. Therefore, it is up to the discretion of the ATO whether to cancel your GST registration with effect from a date that is less than 12 months after the start date of your current GST registration. You may apply for cancellation of your GST registration and the ATO will consider the application. You will need to specify a desired date of effect of cancellation.

As you claimed an input tax credit in your BAS for the (X) quarter, the ATO would not cancel your GST registration with effect from a date falling within that quarter.

You reported (X) at label 1A of your (X) quarter BAS. As this is a positive amount, the ATO would not cancel your GST registration with effect from a date falling within that quarter.

Question 5

An increasing GST adjustment may arise for an entity under section 138-5 of the GST Act if:

● their GST registration is cancelled and

● immediately before the cancellation takes effect, the assets of the entity include anything in respect of which the entity was entitled to an input tax credit.

(However, the rule above is subject to certain time limits)

No adjustment arises under section 138-5 of the GST Act in respect of your purchase of the property even if you cancel your GST registration (regardless of the date of effect of the cancellation), as you were not entitled to an input tax credit on your purchase of the property.

You will no longer be required to complete GST labels in BAS after your GST registration is cancelled. There are no other GST implications of you cancelling GST registration.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).