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  • Decreasing adjustments

    You may be entitled to a decreasing adjustment when you dispose of a capital asset if it was used:

    • solely or partly for making financial supplies, or
    • partly for private or domestic purposes.

    The decreasing adjustment doesn't reduce the amount of GST payable on the sale of the asset, but reduces the net amount of GST you're liable to pay for the tax period.

    You apply the decreasing adjustment in the same tax period as the GST is payable on the sale of the asset.

    Find out about:

    See also:

    Calculating the adjustment

    Use the following formula to calculate the amount to reduce the GST payable:

    1/11 × price × (1 − adjusted GST credit ÷ full GST credit)

    Where:

    • price is the price for which you sell the capital asset
    • adjusted GST credit is the GST credit you claimed when you acquired the capital asset, plus or minus any other adjustments you subsequently made for the purchase 
    • full GST credit is the GST credit you would have been entitled to claim if you had purchased the capital asset solely for use in your business, but not for making input taxed supplies.

    The adjustment is capped – it can't be more than the difference between the full GST credit and adjusted GST credit.

    Example: Capital assets used for private purposes

    Ian runs a plumbing business and is registered for GST. He buys a vehicle for $44,000 (including $4,000 GST). Ian plans to use the vehicle 80% for his business and 20% for private purposes, so he claims a GST credit of $3,200 (that is, 80% of the GST included in the purchase price). He doesn't make any adjustments to this purchase.

    Ian later sells the vehicle for $22,000 (including $2,000 GST) and the sale is a taxable sale.

    Ian is entitled to a decreasing adjustment because he couldn’t claim a full GST credit when he bought the vehicle, as it was partly for private use.

    Ian calculates the decreasing adjustment as follows:

    1/11 × $22,000 × (1 − $3,200÷$4,000)

    = $2,000 × (0.2)
    = $400

    Ian claims the decreasing adjustment of $400, which reduces the net amount of GST payable.

    Example: Capital assets used to make financial supplies

    A credit union buys a building for $110 million (including $10 million GST). It plans to use the building 60% for making financial supplies and 40% for taxable business activities, so claims a GST credit of $4 million (that is, 40% of the GST included in the purchase price). The credit union doesn't make any other adjustments for this purchase.

    The credit union later sells the building for $99 million (including $9 million GST) as a taxable sale. It is entitled to a decreasing adjustment as it couldn’t claim a full GST credit when it bought the building, as the building was used partly for making financial supplies.

    The credit union calculates the decreasing adjustment as follows:

    1/11 × $99 million × (1 − $4 million÷$10 million)

    = $9 million × 0.6
    = $5.4 million

    The credit union claims the decreasing adjustment of $5.4 million, which reduces the net amount of GST payable.

    End of example

    Capping rule

    If the decreasing adjustment on the sale of a capital asset is more than the difference between the full GST credit and the adjusted GST credit, you can reduce the GST only by that difference.

    Example: Capping the decreasing adjustment

    A credit union buys a building for $110 million (including $10 million GST). It plans to use the building 60% for making financial supplies and 40% for taxable business activities, so claims a GST credit of $4 million (that is, 40% of the GST included in the purchase price). The credit union doesn't make any other adjustments for this purchase.

    The credit union later sells the building for $121 million (including $11 million GST) as a taxable sale. It calculates the decreasing adjustment as follows:

    1/11 × $121 million × (1 − $4 million÷$10 million)


    = $11 million × 0.6
    = $6.6 million

    The difference between the full GST credit and the adjusted GST credit was $6 million ($10 million – $4 million). Even though the decreasing adjustment calculation resulted in an amount of $6.6 million, the credit union must cap the decreasing adjustment at $6 million.

    End of example

    When decreasing adjustment doesn't apply

    You're not entitled to the decreasing adjustment on the sale of any of the following:

    • a capital asset purchased before 1 July 2000
    • a capital asset purchased before an entity is registered
    • a capital asset purchased from a non-registered entity
    • a motor vehicle for which GST credits were disallowed because of the GST transitional rules.

    See also:

    • GSTR 2004/8 Goods and services tax: when does an entity have a decreasing adjustment under Division 132?

    Financial supplies

    Financial supplies are input taxed.

    For the purposes of decreasing adjustments on capital assets, financial supplies include the:

    • lending or borrowing of money
    • buying or selling of shares or other securities
    • creation, transfer, assignment or receipt of an interest in, or a right under, a super fund
    • provision or receipt of credit under a hire purchase agreement entered into before 1 July 2012, if the credit is provided for a separate charge that is disclosed to the purchaser.

    However, for a hire purchase agreement entered into on or after 1 July 2012, all components of supplies under the agreement are considered taxable supplies, whether or not the interest charge is separately identified and disclosed.

    See also:

      Last modified: 24 May 2017QC 16711