A guide to the final steps and adjustments required whena strata deregisters for GST.
Deregistering a strata for GST is a relatively straightforward process... you confirm that the annual levy turnover is under the threshhold before getting in contact with your partnering accountant to request the cancellation ... but it’s important to understand that certain adjustments are legally required to finalise the obligations. These adjustments include amendments for the balance of arrears and prepayments (if the company reports GST on a cash basis) and repaying GST credits on certain capital expenditure. These requirements are often overlooked by managers so we've aimed to clarify things here.
Adjustments for Arrears and Prepayments
For stratas reporting GST on a cash basis, deregistration requires adjustments to account for arrears (unpaid income) and prepayments (income received in advance).
- Arrears: GST must be paid on income from all invoices issued during the registration period, even if the payment hasn’t been collected by the time of deregistration. For example, if a strata company deregisters on 30 June, any 1 July levies (which apply to the 1 July to 30 September period) that remain unpaid at deregistration must be included in the final BAS.
- Prepayments: GST credits on payments received for levy periods that fall after deregistration must be removed. In the example from the previous point, levy payments for the 1 July to 30 September period that were collected before 30 June, should be excluded from GST reporting on the final BAS.
These adjustments ensure the company’s GST reporting reflects only the period of registration... and, all else being equal, ensure no GST remains on your balance sheet after deregistration.
Repaying GST on Capital Expenditure
If a strata has claimed GST credits on capital improvements or additions, an adjustment may be required at deregistration to repay some or all of the GST credits claimed. For example, if a strata company installed or upgraded a lift in 2020 and claimed GST credits on the cost, the need to repay GST depends on whether the adjustment period for that improvement has expired. If the period has expired, then there is no need to repay the credits upon deregistration so it's important to understand the precise dates that apply.
An adjustment period refers to a full tax year (1 July to 30 June). This is very important to note as it is not simply the number of years since purchase. To give an example, a capital purchase made on 5 July 2024 has only elapsed one adjustment period as at 6 July 2026 despite more than two full years having passed by.
The number of adjustment periods that need to have elapsed varies based on the asset/improvement’s value:
- $1,001 to $5,000: 2 adjustment periods
- $5,001 to $499,999: 5 adjustment periods
- $500,000 or more: 10 adjustment periods
Key points to consider:
- Adjustment Period Expiry: If the adjustment period has expired before deregistration, no GST repayment is required. For example, a lift upgrade completed more than six years ago should no longer require a GST adjustment.
- Calculating Repayments: If still within the adjustment period, the repayment amount is calculated based on the asset’s market value at deregistration and its use for business purposes.
Strata managers can protect their clients from unwanted ATO scrutiny in this regard by pro-actively reviewing financial records or obtaining a declaration from the Council of Owners (COO) confirming whether any significant improvements occurred.
Final BAS Lodgement
When deregistering, the strata company must lodge a final Business Activity Statement (BAS) to capture all adjustments. This BAS includes:
- Arrears and Prepayments: Ensuring arrears are included and prepayments for post-deregistration periods are excluded.
- GST on Retained Assets: Adjustments for any assets retained by the strata company, if their adjustment periods have not yet expired.
These adjustments allow the strata company to meet its GST obligations and finalise its registration.
Quick Takes
- Adjustments for arrears and prepayments apply to strata companies reporting GST on a cash basis.
- An Adjustment period is a full tax year (1 July to 30 June) - not simply 12 months from the date of purchase.
- GST credits on capital improvements or purchases (e.g., a lift installation) may need to be repaid if deregistration occurs before the required number of adjustment periods has elapsed.
- The final BAS is where all GST adjustments are reported.
Seeking professional advice is highly recommended if you're ever unsure. If you require assistance for any strata property you manage, please reach out to our admin team.
Links:
- ATO: Adjusting for assets retained after cancelling GST registration
The above content is of a general nature and should not be relied upon as professional advice. Ascend encourages readers to seek advice from suitably qualified professionals in relation to their specific circumstances and not to rely solely on the information provided above. Please contact our office for more information.
(C) 2024 Ascend Strata Pty Ltd