Work out how to calculate your increasing annual adjustment.
When to make your adjustment
Annual increasing adjustments must be made on either:
- your activity statement that covers the period when your income tax return is due (for the income year covering the tax period you claimed your GST credit in)
- an earlier activity statement.
Example: When to make your annual increasing adjustment
Javier lodges his activity statement on a quarterly basis and uses annual private apportionment.
He claims a full GST credit for his 1 July to 30 September 2016 quarterly tax period.
Javier is required to lodge an income tax return for the period 1 July 2016 to 30 June 2017. The due date for this income tax return is 31 October 2017. This due date falls within the quarterly tax period 1 October to 31 December 2017.
Javier must make his annual increasing adjustment in the activity statement which covers the tax period 1 October to 31 December 2017.
End of exampleIf you are not required to lodge an income tax return, you must make your annual increasing adjustment in your activity statement for the tax period up to the 31 December of the financial year. This date starts after the tax period where you have claimed the full GST credit.
In certain circumstances your annual increasing adjustment will need to be brought forward to a specific tax period. You or your legal representative, will need to make an annual increasing adjustment in the activity statement that relates to your concluding tax period if:
- you no longer carry on an enterprise
- your GST registration is cancelled
- you go into liquidation, receivership, or no longer exist as an enterprise
- you become bankrupt
- you die.
Calculating your adjustment
To calculate the amount of your annual increasing adjustment, you will need to:
- Work out the amount of the GST credit you have received or will receive for your purchase.
- Work out the amount of GST credits you're entitled to claim. This is the amount of GST credit you would have received if you had not chosen annual private apportionment. Any other adjustments in the price of purchase, such as a decreasing adjustment, may be considered in this step.
- Subtract the amount you worked out at step 2 from the amount at step 1.
Example: Calculating your annual increasing adjustment
Elena lodges her activity statement on a quarterly basis and uses annual private apportionment.
When filling out her activity statement to make her annual adjustment Elena uses the steps above to work out the adjustment for phone services as follows.
- The GST credit you received for the purchase is $20.
- The amount Elena would have been entitled to claim is $6.
- Elena's annual adjustment is $14 ($20 minus $6)
After the adjustment of $14, the amount of GST credit Elena receives overall on the purchase ($20 minus $14) is equal to the amount she would have received if she had not chosen annual private apportionment ($6).
In the same financial year, Elena also purchased a computer, partly for private purposes and partly for business purposes, so she must also make an adjustment to account for that.
She calculates the increasing adjustment for the computer to be $10, and adds this to her adjustment for the phone services to report the total of $24 ($14 + $10) on her activity statement.
End of exampleIf you have applied annual private apportionment to several purchases, you must:
- calculate an annual increasing adjustment for each purchase
- add the adjustments together
- report the total on the activity statement.
When you calculate your annual increasing adjustment in step 2, you must consider any other adjustments that occur with your purchase. This includes:
- adjustments that have arisen because of a change in the purchase price
- instances where the supplier has written off a bad debt.
Example: Purchases that have price adjustments
Rohit is registered for GST and has chosen to use annual private apportionment. In August he purchased a laptop partly for his manufacturing business (10%) and partly for private purposes (90%). The purchase price quoted was $1,100. After receiving a tax invoice, Rohit claimed a full GST credit of $100 on his next activity statement.
In December, Rohit received an invoice showing that the price of the laptop had increased by $110. As a result, Rohit had to pay a total of $1,210. Included in this amount was $110 GST ($1,210 divided by 11).
Rohit must now make a decreasing adjustment of $10 to account for the fact that he only claimed a GST credit of $100. He makes this decreasing adjustment on his next activity statement.
Working out the annual increasing adjustment
To work out his annual increasing adjustment, Rohit needs to take into account both the GST credit he's claimed, and the decreasing adjustment that he made due to the price increase.
Rohit uses steps works out his annual increasing adjustment as follows:
- The GST credit claimed for the purchase is $100.
- The decreasing adjustment of the price increase is $10.
- Total GST credit Rohit received for his purchase is $110.
Calculating the GST credits and annual increasing adjustment Rohit would have received
Rohit purchased the item only partly for business purposes (10%). If he had not elected to use annual private apportionment, he would have received a GST credit, a decreasing adjustment only for the business portion of the GST included in the original purchase price, and the subsequent price increase. The decreasing adjustment will need to be added to the calculated GST credit amount received.
Using steps 1–3 above and the formula to work out GST credit, the calculations for the amount Rohit would have received, if he had not used annual private apportionment for his purchase are:
- The GST credit Rohit would have claimed for his purchase is $10 (that is, the GST credit claimed for his laptop of $100 x 10%).
- The total amount of GST credits Rohit would have been entitled to claim for his purchase is $11, made up of:
- The initial GST credit ($10) × the extent of the non-input-taxed purpose (10%) = $1. This is the total decreasing adjustment amount.
- $10 (GST credit for purchase) +$1 (decreasing adjustment) = $11.
- Rohit's amount of annual increasing adjustment is: $99 ($110 minus $11).
The GST credit Rohit received ($100) plus the decreasing adjustment he had ($10) minus the annual increasing adjustment ($99) equals the amount Rohit would have received if he did not use annual private apportionment ($11).
End of exampleBelow is another scenario relating to Rohit's annual increasing adjustment that focuses on price change.
Example: Prices changed after you made your annual increasing adjustment
Rohit is registered for GST and has chosen annual private apportionment.
After making his annual increasing adjustment, Rohit receives a rebate of $220 for the laptop he purchased. After the rebate, Rohit has effectively paid a total of $990 for his purchase ($1,210 minus $220). This amount includes $90 GST.
As Rohit purchased the item partly (10%) for business purposes, he can claim a GST credit of $9 (10% of the $90 GST included in the amount he effectively paid).
From step 2 listed in the previous example (GST credit and previous adjustment received of $11), Rohit calculates his annual increasing adjustment by subtracting the total amount worked out at step 2 from the amount worked out at step 1, that is $11 minus $9 = $2.
Rohit must make the increasing adjustment on the activity statement that covers the date on which he became aware of the rebate.
End of exampleIf your actual use of the purchase for private purposes differs from the estimate you used to calculate your annual increasing adjustment, and you paid more than $1,100 (including GST) for the purchase, you may need to make further adjustments.
For more information about making adjustments, see:
- GSTR 2000/24 Goods and services tax: Division 129 – making adjustments for changes in extent of creditable purpose
- GSTR 2006/4 Goods and services tax: determining the extent of creditable purpose for claiming input-tax credits and for making adjustments for changes in extent of creditable purpose