• Issue no. 6 – Adjustments

    Schedule:

    • The postscript (a) indicates the date the original issue was placed on the register
    • The postscript (u) indicates the date the original issue was updated
    • The postscript (w) indicates the date the issue was withdrawn from the register
    • Withdrawn issues have been placed in the NTLG-GST Issues Register Archive (Issue 6 archive)
    Date Question Further information

    28/02/05(w)

    6.1 How does a supplier with an adjustment event (eg allowing volume rebates) issue an adjustment note enabling the making of a decreasing adjustment?

    These issues have been withdrawn and placed in the archive.

    28/02/05(w)

    6.2 When a customer takes a settlement discount, in general business practice no document is issued to recognise this. Will there be any exceptions to the adjustment note rules allowed in these circumstances?

    22/03/01(u)

    14/06/05(w)

    6.3 Can an interest charge be a change in consideration and therefore an adjustment event (as opposed to a financial supply)?

    GSTA TPP 018 replaces this issue. The original issue has been archived.

    10/08/04(a)

    26/06/13 (u)

    6.4 Interaction between Divisions 27, 129 and 162

     

    24/08/04(a)

    02/02/06(w)

    6.5 Division 138 and substantive renovations

    GSTA TPP 094 replaces this issue. The original issue has been archived

    24/08/04(a)

    14/06/05(w)

    6.6 Division 129 increasing/decreasing adjustments

    These issues have been withdrawn and placed in the archive.

    01/09/04(a)

    27/08/05(w)

    6.7 Division 132 adjustment

    6.4 Interaction between Divisions 27, 129 and 162

    Non-interpretative – straight application of the law.

    Issue

    Barry is a GST registered taxpayer. For the 2003 income year (ie from 1 July 2002 to 30 June 2003), Barry has elected to pay his GST by instalments, under Division 162 –ie annually.

    In September 2002, Barry acquired a car for $33,000 (including $3,000 GST). Assume that Barry will use the car to the extent of 80% for creditable purposes (on the basis of a valid log book). However, six months later, Barry finds that the car is used more for private purposes. Barry had originally overestimated the creditable use of the car and, therefore, is required to make one or more adjustments under Division 129.

    1. What is Barry’s 1st adjustment period under Division 129?

    2. Would the conclusion be any different if Barry did not continue paying GST instalments for the 2004 income year (but reverted back to lodging BAS returns quarterly)?

    National Tax and Accountants' Association view for Question 1:

    Under section 129-20, Barry’s 1st adjustment period is the tax period that starts at least 12 months after the tax period for which the acquisition is attributable, and ends on 30 June.

    If Barry were not paying GST instalments, and continued to lodge quarterly BAS’s, his 1st adjustment period would be the quarter ending 30 June 2005.

    However, it appears that section 27-99 ‘Item 1AAA’, and section 162-55(1), produce a different result. That is, it seems the effect of these provisions are to deem that Barry has an ‘annual’ GST tax period, rather than a ‘quarterly’ GST tax period. On this basis, Barry’s 1st adjustment period would be the annual tax period that ends on 30 June 2006.

    Alternative view – the definition of ‘tax period’ in section 195-1, does not provide a direct link with Division 162, but only refers to Division 27, section 57-35 or section 147-25. On this basis, it could be argued that Barry’s 1st tax period is determined on the basis of a ‘quarterly’ GST tax period, rather than an ‘annual’ GST tax period. However, we believe that this alternative view is not the preferred view, as there is a link between Division 27 and Division 162, through section 27-99 (Item 1AA).

    National Tax and Accountants' Association view for Question 2:

    If Barry does not continue paying GST instalments for the 2004 income year, it is not clear as to whether Barry’s 1st adjustment period is now determined on a ‘quarterly’ basis, or can be determined on an ‘annual’ basis for that particular acquisition.

    Division 129 does not make it clear as to how an adjustment period is determined for a taxpayer that has gone from ‘quarterly’ to ‘annually’ (and vice versa – as is the case with Barry, above), or even where tax periods have changed from ‘quarterly’ to ‘monthly’ (and vice versa) for that matter.

    It is submitted that the tax period to which a particular acquisition is attributed, and the tax period relating to any Division 129 adjustments for that acquisition, should be the same (ie ‘quarterly’, ‘monthly’ or ‘annually’). On this basis, it would be argued that Barry’s adjustment periods under Division 129 in respect of the input tax credit for the purchase of the car, would be measured by reference to ‘annual’ GST tax periods.

    ATO response

    The issue raised by the TPIP member concerns the delayed adjustment period in the following scenario:

    Barry, an instalment taxpayer (Division 162) with an annual tax period (1 July 2002 to 30 June 2003) acquires a car for $ 33,000 in September 2002. The first adjustment period for Barry in respect of this acquisition is the period ending 30 June 2005. If Barry had quarterly tax periods, his first adjustment period in respect of the same acquisition would be one year earlier, that is the period ending on 30 June 2004.

    Relevant provisions

    Where an entity elects to pay GST by instalments they have an annual tax period (subsection 162-55(1)). This provision overrides the normal rules about tax periods in Division 27 (subsection 162-55(4)). The effect of these provisions is that the attribution of the input tax credit for Barry will occur in the tax period which ends on 30 June 2003. This is in contrast to an attribution which would occur in the period ending 30 September 2002 if Barry's tax periods were quarterly. As Barry has an annual tax period he would not need to determine the extent of his creditable purpose of the car until he lodges his annual GST return (which could be at the time he lodges his income tax return).

    Division 129 deals with adjustments for changes in the extent of creditable purpose. Section 129-20 provides rules for attributing adjustments under Division 129. The number of adjustments that can be made depends upon the value of the acquisition. There is one adjustment period per year.

    As per section 129-20, an adjustment period relating to an acquisition:

    • starts at least 12 months after the end of the tax period to which the acquisition is attributable, and
    • ends on 30 June in any year.

    Application of provisions to scenario

    Applying these attribution rules to the scenario:

    Barry's acquisition is attributable to his annual tax period ending on 30 June 2003. Barry will claim his ITC in his annual GST return for the period 1 July 2002 to 30 June 2003. His first adjustment period will end on the 30 June following 1 July 2004, which is 30 June 2005.

    If Barry was a quarterly taxpayer his acquisition in September 2002 would be attributed to his quarterly tax period ending on 30 September 2002. Barry would claim an ITC in his BAS for this period. His first adjustment period would end on the 30 June following 1 October 2003, which is 30 June 2004. However, if Barry acquired the vehicle in the last quarter, say on 2 May 2003, the acquisition would be attributable to the period ending 30 June 2003. The adjustment period would be 30 June 2005, as is the case of an entity with annual tax periods.

    Similarly in the case of entities with monthly tax periods the first adjustment period for an acquisition in the month of May is 12 months earlier than for an acquisition made in June. For an acquisition on 2 June 2003, the first adjustment period is the period ending on 30 June 2005, where as for an acquisition on 2 May 2003 the first adjustment period is 30 June 2004.

    The second query was whether the outcome would be different if for the 2004 financial year Barry reverted back to quarterly tax periods.

    If Barry reverted back to quarterly tax periods in the 2004 financial year, his first adjustment period will remain the same, that is, the period ending on 30 June 2005. His acquisition was attributed to his annual tax period ending on 30 June 2003 and 12 months after the end of this period is 1 July 2004. Although Barry is on quarterly tax periods now, his last quarter ending on 30 June 2005 will still be his first adjustment period in respect of the acquisition.

    If Barry was a quarterly taxpayer during the 2003 financial year and elected to pay GST by instalments for the 2004 financial year his adjustment period in respect of the September 2002 acquisition would still be his tax period ending on 30 June 2004.

    Changing tax periods from quarterly to monthly and vice versa does not make any difference as the adjustment period is always the last period of the financial year ending on 30 June.

      Last modified: 04 Aug 2016QC 16309