Exiting the GST system is not as straight forward as it seems.
Usually when you sell your business you sell all the assets, however you may keep some business assets for your personal use. When this happens you need to consider whether you need to make an adjustment before deregistering from the GST system.
When you purchase an asset for a business you may be entitled to input tax credit on your Business Activity Statement (BAS). Therefore when you deregister from the GST system the Australian Taxation Office (ATO) may want to recoup some of the input tax credits you claimed on a previous BAS.
There is no need to make an adjustment in the following circumstances:-
- No assets held immediately before you cancel your GST registration
- The registration cancellation relates to a deceased estate
- The last adjustment period applying to the asset ended before your cancellation date.
The first two points are straight forward however the last point requires you to work out the adjustment period.
The adjustment period for a particular asset is determined by its GST exclusive purchase (or importation) value and whether the asset is used for business finance or not.
An asset used in business finance relates to making financial supplies eg selling shares or making loans. Note most of our clients will not have assets purchased for business finance so we will not discuss these assets any further.
If you purchase (or import) an asset that is not used in business finance, use table below to work out your adjustment period
|Value of purchase or importation (less GST)
|Number of adjustment periods
|$5,000 or less
|$5,001 to $499,999
|$500,000 or over
The first adjustment period is the first June tax period which is at least 12 months after the tax period in which you purchased or imported the asset.
Craig runs a plumbing business and is registered for GST quarterly. Craig purchased a laptop for $3,300 (including GST) on the 15th May 2010 and has a valid tax invoice. He claimed the GST input tax credit of $300 on the June 2010 BAS.
The first tax period is therefore June 2011. As Craig is not using the asset in business finance, according to the table above Craig will have two adjustment periods. This means if Craig cancels his GST registration after the last adjustment period (June 2012) he will not have to make an adjustment.
If Craig does cancel before June 2012 he will need to make an adjustment and therefore report a GST on sale (label 1A). The adjustment will be the applicable value multiplied by 1/11 (assuming 100% business use). The applicable value is the lesser of either:
- The market value of asset (including GST) immediately before the cancellation
- The purchase price or cost of importing the asset including GST.
Assuming Craig deregistered from the GST system in March 2012 and the market value of the laptop was $1,100. Craig will need to report $100 as GST on sales in the March 2012 final BAS.