If you are GST-registered and in the midst of winding up your business, you may claim input tax on your termination-related expenses, subject to the attribution and apportionment rules under the GST Act.
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Termination of business
Anything done in connection with the termination or intended termination of a business is regarded as done in the course and furtherance of that business for GST purposes. Therefore, you must charge GST on your taxable supplies made (e.g., sale of business assets) in the course of winding up the business.
Claiming input tax on termination expenses
Expenses relating to the termination of your business (“termination expenses”) (e.g. legal fees, liquidation fees, etc.) will be regarded part of your overheads. You may be able to claim the corresponding GST incurred as input tax.
If you are making only taxable supplies before the winding up, the input tax on termination expenses would be attributable to that fully-taxable business. Hence, you would be allowed to claim full input tax on the termination expenses. This is notwithstanding that the termination expenses are
incurred in a subsequent period where no taxable supplies are made.
If you are making both taxable and exempt supplies before the winding up, you must apportion the input tax incurred on the termination expenses based on the input tax recovery formula that is accorded to you. If you are applying the standard input tax recovery formula and do not make any taxable supplies in the accounting period during which the termination expenses are incurred, you would not be able to claim any input tax on the termination expenses for that accounting period.
Claiming input tax on non-termination expenses
If you have ceased business operations, you may continue to incur expenses that are not for the purpose of winding up the business (“non-termination expenses”). Examples of such expenses include office rental and utilities.
You will be allowed to claim full input tax on non-termination expenses that are directly attributable to the making of past or present taxable supplies. Expenses are considered “directly attributable” to a taxable supply only if:
- the purchase forms a cost component of the supply or
- the purchase is being used as an input or will be used to make a supply.
To be treated as an input to make a supply, the purchase must be used to make the supply and not merely have a link to the supply.
Example : Professional services incurred to address IRAS queries on GST returns when taxable supplies were made
Such services do not form a cost component or are used as inputs to make specific supplies. These services are procured for the overall running of the business.