Edited version of private advice

Authorisation Number: 1051977407258

Date of advice: 3 May 2022

Ruling

Subject: Cessation of GST registration

Question

Will the GST de-registration of an enterprise result in an increasing adjustment in accordance with Divisions 135 and 137 of the GST Act?

Answer

No, the GST de-registration of an enterprise will not result in an increasing adjustment under Divisions 135 or 137 of the GST Act.

The scheme commences on:

17 March 20XX

Relevant facts and circumstances

You registered for GST as a partnership on March XX.

You acquired a XX business in May XX as a GST-free going concern.

You intended and used the business for making taxable or GST free supplies for the duration of the registration period.

You cancelled your GST registration on July XX.

You are intending to convert XX business to a private dwelling in the future.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Subsection 27-40

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

A New Tax System (Goods and Services Tax) Act 1999 Division 135

A New Tax System (Goods and Services Tax) Act 1999 Subsection 137-5

Reasons for decision

Detailed reasoning

Subsection 135-5(1) provides for an initial increasing adjustment if:

•         an entity is the recipient of a GST-free going concern supply; and

•         the entity intends that some or all of the supplies made through the enterprise to which the supply relates will be supplies that are neither taxable supplies nor GST-free supplies.

You were registered for GST. A XX business was acquired as a GST free going concern for consideration. The GST registration was cancelled on XX.

As XX business was making taxable or GST-free supplies during the course of their enterprise there is no increasing adjustment under section 135-5 of the GST Act.

In other words, you acquired the going concern for a fully creditable purpose.

Section 135-10 is designed to capture subsequent events that result in a change in which the going concern was previously applied. Section 135-10 provides that if you are the recipient of a going concern, Division 129 applies to that acquisition in relation to:

•         the proportion of all the supplies made through the enterprise that you intend will be supplies that are neither taxable supplies nor GST-free supplies and

•         the proportion of all the supplies made through the enterprise that are supplies that are neither taxable supplies nor GST-free supplies.

For the purpose of Division 129 as it operates in conjunction with subsection 135-10, the above applies in the same way as Division 129 applies in relation to the extent to which you made an acquisition for a creditable purpose and the extent to which a thing is applied for a creditable purpose.

In regard to the application of section 135-10 and any adjustment made pursuant to Division 129, any adjustment will be attributed pursuant to section 129-90. That is, the adjustment is to be attributed in respect of an 'adjustment period' as defined in subsection 129-20(1) taking into consideration the number of adjustment periods applicable in subsections 129-20(2) and 129-20(3).

Subsection 129-20(1) also provides that a tax period provided for under section 27-40 will also be an 'adjustment period'.

Subsection 27-40(2) provides that if an entity's GST registration is cancelled, the entity's tax period ceases as at the end of the day on the date the cancellation takes effect. This is referred to as an entity's concluding tax period.

For example, if your GST registration was cancelled on XX, subsection 27-40(2) provides that your tax period will cease as at the end of the day on XX (effectively resulting in the tax period being for 1 day). Subsection 129-20(1) provides that this tax period is also an 'adjustment period.

For the purpose of determining whether you have an adjustment and calculating any adjustment under section 135-10, the mechanics are adopted from Division 129.

Section 129-40 contains the method statement to work out whether you have an adjustment:

•         Step 1 - working out the actual application of the thing. In this case the relevant period to consider is the period 'starting when you acquired the thing (XX) and ending at the end of the adjustment period (XX). During this period your supplies of leasing the commercial property will satisfy the definition of a taxable supply. Therefore, the proportion of supplies (expressed as a percentage) made during this period that are neither taxable supplies nor GST-free supplies (actual application) is 0%.

•         Step 2 - working out the former/intended use. As discussed above, it is considered you acquired the going concern for a fully creditable purpose. Following on, adopting the terminology of paragraph 135-10(1)(a), the proportion of all supplies that you intend will be supplies that are neither taxable supplies nor GST-free supplies (intended or former application) is 0%.

•         Step 3 - not applicable.

•         Step 4 - not applicable.

•         Step 5 - where the actual application of the thing is the same as its intended or former application, you will have neither an increasing adjustment nor decreasing adjustment.

In this case the actual application of the going concern is 0% and the intended or former application is 0%. Therefore, you will have neither an increasing adjustment nor decreasing adjustment pursuant to section 135-10.

Section 137-5 states that you have a decreasing adjustment for stock on hand if:

a)    you become registered or required to be registered and;

b)    at that time, you hold stock for the purpose of sale or exchange, or for use as raw materials, in carrying on your enterprise and;

c)    you had acquired the stock solely or partly for a creditable purpose.

You cancelled the GST registration and you are no longer carrying on an enterprise of a bed and breakfast. As section 137-5 only applies to entities upon GST registration, there is no decreasing adjustment for stock on hand under section 137-5 of the GST Act.

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