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Subject: Cancellation of GST Registration and Revision of Activity Statements

Question 1

Will the Commissioner of Taxation (Commissioner) allow you to back date the cancellation of your GST registration?

Answer

No, the Commissioner will not allow you to back date the cancellation of your GST registration.

Question 2

Can you revise your activity statements for previous tax periods to nil?

Answer

No, you cannot revise those activity statements to nil.

Question 3

Can you re-register for GST when your expected turnover will be over $75,000?

Answer

You may register for GST if your enterprise's turnover is below $75,000. You must register for GST if your enterprise's turnover is at or above $75,000.

Relevant facts and circumstances

· You are registered for goods and services tax (GST).

· You are engaged in a Sport Teaching enterprise.

· Your lodgement cycle is on a quarterly basis and you account on the cash basis

· You completed a private ruling application form (not for tax professionals).

· An acknowledgement and request for further information letter was sent to you.

· Enclosed with this letter was the Fact Sheet: Leaving the GST system - What you need to do to finalise your GST obligations (Nat 14829).

· Your turnover has never been greater than the turnover threshold of $75,000.but you are hopeful that it will be greater in the future.

· You wish to backdate the cancellation of your GST registration.

· The Australian Taxation Office records show that activity statements were lodged for earlier tax periods in which you reported supplies and made claims for input tax credits.

· Your compliance history shows that you currently have an outstanding GST liability.

· You also sent an email stating that you expect your future turnover to exceed $75,000.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 Subsection 9-20(1)

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 Subsection 138-5(1)

A New Tax System (Goods and Services Tax) Act 1999 Subsection 138-5(2)

A New Tax System (Goods and Services Tax) Act 1999 Subsection 188-15(1)

A New Tax System (Goods and Services Tax) Act 1999 Subsection 188-15(2)

A New Tax System (Goods and Services Tax) Act 1999 Section 188-25

Reasons for decision

Question 1

When you may cancel your registration

Section 25-50 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) establishes when an entity who is registered for GST must apply for cancellation of that registration. Section 25-50 of the GST Act states that:

If you are registered and you are not carrying on any enterprise, you must apply to the Commissioner in the approved form for cancellation of your registration. You must lodge your application within 21 days after the day on which you ceased to be carrying on any enterprise.

The approved form is the Application to cancel registration (NAT 2955) and is available from the website www.ato.gov.au.

The term carrying on an enterprise is defined by section 195-1 of the GST Act and includes doing anything in the course of the commencement or termination of the enterprise.

When the Commissioner must cancel registration

Section 25-55 of the GST Act establishes when 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.

Section 23-5 of the GST Act determines whether or not an entity is required to be registered. Under section 23-5 of the GST Act, an entity is required to be registered if it:

(a)          carries on an enterprise and

(b)          its annual turnover meets the registration turnover threshold.

The registration turnover threshold, as specified by section 23-15 of the GST Act, is $75,000 ($100,000 for non-profit bodies).

You have advised that your annual turnover for previous tax periods was less than $75,000.This meant that your annual turnover was below the registration turnover threshold of $75,000. Accordingly, you were not required to be registered for GST. If you had applied for cancellation of your registration for GST in the approved form the Commissioner would have been satisfied that you were not required to be registered for GST and would have cancelled your registration.

Adjustments on cessation of registration

The GST Act provides for adjustments on cessation of registration where, immediately before cancellation, the entity holds assets on which the entity has claimed input tax credits (ITCs). After the registration is cancelled, the entity will need to make an increasing adjustment to the net amount on its BAS for the concluding tax period.

Subsection 138-5(1) of the GST Act requires an entity to make an increasing adjustment and states:

(1)    You have an increasing adjustment if:

(a)    your registration is cancelled; and

(b)    immediately before the cancellation takes effect, your assets include anything in respect of which you were, or are, entitled to an input tax credit.

The adjustment operates to draw back ITCs that have previously been claimed by the entity on assets, but takes account of any decrease in the value of the assets that may have occurred while they were used by the entity for a creditable purpose. The amount of the increasing adjustment is calculated in accordance with subsection 138-5(2) of the GST Act.

Date of cancellation of registration

When applying for cancellation, you nominated the date from which you wanted your GST registration cancelled. The Commissioner will ordinarily cancel an entity's GST registration from the date requested, provided that it falls on or after the day the Commissioner determines the application. However, if the requested date is retrospective, meaning a date before the Commissioner determines the application, the Commissioner will not cancel an entity's GST registration from that date unless:

1. the Commissioner is satisfied that the entity has never operated on a GST

registered basis, or

2. the Commissioner is satisfied that the entity stopped operating on a GST

registered basis from that date.

From the evidence available you held yourself out to other entities as being registered for GST and operated your business in this manner from previous tax periods to the present. Your request to have your cancellation backdated to the date of registration does not meet the criteria that you have never operated as a GST registered entity.

Your cancellation will take effect from the date that the Commissioner is satisfied that you stopped operating on a GST registered basis. However you have not provided any evidence that you have stopped trading on a GST registered basis.

Consequently, you are required to remit the GST you have collected to the ATO, because your GST registration will remain current for the period of time that you make taxable supplies. You are required to lodge Business Activity Statements and remit the GST you have collected to the ATO, until you are notified of the date of effect of the cancellation of your registration. General interest charges and late lodgement penalties may apply. The Leaving the GST system information sheet that you had received earlier provides you with additional information.

Question 2

Liability for GST

As you have operated on a GST-registered basis over previous tax periods, you are liable to pay GST on any taxable supplies you make (section 9-5 of the GST Act) and this is so whether or not you charge GST on those supplies.

Therefore, you cannot revise the activity statements for the tax periods from your previous tax periods to reduce the amount at label 1A (GST payable amount) to nil. You can only revise those activity statements if the supplies you made were GST-free supplies or input taxed supplies or you made errors in the calculation of the GST payable.

Consequently, you are required to remit the GST you have collected to the ATO.

Entitlement to input tax credits (ITC)

As you have operated on a GST-registered basis over previous tax periods, you are entitled to input tax credits (ITC) in relation to creditable acquisitions if the requirements of section 11-5 of the GST Act are met. The activity statements you have lodged over these previous tax periods show that you have claimed ITC, for which you would have had tax invoices.

Therefore, you cannot revise the activity statements for these tax periods to reduce the amount of ITC to nil, you can only revise them if you made an error in the calculation of the amounts of ITC claimed.

Question 3

Section 23-5 of the GST Act determines whether or not an entity is required to be registered. Under section 23-5 of the GST Act, an entity is required to be registered if it:

(a)          carries on an enterprise and

(b)          its annual turnover meets the registration turnover threshold.

The registration turnover threshold, as specified by section 23-15 of the GST Act, is $75,000 ($100,000 for non-profit bodies).

Goods and Services Tax Ruling GSTR 2001/7 discusses the meaning of annual turnover and, at paragraph 17 states:

17. Under sub-section 188-10(1), you meet a particular threshold if your projected annual turnover is at or above the threshold. You also meet a turnover threshold if your current annual turnover is at or above the turnover threshold and it is not possible to conclude that your projected annual turnover is below the threshold. This will occur if your projected annual turnover is also above the relevant threshold, or if your circumstances are such that it is not possible to calculate a projected annual turnover. In either of these situations, the Commissioner can not be satisfied that your projected annual turnover is below the turnover threshold.

Subsection 188-15(1) of the GST Act provides that an entity's current annual turnover is the value of all supplies connected with Australia that it makes, or is likely to make, in the current month plus all the supplies it made in the previous 11 months.

Subsection 188-20(1) of the GST Act provides that an entity's projected annual turnover is the value of all such supplies for the current month plus all the supplies that it is likely to make in the next 11 months.

In calculating its projected annual turnover, section 188-25 of the GST Act provides that an entity is to disregard the value of a transfer of a capital asset. Section 188-25 of the GST Act states that:

In working out your projected annual turnover, disregard:

(a)  any supply made, or likely to be made, by you by way of transfer of ownership of a capital asset of yours; and

(b)  any supply made, or likely to be made, by you solely as a consequence of:

(i) ceasing to carry on an enterprise; or

(ii) substantially and permanently reducing the size or scale of an enterprise.

 

Paragraph 30 of GSTR 2001/7 explains the operation of section 188-25 of the GST Act and states:

30.Your projected annual turnover does not include supplies that fall within the description in either paragraph 188-25(a) or paragraph 188-25(b) listed above. Your supply does not have to satisfy the descriptions in both paragraph (a) and paragraph (b). When you make a supply that is capable of satisfying the description in both paragraphs, the supply is excluded only once. (See example 3 at paragraph 53.)

Further, paragraphs 31 and 32 of GSTR 2001/7 explain the meaning of capital assets for the purposes of the GST Act. These paragraphs state that:

31. The GST Act does not define the term 'capital assets'. Generally, the term 'capital assets' refers to those assets that make up 'the profit yielding subject' of an enterprise. They are often referred to as 'structural assets' and may be described as 'the business entity, structure or organisation set up or established for the earning of profits'.

32. 'Capital assets' can include tangible assets such as your factory, shop or office, your land on which they stand, fixtures and fittings, plant, furniture, machinery and motor vehicles that are retained by you to produce income. 'Capital assets' can also include intangible assets, such as your goodwill.

If an entity's annual turnover meets the registration turnover threshold, it will be required to register for GST if it is also carrying on an enterprise. Subsection 9-20(1) of the GST Act defines what is considered to be an enterprise. The definition includes:

an activity, or series of activities, done:

(a)     an the form of a business; or

(b)     in the form of an adventure or concern in the nature of trade; or

(c)     on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property; or

(d)…

An entity that is planning to cease operating an enterprise will still be carrying on that enterprise when it does something in the course of terminating the enterprise.

However, as your expected turnover will exceed $75,000 you will need to be registered for GST.

In conclusion, as you have not cancelled your GST registration and held yourself out as a GST registered entity and your projected turnover will exceed $75,000, you will not be able to cancel you GST registration. Therefore, you will remain a GST registered entity until such time as you are no longer required to be registered.