• Adjusting for assets retained after cancelling GST registration

    You may have to make 'increasing adjustments' to your GST if you have claimed GST credits for assets you still have when your GST cancellation takes effect. This is because the assets are being taken out of the GST system, similar to final consumption.

    Find out more

    If your business changes or ceases

    End of find out more

    Making an adjustment

    When you purchased an asset, you may have claimed a credit on an activity statement for some or all of the GST you paid.

    Generally, you sell your business assets when you sell your business. However, in some cases business assets can be kept. If you still have business assets for which you claimed GST credits, you may need to repay some of those GST credits when you cancel your GST registration. For example, you may have used a car in your business and keep it after you cancel your GST registration.

    You do not need to make any adjustments for assets you held if either:

    • the registration cancellation relates to a deceased estate (see Deceased estates)
    • the last adjustment period applying to the asset ended before your cancellation date.

    If these exceptions do not apply, then you must:

    • make a calculation for each asset that requires an adjustment
    • include the adjustment amount on your activity statement.

    Deceased estates

    You do not have to make adjustments if the registration cancellation relates to a deceased estate and the cancellation is due either to:

    • the death of a sole trader, after which the executor or trustee of the estate
      • immediately continues the deceased's business, and
      • is registered (or required to be registered) for GST
       
    • the executor or trustee not carrying on the deceased's business but one or more of the beneficiaries
      • immediately continues that business, and
      • is registered (or required to be registered) for GST.
       
    • the market value of the asset (including GST) immediately before your cancellation date
    • the purchase price or cost of importing the asset (including GST).

    OR

    • the executor or trustee not carrying on the deceased's business but one or more of the beneficiaries
      • immediately continues that business, and
      • is registered (or required to be registered) for GST.
       
    • the market value of the asset (including GST) immediately before your cancellation date
    • the purchase price or cost of importing the asset (including GST).

    Adjustment periods

    The purpose of having adjustment periods is to provide an opportunity to review the business use of your assets over time. If there is a change in business use, you need to make an adjustment to ensure you claimed the right amount of GST credits. In most circumstances, your June tax periods are your adjustment periods.

    Find out more

    End of find out more

    Working out when adjustment periods expire

    Each asset you purchase or import for your business has a number of adjustment periods.

    The number of adjustment periods that apply to each asset depends on the GST-exclusive value of the purchase or importation and whether you bought or imported the asset for 'business finance' or not.

    Business finance relates to assets purchased or imported to make financial supplies and not used for private or domestic purposes. This does not include assets that you have acquired through a loan or other finance for your business. An example of making financial supplies is selling shares or making monetary loans.

    If you buy or import an asset that is not used for business finance, use table A to work out your adjustment periods.

    If you buy or import an asset that is used for business finance, use table B to work out your adjustment periods.

    Table A: Assets not used for business finance

    Purchase or importation value (less GST)

    Number of adjustment periods for assets

    $1,001 to $5,000

    2

    $5,001 to $499,999

    5

    $500,000 or more

    10

    Table B: Assets used for business finance

    Purchase or importation value (less GST)

    Number of adjustment periods for assets

    $10,001 to $50,000

    1

    $50,001 to $499,999

    5

    $500,000 or more

    10

    When your adjustment periods start and finish

    Your first adjustment period will be the first June tax period that is at least 12 months after the tax period in which you purchased or imported the asset.

    If the adjustment periods have expired for an asset, you do not have an adjustment.

    If the adjustment periods have not expired for an asset, you will need to make the calculation for each asset that requires an adjustment.

    Example: GST adjustment period – monthly reporting

    Sophie runs a retail clothing business and is registered for GST, reporting on a monthly basis. Sophie purchased a computer on 12 September 2010 for $4,400 and has a tax invoice for the purchase. She reported this purchase on her September 2010 activity statement and claimed GST credits.

    Sophie is using the computer in her retail clothing business, so her computer is 'an asset not used for business finance'. She checks table A to find out how many adjustment periods she has and finds she has two.

    The first June tax period at least 12 months after the tax period Sophie bought the computer is the June 2012 tax period. The second is June 2013. This means Sophie must make her first adjustment to the GST credits she has claimed on the computer the activity statement for the June 2012 tax period.

    If Sophie cancels her GST registration after her last adjustment period (June 2013) she will not have an adjustment.

    If Sophie cancels her GST registration before her last adjustment period (June 2013) she will have an adjustment.

    Example: GST adjustment period –quarterly reporting

    Graham is a GST-registered farmer who accounts for GST quarterly. He operates his business on property he purchased on 25 May 2000. In March 2010, Graham made improvements to the farm, carrying out extensive fencing of the property and constructing a dam.

    The fencing cost $22,000 (GST-inclusive) and the dam $6,600 (GST-inclusive). Graham claimed GST credits of $2,600 [($22,000 x 1/11th) + ($6,600 x 1/11th)] on his March 2010 activity statement for the GST included in the price of the fencing and the dam.

    Graham's first adjustment period for the fence and the dam is the June 2011 tax period. This is the first June tax period that is at least 12 months after the tax period in which he purchased the fencing and dam (March 2010).

    As Graham uses the fencing and the dam in his farming business, they do not relate to business finance and each item was purchased for more than $5,000 (GST-exclusive). Graham can see from table A that these assets have a maximum of five adjustment periods; the June 2011, June 2012, June 2013, June 2014 and June 2015 tax periods.

    In 2013 Graham decides to retire and keep the farm with its improvements. He ceased carrying on his enterprise on 30 October 2013 and cancelled his GST registration effective the same day. Graham was required to make an adjustment to repay some of the GST credits he claimed for the fencing and the dam. This is because his last adjustment period had not ended before the cancellation of his registration took effect. Graham makes the adjustment in his concluding tax period.

    Graham's concluding tax period is 1 October 2013 to 30 October 2013. The adjustment will need to be reported (together with any GST collected or paid) in his quarterly activity statement for the period ending 31 December 2013.

    End of example

    Calculating adjustments

    To calculate an adjustment, use the following formula to give you the figure you need to report on your activity statement as GST on sales (label 1A):

    'applicable value' x 'actual application' x 1/11

    Actual application is the percentage of the asset's use that was for business purposes, calculated from the date of purchase or importation until the date you cancelled your GST registration.

    If you have always used the asset only for business purposes, your business use of the asset is 100%. If you have used the asset partly for business purposes and partly for private purposes, you will need to calculate the percentage of business use of the asset on a reasonable basis.

    Applicable value is the lesser of:

    • the market value of the asset (including GST) immediately before your cancellation date
    • the purchase price or cost of importing the asset (including GST).

    To calculate the adjustment, complete the following in the calculation worksheet below:

    • In Column 1 list all the assets which you hold immediately before cancellation for which an adjustment is required.
    • In Column 2 list the GST-inclusive price of the purchase, in dollars.
    • In Column 3 list the estimated current market value (including GST) as it was at the date your cancellation became effective.
    • In Column 4 list the lesser of columns 2 and 3, that is, the lesser of the purchase price and the current market value.
    • In Column 5 state the percentage the asset was used for business purposes –this is calculated by working out the business use from the date of purchase to the cancellation date. Record this as a percentage.

    If you use the calculation worksheet method to account for GST

    • complete the calculation in Column 6
    • add the amount at Column 6 to box G7 on the worksheet (this is the amount of your adjustment)

    Include the adjustment in label 1A of the activity statement.

    If you use the accounts method to account for GST

    Add this adjustment to label 1A (GST payable) on your activity statement (this adjustment is the GST that you need to pay to us).

    Attention

    You may use either the calculation worksheet method or the accounts method to complete the relevant labels on your final activity statement.

    End of attention

    Find out more

    section 3 in GST – completing your activity statement.

    End of find out more

    Calculation worksheet

    Calculation worksheet

    Example: Using the calculation worksheet method

    Frank, a sole trader who operates a clothing store, is registered for GST on a quarterly basis. Frank cancels his GST registration which takes effect on 30 September 2013. Frank decides to keep a car, a computer and a filing cabinet that he had been using for his business.

    The computer and filing cabinet were always used 100% in his business. Frank originally intended to use the car solely for business purposes but his log book shows that from the date of purchase to the cancellation date, his business use was 75%.

    Frank bought the:

    • car in August 2011 for $27,500 (including $2,500 GST). He claimed a GST credit of $2,500 for it in the September 2011 tax period
      computer in October 2010 for $3,300 (including $300 GST). He claimed a GST credit of $300 for it in the December 2010 tax period
      filing cabinet in February 2013 for $660 (including $60 GST). He claimed a GST credit of $60 for it in the March 2013 tax period.

    Frank establishes that the current market value of each asset; the car is $4,400, the computer is $220 and the filing cabinet is $440.

    Step 1

    Frank will need to consider whether an adjustment is required for the car, computer and filing cabinet as they will be held immediately before cancellation takes effect.

    Step 2

    The exceptions relating to deceased estates do not apply.

    Step 3

    Frank considers the exception relating to adjustment periods:

    1. As Frank ran a clothing retail store, none of his purchases relate to business finance. This means he uses table A to work out the number of adjustment periods that apply to each asset.
    2. The car has five adjustment periods. The first adjustment period is the June 2013 tax period as this is the first June tax period that is at least 12 months from the end of the tax period in which the purchase of the car was attributed. The fifth and last adjustment period will be the June 2017 tax period.
    3. As the adjustment periods for the car have not expired before Frank's cancellation takes effect, he must make an increasing adjustment.
    4. The computer has two adjustment periods. The first adjustment period is the June 2012 tax period as this is the first June tax period that is at least 12 months from the end of the tax period in which the purchase of the computer was attributed. As there are two adjustment periods, the last one is the June 2013 tax period.
    5. As the adjustment periods for the computer expired before Frank's cancellation takes effect, he does not need to make an increasing adjustment and does not need to do anything else for the computer.
    6. The filing cabinet has two adjustment periods. The first adjustment period is the June 2014 tax period as this is the first June tax period that is at least 12 months from the end of the tax period in which the purchase of the filing cabinet was attributed. As there are two adjustment periods, the last one is the June 2015 tax period.
    7. As the adjustment periods for the filing cabinet have not expired before Frank's cancellation takes effect, he must make an increasing adjustment.

    Calculation worksheet

    Calculation worksheet

    End of example

    More information

    For more information, refer to:

    Further information

    Help

    contact us

    End of further information

     

      Last modified: 20 May 2014QC 40230