Edited version of your written advice

Authorisation Number: 1012696515841

Ruling

Subject: GST and adjustment notes

1. Do you have a decreasing adjustment due to the overpayment of the GST inclusive amount of $X by the recipient to you?

2. If yes, should you issue an adjustment note to the recipient, refund the overpaid amount to the recipient and claim a GST decreasing adjustment of $Y from the Australian Taxation Office (ATO)?

Answers

1. Yes.

2. Yes.

Relevant facts and circumstances

You are registered for GST.

You supply specified services to the recipient under a contract.

You sent us a copy of a letter from the recipient which provides that due to an inadvertent administrative error in their fee schedule that applied during a specified period, you have invoiced the recipient incorrectly. As a result you have been overpaid an amount of $X. In that letter, the recipient has offered you a number of repayment options.

You stated that GST was included in the overpaid amount of $X and you have remitted the GST on the overpaid amount in the specified activity statements.

You sent us a copy of a tax invoice that you issued to the recipient during the specified period as evidence that GST has been included in the price of your services.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Subsection 19-10(1).

A New Tax System (Goods and Services Tax) Act 1999 Subsection 19-10(2).

A New Tax System (Goods and Services Tax) Act 1999 Section 19-40

A New Tax System (Goods and Services Tax) Act 1999 Section 19-55

A New Tax System (Goods and Services Tax) Act 1999 Subsection 29-20(1)

A New Tax System (Goods and Services Tax) Act 1999 Subsection 29-20(3).

A New Tax System (Goods and Services Tax) Act 1999 Subsection 29-75(2).

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1.

Reasons for decision

Question 1

Do you have a decreasing adjustment due to the overpayment of the GST inclusive amount of $X by the recipient to you?

Summary

You have a decreasing adjustment as there is a change in the consideration for the services that you supplied to recipient, and the corrected GST amount is less than the previously attributed GST amount, which results in a decreasing adjustment of $Y (1/11 of $X).

Detailed reasoning

Is there an adjustment event?

Subsection 19-10(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) defines adjustment events as any event which has the effect of:

a) cancelling a supply or acquisition; or

b) changing the consideration for a supply or acquisition; or

c) causing a supply or acquisition to become, or stop being, a taxable supply or creditable acquisition.

Furthermore, without limiting subsection 19-10(1) of the GST Act, subsection 19-10(2) of the GST Act describes the following as adjustment events:

a) the return to a supplier of a thing, or part of a thing, supplied (whether or not the return involves a change of ownership of the thing);

b) a change to the previously agreed consideration for a supply or acquisition, whether due to the offer of a discount or otherwise; …

Goods and Services Tax Ruling GSTR 2000/19 provides the ATO view on the operation of Division 19 of the GST Act.

Paragraph 18 of GSTR 2000/19 provides that where the consideration for a supply or acquisition changes for any reason you have an adjustment event.

GSTR 2000/19 considers some payments and other amounts which may or may not change the consideration. At paragraph 25, GSTR 2000/19 states:

Incorrect invoicing

25. The invoice for a supply may be incorrect due to a mistake made by the supplier. That is, the invoice may not reflect the previously agreed consideration. Where the parties treat the mistake as a change to the previously agreed consideration for the supply, there will be an adjustment event. The mistake may be corrected either by issuing an adjustment note for the amount of the error or by issuing an adjustment note for the full amount originally invoiced together with the issue of a correct invoice. In either case there is an adjustment event.

In your case, the recipient has advised you that due to an inadvertent administrative error in their fee schedule, you have invoiced the recipient incorrectly. As a result you have been overpaid $X and are required to repay the overpaid amount to the recipient.

Accordingly, there is an adjustment event under section 19-10 of the GST Act as there is a change in the consideration for the services that you have supplies to the recipient.

Do you have a decreasing adjustment?

Section 19-40 of the GST Act states:

You have an adjustment for a supply for which you are liable to pay GST (or would be liable to pay GST if it were a *taxable supply) if:

(a) in relation to the supply, one or more *adjustment events occur during a tax period; and

(b) GST on the supply was attributable to an earlier tax period (or, if the supply was not a taxable supply, would have been attributable to an earlier tax period had the supply been a taxable supply); and

(c) as a result of those adjustment events, the *previously attributed GST amount for the supply (if any) no longer correctly reflects the amount of GST (if any) on the supply (the corrected GST amount), taking into account any change of circumstances that has given rise to an adjustment for the supply under this Subdivision or Division 21 or 134.

(* denotes a term defined in the GST Act)

In your case, as stated earlier, there is an adjustment event as there has been a change in the consideration for the services that you have supplied to the recipient. Further, you have attributed the GST payable on the overpaid amount in your previous activity statements and as a result the previously attributed GST amount for the supplies no longer correctly reflects the amount of GST payable on the services that you have supplied to the recipient. Accordingly, you have an adjustment under section 19-40 of the GST Act.

Section 19-55 of the GST Act state:

19-55 Decreasing adjustments for supplies

If the *corrected GST amount is less than the *previously attributed GST amount, you have a decreasing adjustment equal to the difference between the previously attributed GST amount and the corrected GST amount.

In your case, the corrected GST amount is less than the previously attributed GST amount, which results in a decreasing adjustment of $Y (1/11 of $X).

Question 2

Should you issue an adjustment note to the recipient, refund the overpaid amount to the recipient and claim a GST decreasing adjustment amount of $Y from the ATO?

Summary

You are required to issue an adjustment note for the decreasing adjustment.

The recipient has asked you to repay the overpaid amount.

The decreasing adjustment of $Y is attributable to the tax period in which you hold an adjustment note for the adjustment.

Detailed reasoning

Adjustment note

Subsection 29-75(2) of the GST Act provides that the supplier of the taxable supply must give to the recipient an adjustment note for the adjustment within 28 days of the earlier of:

• receiving a request from the recipient of the supply; or

• becoming aware of the adjustment (where the supplier issued, or was requested to issue, a tax invoice).

Accordingly, you are required to issue an adjustment note for the adjustment within the timeframes specified in subsection 29-75(2) of the GST Act. That is, you were required to issue the adjustment note within 28 days of becoming aware of the adjustment unless you received a request for an adjustment note from the recipient before becoming aware of the adjustment, in which case, you were required to issue the adjustment note within 28 days after receiving that request.

Attributing your decreasing adjustment

Subsection 29-20(1) of the GST Act provides that an adjustment that you have is attributable to the tax period in which you become aware of the adjustment.

However, subsection 29-20(3) of the GST Act provides that if you have a decreasing adjustment arising from an adjustment event, but do not hold an adjustment note for the adjustment in the tax period in which the adjustment would otherwise be attributable, the adjustment is attributable to the first tax period in which you hold an adjustment note.

From the information provided, it appears that you have not yet issued an adjustment note. Therefore you can attribute the decreasing adjustment to the tax period in which you issue and hold an adjustment note.

Note: While you have a decreasing adjustment of $Y, the recipient has a corresponding increasing adjustment of $Y.

For further information on adjustments and adjustment notes refer to Goods and Services Tax Ruling 2000/19 and Goods and Services Tax Ruling 2013/2. These rulings are available on our website at ato.gov.au