GST and cancellation of GST registration

Is the entity, a consultant, entitled to have its GST registration cancelled under subsection 25-55(1) of the A New Tax System (Goods and services Tax) Act 1999 (GST Act), when it ceases to provide consultancy services but continues to receive royalty payments?

Yes, the entity is entitled to have its GST registration cancelled under subsection 25-55(1) of the GST Act when it ceases to provide consultancy services but continues to receive royalty payments.

The entity is a consultant currently registered for goods and services tax (GST). The entity is applying to have its GST registration cancelled in the approved form. The entity has been registered for GST for longer than 12 months.

The entity has ceased providing consultancy services. However, the entity still receives a monthly royalty payment of $1000, including GST, in relation to previous work that the entity has performed. The entity will continue to receive this monthly royalty payment indefinitely. The entity will make no other supplies.

Over the past 12 months (ending in the current month) the entity has made taxable supplies with a total GST inclusive value of $40 000, including the monthly royalty payments. The entity has not made any input taxed supplies, GST-free supplies or supplies for no consideration. The entity has only made supplies connected with its enterprise.

Subdivision 25-B of the GST Act deals with how an entity's GST registration may be cancelled.

Under subsection 25-55(1) of the GST Act, the Commissioner must cancel an entity's registration if: • the entity has applied for cancellation of registration in the approved form; and • at the time the entity applies for cancellation, the entity has been registered for at least 12 months; and • the Commissioner is satisfied that the entity is not required to be registered.

The entity has applied for cancellation of its GST registration in the approved form, and the entity has been registered for longer than 12 months at the time of applying for the cancellation. Therefore, if the Commissioner is satisfied that the entity is not required to be registered, the entity's GST registration will be cancelled.

Section 23-5 of the GST Act provides that the entity is required to be registered if: • it is carrying on an enterprise; and • its annual turnover meets the registration turnover threshold.

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

Although the entity no longer provides consultancy services, the receipt of a monthly royalty payment for previous work that the entity has performed is an activity done in the form of a business. As such, the entity is carrying on an enterprise. If the entity's annual turnover meets the registration turnover threshold, the entity is required to remain registered.

The registration turnover threshold that applies to the entity is $50 000 (subsection 23-15(1) of the GST Act).

The entity's annual turnover does not exceed the turnover threshold ($50 000 in this case) if both the entity's current annual turnover and projected annual turnover are below the turnover threshold (subsection 188-10(2) of the GST Act).

Under subsection 188-15(1) of the GST Act, an entity's current annual turnover at a time during a particular month, is the sum of the value of all the supplies that the entity has made during the past 12 months ending at the end of the that month, less supplies: • that are input taxed; or • that are not for consideration and are not taxable supplies under section 72-5 of the GST Act; or • that are not made in connection with the entity's enterprise.

The entity has only made taxable supplies that are connected with its enterprise during the past 12 months ending at the end of the current month. The sum of the value of all the supplies made during this period is less than $50 000. The entity's current annual turnover is below the registration turnover threshold.

Under subsection 188-20(1) of the GST Act, an entity's projected annual turnover, at a time during a particular month, is the sum of the values of all supplies that the entity has made during that month and the next 11 months, less supplies: • that are input taxed; • that are not for consideration and are not taxable supplies under section 72-5 of the GST Act; and • that are not made in connection with the entity's enterprise.

As the only supplies that the entity intends to make over the next 12 months are the supplies in return for the royalty payments, the entity's projected annual turnover is approximately $12 000. The entity's projected annual turnover is below the registration turnover threshold.

As both the entity's projected annual turnover and current annual turnover are below the registration turnover threshold, the entity's annual turnover is below the registration turnover threshold. Therefore, the entity is not required to be registered under section 23-5 of the GST Act.

As the Commissioner is satisfied that the entity is not required to be registered all of the requirements of subsection 25-55(1) of the GST Act are fulfilled. Therefore, the entity is able to have its GST registration cancelled under subsection 23-55(1) of the GST Act when it ceases to provide consultancy services but continues to receive royalty payments. [Note: As the entity will no longer be registered for GST, the royalty payment will not be subject to GST. GST cannot be added to the value of the supply. Additionally, upon cessation of registration, consideration should be given as to whether any adjustments are required pursuant to Division 138 of the GST Act, with respect to assets still in existence for which input tax credits have previously been claimed.]