The taxpayer in GBI v Comptroller of Goods and Services Tax [2016] SGGST 1 was held accountable for deemed output tax on an immovable property upon the cessation of its GST registration based on the price of the property in a sale days after the GST deregistration. Could this have been avoided?

The taxpayer was the precedent partner of a partnership, B, which registered for GST on 1 June 1996. B acquired a property on 1 August 2005 and was allowed its claim for the input tax paid on the property on the condition that should B deregister from GST, B was to account for deemed output tax on the market value of the property at the prevailing GST rate on the last day of GST registration.

B filed an Application for Cancellation of GST Registration on 9 June 2010 and was deregistered from GST with effect from 1 November 2010. B also ceased business sometime that same year. In between the application and deregistration, on 25 August 2010, B executed a sale and purchase agreement to sell the property for $5 million to a related company, D, which was wholly owned by the taxpayer. The sale was completed on 29 November 2010. D was subsequently registered for GST purposes on 1 July 2011.

The Comptroller of Goods and Services Tax assessed B for input tax of $350,000 for the deemed supply of the property upon the deregistration of B’s GST registration.

The taxpayer contended that the transfer of the property was not made in the course of business but solely for the dissolution of B. In addition, he contended that the transfer was a capital repayment of B’s reserves and hence a capital distribution.

The Goods and Services Tax Board of Review held that the distinction between revenue and capital was irrelevant. It is clear under the GST Act that the property, constituting “goods” forming part of the assets of B’s business, would be deemed to be supplied by B in the course of its business immediately before B ceased to be GST-registered. Accordingly, deemed output tax would be payable.

As an ancillary issue, the Board also explored whether the taxpayer could avail itself of Regulation 40 of the GST Regulations (relating to pre-registration claims) such that D could claim input tax on the purchase of the property. It was found that Regulation 40 would not apply as Regulation 40(1)(a) required a taxable supply of goods or services to D and at the time of the transfer of the property to D on 29 November 2010, B had ceased to be GST-registered and hence could not have made a taxable supply to D.

Editorial Note

It appears that bad timing was key in this case. If B had not ceased to be registered at the time of transfer of the property to D, it would have had to pay output tax on the sale but D would also have been able to claim input tax (provided it registered for GST in time) such that the overall financial position would have been neutral. With respect, the arguments put forward by the taxpayer were non-starters and betrayed a fundamental misunderstanding of the clear provisions of the deeming provisions.

In the appropriate cases, the Comptroller, in our experience, has been willing to restore the registration of the affected taxable persons to annul the deeming effect. This is, of course, a matter of discretion for the Comptroller.