Edited version of private advice

Authorisation Number: 1051654996332

Date of advice: 15 April 2020

Ruling

Subject: GST and enterprise

Question

During the period in question, were the activities relating to the proposed acquisition undertaken by you, carrying on an enterprise for the purposes of section 9-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, you were carrying on an enterprise for the purposes of section 9-20 of the GST Act.

Relevant facts and circumstances

·   You have an Australian Business Number but are notcurrently registered for the goods and services tax (GST).

·   You undertook a number of activities in regard to the proposed acquisition.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Reasons for decision

The definition of an enterprise in section 9-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) includes (amongst other things) an activity, or series of activities, done in the form of a business, or in the form of an adventure or concern in the nature of trade.

The term 'carried on' is defined in section 195-1 of the GST Act to include doing anything in the course of the commencement or termination of the enterprise. The definition ensures that activities done in the course of commencement or termination of the enterprise are included in determining whether the activities of the entity amount to an enterprise.

The meaning of enterprise is considered in Miscellaneous Taxation Ruling MT 2006/1: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number, and Goods and Services Tax Determination GSTD 2006/6: does MT2006/1 have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the GST Act.

The principles outlined in the ruling and the determination, have been applied in your circumstances.

Commencing an enterprise

Paragraphs 122 to 139 of MT 2006/1 discuss the activities that form part of commencing an enterprise.

Paragraph 122 of MT 2006/1 provides in relation to the definition of 'carried on' in section 195-1 of the GST Act:

122. Given this definition, it follows that activities done by an entity that are part of a process of beginning or bringing into existence an enterprise are activities in carrying on an enterprise.

Paragraphs 123 and 124 of MT 2006/1 provide:

123. In the Commissioner's view the term, 'doing anything in the course of the commencement....of an enterprise' describes the kind of activities undertaken. The ultimate outcome of the activities and whether or not an ongoing enterprise eventuates is not a determinative factor. An entity has to determine its entitlement to an ABN from the time of its first activities.

124. If the activities have the character of those ordinarily undertaken to commence an enterprise they will be accepted as falling within the statutory definition. This leads to a broad range of preliminary activities being accepted as an enterprise. These types of activities may still be considered to be commencement activities even where the eventual enterprise is conducted differently from the one originally contemplated.

In the form of a business

An enterprise includes an activity, or series of activities, done in the form of a business [paragraph 9-20(1)(a) of the GST Act].

GSTD 2006/6 at paragraph 12 provides:

The definition of 'business' in section 195-1 is the same as that used in subsection 6(1) of the Income Tax Assessment Act 1936 and in section 995-1 of the ITAA 1997. It follows that the meaning of 'business' should be interpreted in a similar way. As such, it is appropriate to refer to Taxation Ruling TR 97/11 which considers the meaning of 'business'.

TR 97/11 Income Tax: am I carrying on a business of primary production discusses the main indicators of carrying on a business. Based on that discussion some indicators are:

·   a significant commercial activity;

·   a purpose and intention of the taxpayer to engage in commercial activity;

·   an intention to make a profit from the activity;

·   the activity is or will be profitable;

·   the recurrent or regular nature of the activity;

·   the activity is carried on in a similar manner to that of other businesses in the same or similar trade;

·   activity is systematic, organised and carried on in a businesslike manner and records are kept;

·   the activities are of a reasonable size and scale;

·   a business plan exists;

·   commercial sales of product; and

·   the entity has relevant knowledge or skill.

Application to your circumstances

The determination of whether an entity is carrying on a business is generally the result of a process of weighing all the relevant indicators.

We have determined that the activities undertaken by you were done in the course of carrying on your enterprise for the purposes of section 9-20 of the GST Act for the period in question.

This decision is based on the facts you have provided (included in the 'Relevant facts and circumstances' section of the ruling). An objective assessment of all the circumstances concludes that the scale and the commercial character of the activities and transactions undertaken by you for the proposed acquisition supports the view that they are commencement activities. Section 195-1 of the GST Act states that "carrying on" an enterprise includes doing anything in the course of the commencement or termination of the enterprise.

Other issues - backdating GST registration

Subsection 25-10(1A) of the GST Act provides that, unless the Commissioner is of the opinion there has been fraud or evasion, the date of effect of an entity's GST registration must not be a day that occurred more than 4 years before the day of the decision.