Issue
Must the goods and services tax (GST) registration of the entity, a sole trader, be cancelled under subsection 25-55(2) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when the entity ceases to carry on an enterprise as a sole trader, but the enterprise is further carried on by a company that is wholly owned by the entity?
Decision
Yes, the GST registration of the entity, a sole trader, must be cancelled under subsection 25-55(2) of the GST Act, when the entity ceases to carry on its enterprise as a sole trader, but the enterprise is further carried on by a company that is wholly owned by the entity.
Facts
The entity is a sole trader who is registered for GST. The entity carried on its enterprise until 30 June 2001. At that point, the entity started a company. From 1 July 2001, the company carried on the enterprise formerly carried on by the entity. The company is wholly owned by the entity.
The entity, the sole trader, does not intend to carry on any enterprise for at least 12 months after 30 June 2001.
Reasons for Decision
Under subsection 25-55(2) of the GST Act, the Commissioner must cancel an entity's GST registration (even if the entity has not applied for cancellation of its registration) if the Commissioner: • is satisfied that the entity is not carrying on an enterprise; and • believes on reasonable grounds that the entity is not likely to carry on an enterprise for at least 12 months.
As at 1 July 2001, the entity, a sole trader, ceased to carry on the enterprise. From that point onwards, a company, which is an entity separate from the sole trader, carried on the entity's former enterprise.
In addition, there are reasonable grounds to believe that the entity, the sole trader, is not likely to carry on an enterprise for at least 12 months because the entity does not intend to carry on any enterprise for at least 12 months after 30 June 2001.
Accordingly, as the requirements in subsection 25-55(2) of the GST Act are satisfied, the GST registration of the entity must be cancelled when the entity ceases to be a sole trader, but the enterprise is further carried on by a company. [Note: Where an entity ceases to be registered for GST and still holds assets for which it has claimed input tax credits, it may have an increasing adjustment in its concluding tax period (see section 138-5 of the GST Act).]