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  • Working out when adjustment periods expire

    Each asset you acquire for your business has a number of 'adjustment periods'.

    The purpose of adjustment periods is to provide an opportunity to review the business use of your assets over time. If there's a change in business use, you need to make an adjustment to ensure you claim the right amount of GST credits.

    In most circumstances, your June tax periods are your adjustment periods.

    For assets you retain after cancelling your GST registration, you need to work out if their adjustment periods expired before the cancellation took effect.

    Use the tables below to work out the number of adjustment periods for your asset:

    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 don't have an adjustment.
    • If the adjustment periods have not expired for an asset, you'll need to calculate the adjustment for that asset.
    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

     

    Example: GST adjustment period – monthly reporting

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

    Sophie closes her business and cancels her GST registration in July 2013. She keeps the computer for her private use.

    As Sophie used the computer in her retail clothing business (ie it was not used for 'business finance'), she checks table A. As shown in the table, the computer has two adjustment periods.

    The first June tax period at least 12 months after the tax period Sophie bought the computer is the June 2012 tax period, and the second is June 2013.

    As Sophie cancelled her GST registration after her last adjustment period (June 2013) she does not have an adjustment.

    If Sophie had cancelled her GST registration before her last adjustment period (June 2013) she would have had an adjustment.

    End of example

     

    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 × 1/11th) + ($6,600 × 1/11th)] on his March 2010 activity statement for the GST included in the price of the fencing and the dam.

    In 2013 Graham decides to retire and keep the farm with its improvements. He ceases carrying on his enterprise on 30 October 2013 and cancels his GST registration effective the same day.

    Graham's first adjustment period for the fence and 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 dam in his farming business, they don't relate to business finance. 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.

    Graham is required to make an adjustment to repay some of the GST credits he claimed for the fencing and 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

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      Last modified: 31 May 2017QC 40230