Q: A husband and wife bought a residential property (used for commercial purposes) as a going concern in 2011 for $720,000 with a café lease in place. After one month, the café lease expired and commenced a beauty therapy business as a partnership until June 2014, when they divorce. The registration of the partnership was cancelled and the business continued trading from the premises as a sole trader registered for GST. Now, the owners want to sell. A non-GST registered party provided an offer to purchase as residential. What are the GST implications? Is a balancing adjustment necessary and if so, from what date? Is it complicate due to the deregistration of partnership in 2014?
A: Under GST Act s 135-10, the sale of the property as an input-taxed supply of residential premises will trigger a balancing adjustment. Specifically, s 135-10(1) states that a Div. 129 balancing adjustment arises when something acquired as a GST-free supply of a going concern is applied to make supplies that are neither input-taxed nor GST-free. Under s 129-20, adjustment periods will occur in the tax period that ends on June 30 in any year. The sale of the property from the partnership to the sole trader proceeded as a GST- free supply of a going concern, so the issue about the increasing adjustment would remain the same as it would have been had the partnership sold the property as an input-taxed supply.