Can Cancelling Your GST Registration Help You Avoid Charging GST on Asset Sales?

When you purchased your commercial property, you either paid GST on the purchase or claimed GST on the purchase price by registering for GST. If the rent you charge is under $75,000 per year, you’re not required to be registered for GST—but you may have registered to claim back the GST at the time of purchase. Now, as you consider selling the property, you might wonder if cancelling your GST registration will allow you to sell it GST-free.

Can You Cancel Your GST Registration?

The answer depends on specific GST laws designed to prevent misuse of registration cancellations. If you cancel your GST registration within certain time limits, this action itself can trigger a GST liability. In such cases, you would need to remit GST based on the property’s market value, even if no sale has occurred yet.

How It Works in Practice

Let’s look at an example:

• You bought the property for $500,000 plus GST and claimed back the GST at the time.
• The property is now worth $1 million.
• If you sell it today, you’d need to remit $90,909 in GST to the ATO (1/11th of the sale price).

If you cancel your GST registration instead, the following applies:

1. Less than 10 Years of Ownership
   • If you’ve owned the property for less than 10 years, cancelling your GST registration triggers an adjustment on your next BAS, requiring you to remit GST based on the property’s market value.
2. More than 10 Years of Ownership
   • If you’ve owned the property for more than 10 years, cancelling your GST registration may allow you to sell the property GST-free, as no adjustment would be required.

For properties valued under $500,000, this ownership period threshold drops from 10 years to 5 years.

Strategic Considerations

This strategy can be particularly useful for long-term property holders, such as Self-Managed Superannuation Funds (SMSFs), that are unlikely to sell quickly. However, remember that many buyers can claim GST on the purchase, so the benefit of cancelling your GST registration might be limited.

It’s also important to note that these rules apply to any asset for which you claimed GST, including vehicles. For example, you’d typically need to hold a car for at least five years before cancelling GST registration without triggering an adjustment.

Seek Professional Advice

Understanding GST obligations and cancellation rules can be complex. Before making any decisions, consult your accountant or tax professional to ensure compliance and explore the best strategy for your specific situation.

IMPORTANT NOTICE

This blog post contains general information only and has been prepared by Allworths without reference to your objectives, financial situation or needs. Allworths cannot guarantee the accuracy, completeness or timeliness of the information contained here. By making this information available to you, we are not providing professional advice or recommendations. Before acting on any of the information contained here, you should seek professional advice.