GST core
Carrying on an enterprise
Carrying on an enterprise means actually running a business or similar commercial activity, which is required for GST registration, charging GST and claiming input tax credits.
The GST law does not just ask whether an enterprise exists. It asks whether you are carrying on one. This phrase focuses on what you are actually doing. You carry on an enterprise when you run a business, or carry out an activity of the type listed in the definition, regularly and with some commercial purpose. Only then do the GST obligations and entitlements apply to what you do.
Several practical tests guide the answer. Is the activity repeated and regular, or one-off? Is it carried out with the intention of making a profit or at least on a commercial scale? Are customers dealt with in a business-like way, with advertising, invoices and records? Is there a plan, a name and an ABN? None of these decides the question alone, but together they show whether the activity looks like a business.
The point at which you start carrying on an enterprise can be before sales begin. If you have taken real steps such as buying equipment, leasing premises, or hiring staff with a view to selling, you may already be carrying on an enterprise. This matters because GST credits on set-up costs generally require that you are registered and that you are acquiring for use in the enterprise. If you are only thinking about a business idea, you are probably not yet carrying on an enterprise.
The point at which you stop is also important. A business that is winding up is still carrying on an enterprise until it has completed the process, including selling or disposing of assets. After that, you should cancel your GST registration. If you keep your registration after you have stopped and are no longer carrying on an enterprise, the ATO can cancel it, and you may have outstanding obligations.
Employees, hobbyists and passive investors are in different positions. Employees are not carrying on an enterprise through their job, so they do not charge GST on wages. Hobbyists do not carry on an enterprise when the activity is purely recreational. Certain investors, for example those who rent out residential property, may be carrying on an enterprise for GST in a narrow sense, but their supplies are input-taxed, so they generally cannot claim credits.
A common error is deciding on enterprise status only by reference to profit. Many genuine start-ups make losses for years, yet they are carrying on an enterprise. Another error is believing that holding an ABN proves you are carrying on an enterprise. The ABN is only the record, and the facts of the activity determine the answer.
This is general information. For borderline cases, speak to the ATO or a registered tax professional for advice on your circumstances.
Worked example
Luca buys a van, signs a lease for a workshop and advertises his furniture restoration service in March, though his first customer is not until May. By March he is likely already carrying on an enterprise because of those steps. If he registers for GST, the $4,400 of GST-inclusive equipment he bought could give a $400 credit, since he acquired it for the enterprise.
Practical tips
- Document your steps, such as purchases, leases, advertising and plans, to show when you started carrying on an enterprise.
- Cancel your registrations when you have truly stopped, but not before you have wound up and sold assets.
- Do not rely on your ABN alone as proof of carrying on an enterprise. The facts matter.