Edited version of private advice

Authorisation Number: 1051565854187

NOTICE

This is an edited version of a revised private ruling. It replaces the edited version of the private ruling with the authorisation number 1051566635126.

Date of advice: 13 August 2019

Ruling

Subject: GST and cancellation of registration

Question 1

On application by you, will the Commissioner cancel your GST registration pursuant to section 25-55 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) effective from dd/mm/yyyy?

Answer

Yes.

Question 2

If the answer to Question 1 is 'No', will the supply of the Property to the purchaser be partially a GST-free supply of a going concern and partially an input-taxed supply of residential premises?

Answer

Not applicable.

Question 3

Are you required to make an adjustment pursuant to Division 135 of the GST Act as a result of the cancellation of your GST registration?

Answer

No.

Relevant facts and circumstances

You are registered for GST effective from dd/mm/yyyy and report on a quarterly tax period basis.

You are the registered proprietor of land situated at a specified location (the Property).

You carry on an enterprise of farming on the Property.

You acquired the business together with the Property in late yyyy as a GST­free supply of a going concern.

You acquired the GST-free going concern for a fully creditable purpose. You have made only made taxable and/or GST-free supplies.

You have continued to operate the business since its acquisition.

The Property is a x.xxha fully fenced property with three large sheds (floor area approximately x,xxxm²), two large sheds utilised as a workshop and for equipment storage, a dam and a five-bedroom residential premise.

The residential premise is not subject to a lease. The 5-bedroom residential premise was used by the manager of the business as residence and office.

The willingness to stay at the residential premise was a pre-requisite to be recruited as the manager.

On dd/mm/yyyy, you entered into a contract (the Contract) to sell the Property.

Settlement has been set to occur on dd/mm/yyyy.

Your turnover for the year ended dd/mm/yyyy was $xxx,xxx.

Since mm/yyyy, you began reducing your business activity in preparation for settlement.

No sales have been made since mm/yyyy. Your contract with your primary customer was terminated by mutual deed in mid-mm/yyyy. Since mm/yyyy, all business contracts or agreements have been terminated. No other contractual relationships with suppliers, employees or other relevant parties have been further established or entered into in relation to the operation of the business.

Consequently, your turnover has reduced significantly.

Your turnover for the month of mm/yyyy and the following 11 months (to dd/mm/yyyy) will not exceed $75,000.

Your intention is to apply to the Commissioner to cancel your GST registration effective from dd/mm/yyyy. You intend to make the application via the Business Portal.

From dd/mm/yyyy you:

·                     have not held yourself 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.

All remaining equipment required for continuing the business will pass to the purchaser at settlement date.

Relevant legislative provisions

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

Section 23-5

Paragraph 23-5(b)

Section 25-55

Subsection 25-60(1)

Subsection 27-40(2)

Section 27-55

Division 129

Subsection 129-20(1)

Subsection 129-20(2)

Subsection 129-20(3)

Section 129-40

Section 135-10

Section 188-10

Subsection 188-10(1)

Section 188-15

Section 188-20

Section 188-25

Reasons for decision

Note: In this reasoning, unless otherwise stated,

·                     all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

·                     reference material(s) referred to are available on the Australian Taxation Office (ATO) website ato.gov.au

Question 1

Cancelling your GST registration

Section 25-55 provides that 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.

You intend to make application to the Commissioner via the Business Portal requesting cancellation of your GST registration effective from dd/mm/yyyy.

You have been registered for GST since dd/mm/yyyy. As such, as at the time you will make such application, you will have had been registered for at least 12 months.

Section 23-5 states that you are required to be registered for GST if:

(a)  you are carrying on an enterprise; and

(b)  your GST turnover meets the registration turnover threshold (currently $75,000).

It is common ground that you are carrying on an enterprise in conducting activities in the course of the termination of your enterprise. As such, the final issue to consider is whether your GST turnover as at dd/mm/yyyy is $75,000 or more.

Subsection 188-10(1) provides that you have a GST turnover that meets the registration turnover threshold if:

(a)  your current GST turnover is at or above $75,000 and the Commissioner is not satisfied that your projected GST turnover is less than $75,000; or

(b)  your projected GST turnover is at or above $75,000.

'Current GST turnover' is defined in section 188-15 as the sum of the values of all of your supplies made in a particular month and the preceding 11 months.

'Projected GST turnover' is defined in section 188-20 as the sum of the values of all of your supplies made in a particular month and the following 11 months.

Your current turnover as calculated in mm/yyyy exceeds $75,000 (turnover for the twelve months from dd/mm/yyyy to dd/mm/yyyy was $xxx,xxx).

Since mm/yyyy, you have begun reducing your business activity in preparation for settlement. No sales have been made since mm/yyyy. Your turnover has reduced significantly and will not be $75,000 or more for the period mm/yyyy to dd/mm/yyyy.

You have entered the Contract for the sale of the Property. Section 188-25 provides that in calculating your projected GST turnover, you disregard any supply made, or likely to be made, by you by way of transfer of ownership of a capital asset of yours.

Goods and Services Tax Ruling GSTR 2001/7 Goods and services tax: meaning of GST turnover, including the effect of section 188-25 on projected GST turnover discusses this issue.

The meaning of 'capital assets' is discussed at paragraphs 31 to 36 of GSTR 2001/7. Paragraphs 31 to 34 of GSTR 2001/7 state:

Meaning of 'capital assets'

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.

33. Capital assets are 'radically different from assets which are turned over and bought and sold in the course of trading operations'. An asset which is acquired and used for resale in the course of carrying on an enterprise (for example, trading stock) is not a 'capital asset' for the purposes of paragraph 188-25(a).

34. 'Capital assets' are to be distinguished from 'revenue assets'. A 'revenue asset' is 'an asset whose realisation is inherent in, or incidental to, the carrying on of a business'.

Given the facts in this case, we consider the Property to be classified as a capital asset. Therefore, pursuant to section 188-25, the proceeds from the sale of the Property are to be disregarded when calculating your projected turnover.

We are satisfied that your projected GST turnover for the period mm/yyyy to mm/yyyy will be less than $75,000.

Therefore, your GST turnover as at mm/yyyy will not meet the GST registration turnover threshold as provided for in subsection 188-10(1).

Consequently, you have not met the requirement of paragraph 23-5(b) and are not required to be registered pursuant to section 23-5.

Date of effect of cancelling your GST registration

Subsection 25-60(1) provides that the Commissioner must decide the date at which the cancellation of your registration takes effect.

Practice Statement Law Administration PS LA 2011/8 The registration of entities sets out the policy and procedures to be followed on a range of issues relating to the registration of entities, including cancelling GST registration.

In respect to the date of effect of the cancellation of GST registration, paragraphs 82 and 83 of PS LA 2011/8 state:

82. The Commissioner will not cancel the registration with effect from a date on which the entity was required to be registered, and will not usually do so from any date when the entity was operating as if it were registered for GST.

83. When an entity that was required to be registered applies to cancel its registration, the Commissioner will ordinarily accept the cancellation date the entity chooses, provided that the entity:

·        was not required to be registered after that date

·        was entitled to be registered before that date

·        has been registered for 12 months, and

·        has at that date ceased operating on a GST-registered basis.

Furthermore, paragraph 86 of PS LA 2011/8 states:

86. The Commissioner will be satisfied that an entity has stopped operating (or never operated) on a GST-registered basis from a certain date if, from that date or an earlier 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.

From dd/mm/yyyy you:

·        did not hold yourself 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.

Conclusion

On making an application in the approved form requesting the cancellation of your GST registration, the Commissioner will cancel your registration effective from dd/mm/yyyy.

Question 2

Not applicable.

Question 3

Section 135-10 provides that if you are the recipient of a supply of a GST-free going concern, Division 129 will apply to your acquisition of the going concern 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). In this case you acquired the GST-free going concern for a price of $x,xxx,xxx. As such, subsection 129-20(3) provides that 10 adjustment periods will apply.

You acquired the GST-free going concern in late yyyy. Therefore, your first adjustment period would be your quarterly tax period ending dd/mm/yyyy.

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 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 (late yyyy) and ending at the end of the adjustment period (dd/mm/yyyy). During this period you did not make supplies that were neither taxable nor GST-free supplies. 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 intended would 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.