GST core
Enterprise
For GST purposes an enterprise is an activity done in the form of a business or similar commercial activity, and it is central to who must register, charge GST and claim credits.
Enterprise is the word the GST law uses to describe the commercial activity that brings someone into the system. The Act defines it broadly. It includes activity done in the form of a business, an adventure or concern in the nature of trade, leasing or licensing property, and certain activities of clubs, associations and government bodies. If you carry on an enterprise, you may need to register for GST, and the sales you make in it can be taxable.
Some things are not enterprises. Private recreational pursuits and hobbies are generally excluded, and so is activity as an employee, which is why a wage earner does not charge GST on their salary. Certain non-commercial activities of non-profit organisations and some activities of individuals are also outside the definition. The dividing line often depends on whether the activity is run in a business-like way, with a profit intention, regular activity and records.
The concept matters at several points. A supply is only taxable if it is made in the course or furtherance of your enterprise. A purchase only gives rise to input tax credits if it is made for a creditable purpose in carrying on your enterprise. And you can only obtain an ABN if you are carrying on an enterprise. So proving that an enterprise exists can unlock registration and credits.
Starting and ending an enterprise raises some issues. Costs you incur in preparing to start can sometimes be claimed if you are registered or can show you are genuinely about to start. When an enterprise ends, you should cancel registrations and consider the GST on assets you still hold. The law treats winding up as part of the enterprise, so some supplies made while closing down can still be taxable.
Factors the ATO considers include whether there is repetition and regularity of activity, whether it has a purpose of profit, whether the scale is commercial, whether you have a business plan, and whether records and a business structure exist. A single factor rarely decides the matter. A small side business can easily be an enterprise even when it makes little profit in the early years.
Common misunderstandings include thinking you need to be making a profit to have an enterprise, or that casual sales cannot be an enterprise. Another is assuming hobbies should be run without considering GST, when a hobby that turns into regular commercial selling may become an enterprise. Equally, selling your own private items occasionally does not usually amount to one.
This is general information only. If you are unsure whether your activity is an enterprise, check with the ATO or a registered tax professional.
Worked example
Zoe makes candles at home and sells about 30 a week at a market stall and online, keeping records and planning her stock. This is regular, commercial and organised, so it is likely an enterprise. If her sales reach $75,000, excluding GST, over 12 months she must register for GST. A friend who sold a few unwanted items online once is not carrying on an enterprise.
Practical tips
- Keep a business plan, records and a clear separation between private and business activity to show you are running an enterprise.
- Do not assume a lack of profit means you have no enterprise. Regular, commercial activity can qualify even in early loss years.
- Check whether an enterprise exists before applying for an ABN or claiming credits.