• GST and property - creditable purpose adjustments

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    Terms we use

    When we say:

    • property, we are referring to the GST term real property including
      • a freehold interest in land
      • a stratum unit, or
      • granting or selling a long term lease
    • purchase, we are referring to the GST term acquisition
    • GST credit, we are referring to the GST term input tax credit
    • business we are referring to the GST term enterprise.

    What is an adjustment for GST purposes?

    An adjustment is a change that increases or decreases your net GST liability for a reporting period. There are two types of adjustments:

    • increasing adjustments - these increase your net GST liability for a reporting period
    • decreasing adjustments - these decrease your net GST liability for a reporting period.

    When do I have an adjustment for a change in use of property?

    You may need to make an adjustment on your June activity statement in relation to GST credits you have previously claimed if you use your property differently from the way you originally planned. For example if you rented out new residential premises that you originally planned to sell for which you had claimed GST credits you would need to make an adjustment The GST credits you previously claimed in relation to the construction or development of the residential premises may have been too much in view of your actual use. You will also have an adjustment if you originally planned to rent out but instead sold 'new residential premises' that form part of your business.

    Example: making an increasing adjustment on a property transaction

    Bob constructs six residential units to sell as part of his business. Bob claims GST credits for all his purchases that relate to constructing the six units.

    Bob then sells four of the units shortly after they are completed but is unable to sell the other two. Bob decides to start renting out the two units he is unable to sell.

    Bob must make an increasing adjustment in relation to the GST credits he claimed for the purchases he made to construct the units. This is because he has changed the way he used the two units by renting out the two units rather than selling them.

    Example: making a decreasing adjustment on a property transaction

    Kevin is a GST registered carpenter. Kevin decides to build residential premises that he intends to rent out for at least 10 years. As he has always planned to rent the property, Kevin does not claim any GST credits on his costs to construct the premises.

    Three months after Kevin originally rents the property he gets an offer to buy the property that is too good to refuse. Kevin decides to sell the property rather than rent it for the long term. GST will be payable on the sale of the premises as they are still considered 'new residential premises'. Because Kevin has used the premises differently to what he originally planned, he will need to make a decreasing adjustment for some of the GST credits he did not claim.

    Information you need to work out change in use adjustments

    To be able to calculate change in use adjustments, you will need certain information including:

    • when you made your purchases
    • the GST-exclusive value of each of your purchases
    • what GST credits you claimed when you made the purchases
    • the tax period in which you claimed the GST credits on your purchases
    • any previous adjustments you have made relating to the purchases
    • any details of you holding or marketing the property for sale (for example the listing agreement with your real estate agent or advertising material)
    • a reasonable estimation of the selling price (if the property has not sold)
    • what you have used the residential property for, including the period for which you have rented the premises or used the premises for private purposes
    • the amount of any rent you received (if they have been rented)
    • the date you sold the property, and the amount you sold it for.
    Attention

    Calculating adjustments correctly can be complex because it will depend on your specific circumstances and purchases.

    End of attention

    More information

    For more information, refer to:

    For more information or to obtain a copy of one of our publications:

    • visit our website at www.ato.gov.au
    • phone 13 28 66, or
    • write to us at
      Australian Taxation Office
      PO Box 3524
      ALBURY  NSW  2640

    If you do not speak English well and want to talk to a tax officer, phone the Translating and Interpreting Service on 13 14 50 for help with your call.

    If you have a hearing or speech impairment and have access to appropriate TTY or modem equipment, phone 13 36 77. If you do not have access to TTY or modem equipment, phone the Speech to Speech Relay Service on 1300 555 727.

      Last modified: 18 Apr 2012QC 21961