Private ruling: GST and partnership
Date of advice: 16 June 2022
Published: September 2022
Ruling period: xx
Date scheme commenced: xxx

Ruling: Q1: Is the Partnership entitled to deregister for GST under section 25-55 of A New Tax System (Goods and Services Tax) Act 1999 ("GST Act") immediately before the Settlement? | A1: Yes, you will be entitled to deregister for GST immediately before the settlement. | Q2: If Question 1 is positive, is the Partnership liable for the sale of the Assets that will take place on the Settlement? | A2: No you are not liable for the sale of Assets that will take place on Settlement. | Q3: If Question 1 is positive, is the methodology used for calculating the increasing adjustment as a result of your GST deregistration acceptable to the Commissioner for the purpose of Division 138 of the GST Act? | A3: Yes, we accept your methodology however we did not verify the accuracy of calculations.

Relevant facts and circumstances: 1. xx Partnership ("You") are a partnership registered for GST since 1 July 20XX. 2. You are in the business of leasing land to farmers and selling subdivided lands. 3. Person A is the sole owner of the partnership - it is made up of xxx (the General Partner) with x% Partnership interest and Person A (the Limited Partner) with xx% Partnership interest. 4. The General Partner, xx is xx% owned by Person A. 5. Person A is also the sole shareholder of the General Partner. 6. Person A passed away. 7. Person B (the Trustee) was appointed in xx as the new trustee to administer the Partnership affairs such as winding up activities in respect of the xx assets. 8. You own lands that were acquired prior to xx. A portion of those lands were subdivided from the year xx onwards for resale for profit, and a portion has been leased to the local farmers. 9. All lands have been substantially vacant with minimal improvements erected on the land since acquisition. 10. As of the date of the ruling request, you hold the following discrete assets: (a) Stock on hand (SOH) (subdivided land/lots for sale) and (b) Capital assets (including farmland for leasing, dam horticulture, water treatment plant, property and equipment, building improvements, motor vehicle and, office furniture and equipment). 11. You are a reconstituted partnership for GST purposes.

Relevant legislative provisions: New Tax System (Goods and Services Tax) Act 1999 section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 section 25-55 | A New Tax System (Goods and Services Tax) Act 1999 section 138 | A New Tax System (Goods and Services Tax) Act 1999 section 188

Reasons for decision: Summary: Based on the facts presented, the partnership is a reconstituted partnership for GST purposes following the death of Partner A. There is a new partner of the partnership and the continuing partner is xx. Section 25-55 of the GST Act provides that: (1) The Commissioner must cancel your *registration if: (a) you have applied for cancellation of registration in the *approved form; and (b) at the time you applied for cancellation of registration, you had been registered for at least 12 months; and (c) the Commissioner is satisfied that you are not *required to be registered. (2) The Commissioner must cancel your *registration (even if you have not applied for cancellation of your registration) if: (a) the Commissioner is satisfied that you are not *carrying on an *enterprise; and (b) the Commissioner believes on reasonable grounds that you are not likely to carry on an enterprise for at least 12 months. (* denotes a term defined in section 195-1 of the GST Act). | Detailed Reasoning - Subsection 25-55(1): Subject to you applying for cancellation of your GST registration and the fact that you have been registered for more than 12 months, you satisfy paragraphs (a) and (b). In relation to paragraph (c), whether you are not required to be registered would depend on the consideration of section 23-5 of the GST Act which provides that you are required to be registered if: (a) you are carrying on an enterprise, and (b) your GST turnover meets the registration turnover threshold. Therefore, conversely, you will not be required to be registered if you do not meet both of the above conditions. You are currently registered for GST carrying on an enterprise of leasing land to farmers and selling subdivided lots. You are now going to wind up your business and as part of the process you have entered into a contract to sell all your assets. You are selling off trading stock as part of winding down the activity prior to the actual conclusion of the business 'Carrying on' an enterprise is defined in section 195-1 of the GST Act to include doing anything in the course of the commencement or termination of the enterprise. This is also explained in paragraph 131 and 191 of GSTR 2003/13 in the context of winding up a partnership. 131. Some or all of the partners may continue to carry on the enterprise of the partnership during its winding up. The definition of 'carrying on an enterprise' includes doing anything in the course of the termination of the enterprise. The activities, including the final distribution, that are carried out as part of the winding up are in 'carrying on an enterprise'. 191. A partnership may choose to cancel its GST registration if it no longer meets the registration turnover threshold. However, a partnership is entitled to retain its GST registration until it has ceased to carry on its enterprise. This will be when the final distributions are made to the partners upon the winding up of the partnership. At this time, the partnership ceases to exist for the purposes of the GST Act. Therefore applying the above to your circumstances, the Commissioner considers that you will still be carrying on an enterprise after deregistration and settlement. The other condition that you need to satisfy is required to be registered under section 23-5, is that you should meet the GST turnover registration threshold. Section 188-10 of the GST Act states: (1) You have a GST turnover that meets a particular * turnover threshold if: (a) your * current GST turnover is at or above the turnover threshold, and the Commissioner is not satisfied that your * projected GST turnover is below the turnover threshold; or (b) your projected GST turnover is at or above the turnover threshold. (2) You have a GST turnover that does not exceed a particular * turnover threshold if: (a) your * current GST turnover is at or below the turnover threshold, and the Commissioner is not satisfied that your * projected GST turnover is above the turnover threshold; or (b) your projected GST turnover is at or below the turnover threshold. Section 188-20 of the defines projected turnover to be the sum of the * values of all the supplies that you have made, or are likely to make, during that month and the next 11 months, other than: (a) supplies that are * input taxed; or (b) supplies that are not for * consideration (and are not * taxable supplies under section 72-5); or (c) supplies that are not made in connection with an * enterprise that you * carry on. Section 188-25 modifies the effect of section 188-20 by excluding the following supplies when working out your projected GST turnover: (a) any supply made, or likely to be made, by you by way of transfer of ownership of a capital asset of yours; and (b) any supply made, or likely to be made, by you solely as a consequence of: (i) ceasing to carry on an enterprise; or (ii) substantially and permanently reducing the size or scale of an enterprise. You advised that after deregistration your supplies will comprise of: (a) supply of farmland by way of leases to farmers with projected turnover of less than $75,000; and (b) supply of all your assets with projected turnover of more than $75,000. Under section 188-20, your projected turnover will include the supply leases and the supply of all your assets which will be more than $75,000. However for purposes of working out your GST projected turnover under section 188-10, section 188-25 will operate to modify section 188-20 by excluding certain supplies as outlined above. The Commissioner has expressed his view in paragraph 30 of GTRS 2001/7 that either (a) or (b) need to be satisfied for section 188.25 to apply, namely: 30. Your projected GST turnover does not include supplies that fall within the description in either paragraph 188-25(a) or paragraph 188-25(b) listed above. Your supply does not have to satisfy the descriptions in both paragraph (a) and paragraph (b). When you make a supply that is capable of satisfying the description in both paragraphs, the supply is excluded only once. You advised that after the assets are disposed (after settlement) the only assets remaining will be cash and receivables as you undertake to wind up your business. You will only account for the supplies of leases to work out your GST turnover between the date of GST deregistration and date of the Settlement, which will not meet nor exceed the GST turnover registration threshold of $75,000. This means you are not required to be registered under sections 23-5 and 25-55(1)(c). Therefore, you are entitled to deregister for GST under section 25-55(1) as the sale of "trading stock" is excluded because of section 188-25(i). | Detailed Reasoning - Question 2: Section 9-5 of the GST Act states that you make a taxable supply if: (a) you make the supply for *consideration; and (b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and (c) the supply is *connected with Australia; and (d) you are *registered, or *required to be registered. However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed. All the criteria in section 9-5 of the GST Act must be met for there to be a taxable supply. Following on from our reasoning above, you will not meet all the above requirements in particular section 9-5(d) of the GST Act. Therefore, the sale of the assets on settlement would not be a taxable supply. | Detailed Reasoning - Question 3: Subsection 138-5(1) provides that you have an increasing adjustment if: (a) your registration is cancelled and (b) immediately before the cancellation takes effect, your assets include anything in respect of which you were, or are, entitled to an input tax credit. The methodology in calculating the increasing adjustment is provided in section 138.5 as follows: (1) Identify the assets that you were, or are, entitled to input tax credits immediately before the cancellation takes effect; (2) Identify the assets that has remaining adjustment periods after the cancellation takes effect. The number of adjustment period is depended on the use and purchase or importation value of the asset as shown in the tables below: (a) Assets used for business finance (section 129.20(2) of the GST Act) Purchase or importation value (less GST) Number of adjustment periods $1,001 to $50,000 1 $50001 to 499,999 5 $500,000 or more 10 (b) Assets not used for business finance (section 129.20(3) of the GST Act) Purchase or importation value (less GST) Number of adjustment periods $1,001 to $5,000 2 $5,001 to 499,999 5 $500,000 or more 10 In accordance with section 129-20(a) of the GST Act, your first adjustment period will start at least 12 months after the end of the tax period to which the acquisition or importation is attributable, or would be attributable if it were a creditable acquisition or creditable importation. (3) Calculate the increasing adjustment based on the formula: 1/11 x actual application of the thing x applicable value, where: (i) 'actual application of the thing' is the percentage of the asset's use that was for business purposes, calculated from the date of acquisition until the date of GST deregistration. (ii) 'applicable value' is the lesser of: a. the GST inclusive market value of the asset immediately before your GST cancellation date b. the GST inclusive acquisition cost of the asset. The Commissioner accepts the methodology you have adopted in calculating the increasing adjustment for purposes of Division 138 as it is in accord with what the legislation requires. However, we did not verify in detail towards the extent of the calculations.