GST and deregistering an entity that is not carrying on an enterprise

Should the entity, an individual, have their goods and services tax (GST) registration cancelled under subsection 25-55(2) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when they conduct their activities on an ad hoc basis, not in a businesslike manner and are yet to make a profit?

Yes, the entity must have their GST registration cancelled under subsection 25-55(2) of the GST Act, when they conduct their activities on an ad hoc basis and not in a businesslike manner and are yet to make a profit.

The entity is an individual. The entity provides services to customers in their spare time. The entity spends, on average, five hours per week on the activities. The activities are carried on from the entity's personal residence.

The entity relies on referrals from past customers and does not advertise their services to the public. The entity provides the services on an ad hoc basis. The activities are not planned, organised or carried out in a businesslike manner.

The entity does not have a business plan or business diary and is unaware of their turnover as they do not keep records of the transactions. The entity does not have a separate business account.

The entity has been carrying on the activities in this manner for a few years and is yet to make a profit. The entity has no plans to change the way it conducts its activities.

The entity is registered for goods and services tax (GST) and has an Australian Business Number (ABN).

Subsection 25-55(2) of the GST Act provides that 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 • the Commissioner believes on reasonable grounds that the entity is not likely to carry on an enterprise for at least 12 months.

Section 9-20 of the GST Act outlines what is an enterprise for GST purposes.

Paragraph 9-20(2)(c) of the GST Act excludes an activity, or series of activities, done by an individual without a reasonable expectation of profit or gain.

Paragraph 106 of Miscellaneous Taxation Ruling MT 2000/1 states: The phrase 'reasonable expectation' has been considered in a number of cases. In News Corporation Ltd v. National Companies and Securities Commission (1984) 57 ALR 550; (1984) 5 FCR 88 at ALR 561; FCR 101, Woodward J said: "A reasonable expectation of an event requires more than a possibility, risk or chance of the event occurring."

The entity provides services to customers in their spare time, spending only an average of five hours per week on the activities. The entity carries on activities from their personal residence, not business premises. The entity does not advertise their services to the public; they merely rely on referrals from past customers. The services are provided on an ad hoc basis and the entity does not plan or organise their activities or carry them out in a businesslike manner. The entity does not have a business plan or business diary and is unaware of their turnover as they do not have a separate business account and don't even keep records of the transactions. The entity has been carrying on the activities in this manner for a few years and is yet to make a profit.

There may be a possibility or chance that the entity could make a profit or gain from carrying out their activities in this manner. However, from the limited time spent on the activities, lack of advertising and the ad hoc and non-business like manner in which the activities are conducted, the entity does not carry on their activities in such a way that there could be more than a possibility or chance of making a profit or gain. As such, there is no reasonable expectation that the entity could make a profit or gain. Therefore, under paragraph 9-20(2)(c) of the GST Act the entity is not carrying on an enterprise for GST purposes.

In addition, as the entity has no plans to change the way they conduct their activities, it is reasonable to believe that the entity is not likely to carry on an enterprise within the next 12 months.

Therefore, the Commissioner must cancel the entity's GST registration under subsection 25-55(2) of the GST Act, when the entity conducts their activities on an ad hoc basis, not in a businesslike manner and are yet to make a profit.

[Note 1: The Commissioner can backdate the date of effect of the cancellation of the entity's registration (section 25-60 of the GST Act).

Note 2: As the entity is not carrying on an enterprise it is also not entitled to an ABN under section 8 of the A New Tax System (Australian Business Number) Act 1999 (ABN Act). Therefore, the Registrar may cancel the entity's ABN (paragraph 18(1)(b) of the ABN Act). This cancellation can be backdated (paragraph 18(3)(c) of the ABN Act).]