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  • Types of adjustments

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    Bad debt adjustment

    If you account for GST on a non-cash basis, you may have an adjustment relating to a bad debt if:

    • you write off a bad debt relating to a taxable sale you made
    • a debt relating to a taxable sale you made has been overdue for 12 months or more
    • you recover an amount for a bad debt you had already written off
    • you recover an amount relating to a taxable sale that was overdue for 12 months or more
    • a debt you owe for a purchase that you could claim a GST credit for has been overdue for more than 12 months or is written off as a bad debt
    • you pay a debt that has been overdue for 12 months or more or that has been written off as a bad debt, and you claimed (or could have claimed) a GST credit for the purchase.

    See also:

    • GSTR 2000/2 Goods and services tax: adjustments for bad debts

    Changes in creditable purpose

    The amount of GST credit you can claim on a purchase or importation depends on the extent to which it is used for a creditable purpose. You may have to make an adjustment if there is a change in the extent of the creditable purpose.

    You use goods or services for a 'creditable purpose' if you use them in your business. This does not include their use:

    • to make input-taxed sales, or
    • for private or domestic use.

    The 'creditable purpose' of a purchase changes if either:

    • there is a difference between how you planned to use it and how you actually use it, or
    • the way you use it has changed over time.

    Adjustments are required for changes in creditable purpose because the GST credit you originally claimed will either have been too much or too little.

    You will generally not have to make an adjustment for a change in creditable purpose:

    • if the value of the purchase or importation was $1,000 (GST-exclusive) or less
    • if the value of the purchase or importation related to business finance and was $10,000 (GST-exclusive) or less.

    Adjustment periods

    'Adjustment periods' are the reporting periods in which you have to account for any adjustments in your activity statement.

    An adjustment period for a purchase or importation is a reporting period that both:

    • starts at least 12 months after the end of the reporting period you claimed your GST credit in (or would have claimed your GST credit in had the purchase or importation been creditable), and
    • ends on 30 June (or if none of your reporting periods end on 30 June, your reporting period that ends closest to 30 June).

    The maximum number of adjustment periods in which you make adjustments depends on the value of the purchase or importation.

    Table 1: Adjustment periods for most purchases and importations

    Value of the purchase or importation (GST-exclusive)

    Number of adjustment periods

    $1,001 to $5,000

    2

    $5,001 to $499,999

    5

    $500,000 or more

    10

    Table 2: Adjustment periods for purchases or importations that relate to business finance

    Value of the purchase or importation (GST-exclusive)

    Number of adjustment periods

    $10,001 to $50,000

    1

    $50,001 to $499,999

    5

    $500,000 or more

    10

    If you cancel your GST registration, your final reporting period is also an adjustment period for purchases and importations.

    See also:

    Working out adjustments for changes in creditable purpose

    To work out the adjustment amount, follow the steps below.

    Step 1: Work out the extent to which you have used the purchase or importation for a creditable purpose during the period, starting from when you made your purchase or importation and ending at the end of the adjustment period. Work this out as a percentage.

    Step 2: Work out one of the following, as applicable, as a percentage.

    • If you have not previously made an adjustment for a change in creditable purpose, work out the extent to which you had originally planned to use the purchase or importation for a creditable purpose.
    • If you have previously made an adjustment for a creditable purpose, work out the extent to which you used the purchase or importation for a creditable purpose in respect of the last adjustment.

    Step 3: Compare the percentages worked out at Step 1 and Step 2.

    You have:

    • an increasing adjustment if the percentage worked out at Step 2 is more than the percentage worked out at Step 1 – this means you pay more GST for the reporting period
    • a decreasing adjustment if the percentage worked out at Step 1 is more than the percentage worked out at Step 2 – this means you pay less GST for the reporting period
    • no adjustment if there is no difference between the percentages worked out at Step 1 and Step 2 – this means you do not have to make an adjustment in the reporting period.

    Step 4: Calculate increasing or decreasing adjustments by multiplying the full amount of GST credit by the change in use (the difference between the percentages at Step 1 and Step 2). The 'full amount of GST credit' means the amount of GST credit you would have been entitled to claim if you had used the purchase or importation entirely for a creditable purpose.

    • If you have an increasing adjustment, the adjustment is worked out as follows:
      • The full amount of GST credit x [percentage worked out at Step 2 less the percentage worked out at Step 1]
       
    • If you have a decreasing adjustment, the adjustment is worked out as follows:
      • The full amount of GST credit x [percentage worked out at Step 1 less the percentage worked out at Step 2]
       

    Example: Calculating an adjustment for a change in creditable purpose

    Hollis is registered for GST and owns a bookshop. On 12 March 2015 he purchased a computer to use in his business for $1,500 (including $136.36 GST). The price of the purchase means it is subject to two adjustment periods (see Table 1).

    Hollis reports and pays GST quarterly and claims a full GST credit for the computer in the reporting period 1 January 2015 to 31 March 2015 because he plans to use it 100% for his business.

    Hollis's first adjustment period is the reporting period 1 April 2016 to 30 June 2016. To work out if he needs to make an adjustment in that reporting period, Hollis must compare his actual use with his planned use, that is compare:

    • the extent to which he used the computer for business from 12 March 2015 to 30 June 2016 (expressed as a percentage), with
    • the extent to which he planned to use the computer for business (expressed as a percentage).

    Hollis works out that he actually used the computer 80% for business and 20% for personal use from 12 March 2015 to 30 June 2016.

    Hollis must make an increasing adjustment on his April to June 2016 quarterly activity statement to repay some of the GST credits he claimed because he:

    • planned to use the computer 100% for business
    • claimed a full GST credit for the GST included in the purchase price of the computer
    • only used the computer 80% for business.

    The increasing adjustment is calculated as follows:

    • $136.36 (the GST included in the purchase price of the computer) × 20% (the difference between 100% and 80%).

    Hollis' second adjustment period is the 1 April 2017 to 30 June 2017 reporting period. To work out if he needs to make an adjustment in that reporting period, Hollis must compare his actual use against his previously stated use, that is:

    • the extent to which he used the computer for business from 12 March 2015 to 30 June 2017 (expressed as a percentage), with
    • the extent to which he said he used the computer for business from 12 March 2015 to 30 June 2016 (that is, the percentage worked out in respect of the last adjustment).

    Hollis works out that he used the computer 50% for business and 50% for personal use from 12 March 2015 to 30 June 2017. This is less than the extent to which he used it for business in respect of the first adjustment (80%).

    Hollis must make an increasing adjustment on his April to June 2017 quarter activity statement to repay some of the GST credits he claimed. This adjustment is calculated as follows:

    • $136.36 (the GST component of the purchase price) × 30% (the difference between 80% and 50%).
    End of example

    See also:

    • GSTR 2000/24 Goods and services tax: Division 129 – making adjustments for changes in extent of creditable purpose
    • GSTR 2006/3 Goods and services tax: determining the extent of creditable purpose for providers of financial supplies
    • GSTR 2006/4 Goods and services tax: determining the extent of creditable purpose for claiming GST credits and for making adjustments for changes in extent of creditable purpose

    Annual apportionment adjustments

    If you are eligible to use annual apportionment you can claim the entire GST amount on a purchase as a credit on your monthly or quarterly activity statement and make a single adjustment annually rather than apportioning the GST for business and private use at the time.

    An adjustment event, change in creditable purpose or bad debt adjustment may affect your annual apportionment adjustment for a particular purchase. This depends on whether the adjustment occurs before or after you make your annual apportionment adjustment on your activity statement.

    See also:

    Before your annual apportionment adjustment

    If you make an adjustment for a purchase due to an adjustment event or a bad debt before you make an annual apportionment adjustment, you do not account for any private use of the purchase at the time of calculation.

    Instead, you work out the adjustment amount as though you did not use the purchase for private purposes.

    You account for any private use of the purchase later when you make your annual adjustment, while also taking into account the effect of the earlier adjustment.

    If, for example, you made a purchase that was cancelled (making it subject to an adjustment event) or the whole amount was written off as a bad debt (making it subject to a bad debt adjustment), you no longer have to make an annual apportionment adjustment. This is because your earlier increasing adjustment overrides the need to make an annual apportionment increasing adjustment.

    After your annual apportionment adjustment

    To work out the adjustment amount when an adjustment event or a bad debt applies to a purchase after you have made an annual apportionment adjustment, you take into account how much you used the purchase for private purposes.

    For example, you account on a non-cash basis and you have made an annual apportionment increasing adjustment to account for the amount of a purchase you use for private purposes. If the purchase is later written off as a bad debt you only have to make a bad debt adjustment for the amount related to business purposes.

    Third-party payments

    You may have a third-party payment decreasing adjustment in situations where you:

    • supply a thing for re-sale
    • make a monetary payment to a third party (the payee) in connection with the payee's purchase of that thing.

    This adjustment occurs when you do not supply the thing directly to the payee but rather through a supply chain. The payee may have an increasing adjustment.

    Company mergers

    When two or more companies merge and continue as one company, this new company must make any adjustments the companies would have had to make if they had not merged. This includes adjustments where the new company makes changes in business use compared with the companies before the merger.

    This does not include adjustments that the companies had to make before they merged.

    Change to taxable sale

    You may have a decreasing adjustment if you used a purchase solely or partly for private or domestic purposes or for making financial sales and you later make a taxable sale of that thing.

    Purchases of going concerns

    If you purchase a business as a GST-free supply of a going concern, you may have an increasing adjustment if you plan to make any sales, through that business, that are neither taxable nor GST-free. You may later have to make increasing or decreasing adjustments if the proportion of these sales changes over time.

    See also:

    • GSTR 2002/5 Goods and services tax: when is a 'supply of a going concern' GST-free?

    Unredeemed vouchers

    If you sell a voucher that can be redeemed for a monetary value, you may have an increasing adjustment if both of the following apply:

    • the voucher is not redeemed
    • you have, for accounting purposes, written back to current income any reserves for the redemption of the voucher.

    See also:

    Tradex scheme goods

    If you are an importer, the Tradex scheme gives you an up-front exemption from Customs duty and GST on imported goods you plan to export.

    You may have an increasing adjustment if you hold a Tradex order and you deal with goods relating to that order differently from the way you would under the Tradex scheme.

    See also:

    GST registration

    Registering for GST

    If you register (or become required to be registered) for GST, you may have a decreasing adjustment for stock you have already purchased.

    Cancelling your GST registration

    If you stop being registered for GST, you may have increasing adjustments if you claimed or were entitled to claim GST credits for assets that you still have at the time your GST cancellation takes effect. This is because the assets are being taken out of the GST system, which is similar to final consumption.

    See also:

    Gross-up clauses

    'Gross-up' clauses are commonly included in commercial agreements to allow a supplier to recover additional amounts from the recipient in circumstances where GST has been undercharged or not charged on the supply.

    Where we are entitled to recover unpaid GST from the supplier for periods beyond four years, the supplier may rely on such a gross-up clause to pass the burden on to the recipient.

    Generally, there is a four-year time limit on claiming GST credits. If you provided additional payment under a gross-up clause, you may have a decreasing adjustment even if at the time of providing the payment you are no longer entitled to the credit because of the four-year time limit. You do not need an adjustment note to include the adjustment in your activity statement even if the additional payment you provided results in an adjustment event.

      Last modified: 30 Jun 2017QC 17537