Changing your business and disposing of capital assets are among the types of business transactions that have GST implications. Here is a brief on when you need to add information to your business activity statement and how some deals will result in potentially unexpected GST and others will generate specific tax obligations.
While you likely have little problem arranging the information your accountant needs to lodge your organisation’s business activity statement (BAS), there are many complicated GST issues you should be aware of that may arise if your company changes or takes on a new direction. In addition, some overlooked, but specific, aspects of GST can pop up if you dispose of (or acquire) capital equipment. In the case of changing your business, organisations with an Australian Business Number (ABN) must update their details with the Australian Business Register if they change their registered business activity or industry. Moreover, be aware that the individual circumstances of your business can produce unique taxation obligations. Take the wine equalisation tax (WET), for example. It is simple enough to update your business records online and apply for a WET business account, but you must still consider if the related activities push the company into the WET scheme. Let’s say you run a restaurant that fortifies its own wine. Depending on the alcoholic concentration and base product used, WET or excise may be payable on the final product. If that wine then becomes a profitable side business, your company could wind up with a weekly obligation to pay excise tax. Capital assets are another area that can be complex, so you want to be up to speed on the GST implications of disposals or acquisitions. For instance, if you are, or are required to be, registered for GST, you must account for any disposals of capital assets made in the course of carrying on a business. These disposals are deemed as taxable sales, even if the assets were acquired before there was GST or the item is sold to an individual who is not carrying on a business. As long as your business receives payments or other considerations for capital assets, it must report total sales on its activity statement for the tax period when the transaction occurred. On the other hand, your organisation generally does not have to account for GST if the disposal involves an item that is:
- not a business asset;
- part of a business sold as a GST-free going concern;
- a residential premises such as a block of residential apartments (this does not apply to new residential premises); or
- farm land that was farmed for at least five years before the disposal and the purchaser plans to continue farming on it.
Periodically review the information you include on your BAS to see how it checks out against your business records, and consult with your tax adviser. Never assume that your organisation is in full compliance with GST simply because you have been working a certain way for many years. Learning what is new and seeking advice when you’re not sure can avoid a lot of trouble down the line if the Tax Office decides to audit your business. If you have any doubts, consider seeking a private Tax Office ruling on a transaction, particularly if it represents a large investment or signals a new direction for your business.