There are two circumstances in which a business will register for GST. The first is the compulsory requirement when the estimated turnover of the business will exceed $75,000 a year. The second is when a business chooses to voluntarily register for GST.
Once a business is registered for GST, all of the relevant rules apply, whether it has been compulsory to register or whether it has chosen to register.
When a business ceases trading, and it has been registered for GST, there are several obligations that must be met.
Q. We have a small business that we started on July 1, 2015 and we registered for GST. We chose to lodge our business activity statements quarterly that resulted in a refund from July to September. We ceased trading in November 2015 and for the September to December BAS, it appears we owe $600 in GST. As we have ceased trading, our annual turnover will only be $19,000, which is well under the $75,000 requirement. What happens now?
A. When a business ceases trading, or has been sold, it must cancel its GST registration within 21 days. Where the turnover of a business falls below the compulsory registration threshold, the GST registration can also be cancelled.
As your business ceased trading in November, you should have advised the ATO and cancelled your GST registration within 21 days. If you have not done so already, you must cancel your GST registration as soon as possible.
You will need to complete and lodge the September to December BAS by February 28, 2016 and pay the $600 by that date. You may have to pay more than the $600 as when a business cancels its GST registration, and it claimed GST on assets purchased by the business, an adjustment may have to be made.
Whether an adjustment must be made depends on how long the asset has been owned by the business. The adjustment period for an asset depends on how much it cost. Adjustment periods for businesses are:
- Two periods for items costing from $1001 up to $5000,
- Five periods for assets costing from $5001 up to $499,990
- Ten periods for assets costing $500,000 or more.
The first adjustment period for an asset purchased will be the first June BAS quarter that is at least 12 months after the asset has been purchased.
For example, if an asset was purchased in April 2015, the first period for the asset would be the June 2016 BAS quarter. This, effectively, means an adjustment for GST must be made for assets purchased by most small businesses that have been owned for less than two years.
The adjustment, or GST claimed that must be paid back to the ATO, is the lesser of the GST on the market value of the asset at the date the business has ceased or its purchase cost. For your business, as you have been only operating for two quarters, you must pay back any GST claimed on assets costing more than $1000 that you have claimed in the September 2015 quarter.
If you have not done so already, you must cancel your GST registration as soon as possible.
Questions on small business income tax and other issues can be emailed to firstname.lastname@example.org
Max Newnham is a partner in the accounting firm TaxBiz Australia and founder of www.smsfsurvivalcentre.com.au