In this blog, we’ll discuss how you can repay GST credits on business assets after GST registration is cancelled.
Adjusting business assets
Even after cancelling your GST registration, if you still have business assets for which you earlier claimed GST credit, you are required to repay some of those credits. For this, you need to make an increasing adjustment on your activity statement. For instance, if you sold your business, you will cancel your GST registration and sell most of your business assets. However, you may keep some of the business assets, such as a work vehicle.
If you’ve held a business asset for a certain time period, you are not required to repay the GST credits. For instance, you won’t need to repay GST credits on a car held for over 5 financial years. For each asset you keep, you are required to:
- Work out whether the adjustment period expired before you cancelled your GST registration.
- If the asset’s adjustment periods have not expired, you need to calculate the adjustment amount and add it to your activity statement.
If cancellation of GST registration is related to a deceased estate, you are not required to make any adjustments for assets.
Working out when adjustment periods expire
Each asset you obtain for your business has various adjustment periods. Adjustment periods allow you to review the business use of your assets over time. If there’s a modification in business use, you need to adjust to ensure you claim the right GST credits amount. In most cases, your June tax periods are treated as your adjustment periods. For assets you keep after cancelling your GST registration, you must work out if their adjustment periods expired prior to the cancellation taking effect. Business finance relates to assets imported or purchased to make financial supplies, for instance, to make monetary loans or sell shares, and not used for domestic or personal purposes. The term does not refer to assets that you have obtained through a loan or other finance for your business.
Your first adjustment time period will be the first June tax period, which is at least 12 months after the tax period in which you imported or purchased the asset. If the adjustment periods have:
- Expired for an asset, you will not have an adjustment.
- Not expired for an asset, you will have to calculate the adjustment for that particular asset.
Calculating adjustments
You are intended to work out an adjustment for each business asset for which the adjustment period is no longer available. Work out the adjustment using the following formula:
(Applicable value × Actual application) ÷ 11, where:
- Applicable value is the lesser of:
- The market value of the asset immediately prior to your cancellation date.
- The purchase cost of importing the asset.
- Actual application is the amount of the asset’s use that was for business, calculated from the date of purchase or importation until the date you apply for GST registration cancellation. If you have always used the asset only for business, your actual application percentage is 100%.
- If you have always used the asset only for business purposes, your actual application percentage would be 100%. If you have used the asset partly for personal purposes, you will have to calculate the percentage of business use on a reasonable basis.
Add the resulting amount to your final activity statement as GST on sales. In case you use the calculation worksheet method to account for GST, add the result of the formula at box G7 on your worksheet.
Deceased estates
You don’t have to adjust for retained assets if the GST registration cancellation relates to a deceased estate and cancellation is due to either:
- The death of a sole trader, after which the executor or trustee of the estate
- Immediately continues the deceased’s business
- is registered for GST.
- The trustee or executor not carrying on the deceased’s business but one or more of the beneficiaries
- Immediately continues that business
- is registered (or may need to be registered) for GST.
Conclusion
The blog shares information on tax adjustments on assets retained after GST registration cancellation. If you are not familiar with this, you can rely on accountants Melbourne.