Edited version of private advice

Authorisation Number: 1051787346204

Date of advice: 03 December 2020

Ruling

Subject: Attribution of increasing and decreasing adjustments

Question 1

For the purposes of subsection 29-20(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when does the Supplier Entity "become aware" of the decreasing adjustment when they make a refund payment to a customer?

Answer

The Supplier Entity becomes aware of a decreasing adjustment under subsection 29-20(1) of the GST Act when the amount to be refunded to the customer is finalised and worked out for the original supply.

Question 2

Is the attribution of the decreasing adjustment affected by the fact that the earlier tax period in which the GST was previously attributed is now outside the "period of review" as defined by subsection 155-35(2) of Schedule 1 to the Taxation Administration Act 1953(TAA)?

Answer

No.

Relevant facts and circumstances

•           Supplier Entity is registered for GST and accounts for GST on a non-cash basis.

•           Supplier Entity becomes aware they have overcharged their customers for supplies they have made.

•           Supplier Entity has to work out how much they need to refund the overcharged amounts to their customers.

•           Some of the overcharging relates to supplies that were made in tax periods that were more than four years ago.

•           Where refunded amounts are unclaimed, Supplier Entity will be subject to the relevant State legislation for unclaimed money. They will hold the money on behalf of their customers and when required, hand the money over to the relevant State agency.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 Section 19-10

A New Tax System (Goods and Services Tax) Act 1999 Section 19-50

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) Regulations 2019 Subsection 29-80.02

Taxation Administration Act 1953 Schedule 1 Section 155-35

Reasons for decision

All references to legislation are to A New Tax System (Goods and Services) Act 1999 (GST Act) unless otherwise specified.

Legislative framework

Adjustments and Adjustment events

For GST purposes, an adjustment may arise in relation to a supply or acquisition you made and have reported in an earlier activity statement if an "adjustment event" occurs.

Section 19-40 provides that you have an adjustment for a supply if the previously attributed GST in an earlier tax period no longer reflects the correct GST as a result of an adjustment event or a number of adjustment events. Section 19-50 provides that you have an increasing adjustment if the corrected GST amount is more than the previously attributed GST amount. Correspondingly, section 19-55 provides that you have a decreasing adjustment if the corrected GST amount is less than the previously attributed GST amount.

Section 19-10 set outs when adjustment events occur and paragraph 19-10(1)(b) provides that changing the consideration for a supply or acquisition is an adjustment event. Goods and Services Tax Ruling GSTR 2000/19: making adjustments under Division 19 for adjustment events sets out our views on the operation of Division 19.

Subsection 29-20(1) sets out the attribution rules for adjustments. It provides that you attribute or report an adjustment in the tax period in which you become aware of the adjustment. The term 'become aware' is not defined and takes its ordinary meaning.

The Macquarie Dictionary defines aware as 'cognisant or conscious'. The term also takes its meaning in the context of the provision and the scheme of the GST Act. In the context of section 19-55, you become aware of an adjustment when you have all the information necessary to satisfy the requirements of the provision. For example, when you have worked out the specific amount to be refunded.

In addition to becoming aware of the adjustment, for decreasing adjustments, subsection 29-20(3) provides that you must hold an adjustment note at the time you lodge your activity statement. This additional requirement may be disregarded if the adjustment amount is less than $75.

Period of review

Section 155-35 of Schedule 1 to the TAA provides that the assessment may be amended during the period of review for the assessment. The period of review is the period:

• starting on the day on which the Commissioner first gives the notice of assessment; and

• ending on the last day of the period of 4 years starting the day after that day.

Once the period of review has expired, the assessment can no longer be amended unless the exception in sections 155-45, 155-50, 155-55, 155-60 or 155-70 of Schedule 1 to the TAA applies.

Application to the facts:

There is a decreasing adjustment relating to an adjustment event

The decision to refund the customers the overcharged amount represents a change in consideration on the supply.

For customers where the refunds are unclaimed, we consider that there is a change in consideration if the Supplier Entity holds the refund amount on behalf of their customers as unclaimed money or when required, hand over the amount to the relevant State agency as per the relevant unclaimed money State legislation.

As a result, the Supplier Entity will have adjustment events under paragraph 19-10(1)(b) and have decreasing adjustments under section 19-55.

However if any of the unclaimed money is returned to the Supplier Entity for any reason, the Supplier Entity will have an increasing adjustment under section 19-50.

Attribution of decreasing adjustments

Under subsection 29-20(1), you attribute an adjustment in the tax period you become aware of the adjustment. In this particular case, Supplier Entity became aware when they have all the information and facts to inform that there has been a change in consideration. This would be when the refunded amount is worked out and finalised for each supply. For instances where the adjustment (that is the GST on the refunded amount) is greater than $75, there is the additional requirement that Supplier Entity also holds a copy of an adjustment note.

Attribution of increasing adjustments

The Supplier Entity will become aware of an increasing adjustment relating to return of the remediation payments when it is notified that the amount will be repaid to them or when they receive payment of the amount (whichever occurs first).

Period of review

There is no provision in the GST Act or the TAA that bars an entity from making a decreasing adjustment for supplies made outside the period of review. The four-year period of review in section 155-35 of Schedule 1 to the TAA limits when an amendment can be made to assessable amount for a tax period. As attribution of the decreasing adjustment occurs only when Supplier Entity becomes aware of the adjustment, it is the period of review for the tax period when Supplier Entity becomes aware of the adjustment that is relevant and not the tax period in which the supply (for which the adjustment relates) occurred.