A GST adjustment is necessary when certain events, called “adjustment events,” take place, leading to changes in the amount of Goods and Services Tax (GST) you either owe or can claim as credit. These adjustment events can occur during the sale or purchase of goods or services.
You must make a GST adjustment if the following conditions are met:
- An adjustment event happens in a specific reporting period for your sale or purchase.
- You previously recorded the sale or purchase in your activity statement for a prior reporting period.
- The GST amount you initially reported is no longer accurate due to the adjustment event.
Thus, adjustments are made to ensure that the correct amount of GST is accounted for and reported based on the occurrence of these events during your business transactions.
In this article
- Reporting Adjustments in GST Activity Statements
- Adjustment Events for Sales
- Adjustment Events for Purchases
- Adjustment Events for Unaccounted Sales and Purchases
- How To Make GST Adjustments
- Tracking Your Adjustments – Worksheets for Recording
- Types of Adjustments for GST Reporting
Reporting Adjustments in GST Activity Statements
When you become aware of the need for an adjustment in the Goods and Services Tax (GST) you owe or can claim, you typically report it in your current reporting period’s activity statement.
If your GST accounting is based on a cash basis and you are required to make a payment due to an adjustment event, you generally make the adjustment in the activity statement for the reporting period when the payment is made.
In situations where you made only a partial payment of the required GST amount in a specific reporting period, you should make an adjustment in that particular period’s activity statement, reflecting the amount you paid.
Adjustment Events for Sales
Adjustment events related to sales encompass the following scenarios:
- Cancelled Taxable Sale: When a taxable sale you made gets canceled, such as when a customer returns goods, and you refund the purchase price to the customer.
- Price Change for Taxable Sale: If the price of a taxable sale you made changes, like providing a rebate to a customer.
- Event Changes Tax Status of a Sale: When an event causes your initially GST free sale for export to remain within the country, subsequently making it taxable.
- Sale Ceases to be Taxable: An event occurs that causes a sale to no longer be subject to GST.
Working out Adjustments for Sales
When you are required to make an adjustment for a sale you previously made, the adjustment amount falls into one of the following categories:
Decreasing Adjustment: If, after considering the adjustment event, you realize that you paid more GST originally than the amount now payable, you are eligible for a decreasing adjustment. This means you pay less GST for the current reporting period.
Before reporting this adjustment on your activity statement, you must reimburse the customer for the difference.
Increasing Adjustment: On the other hand, if the adjustment event reveals that you paid less GST initially than the amount now payable, you need to make an increasing adjustment. This implies that you pay more GST for the current reporting period.
Adjustment Events for Purchases
Adjustment events concerning purchases encompass the following situations:
- Cancelled Purchase: When a purchase you made is canceled, and you receive a full refund for the goods you returned.
- Price Change for Purchase: If the price of a purchase you made changes, such as receiving a rebate on the original purchase price.
- Event Makes Purchase Creditable: An event occurs that renders your purchase eligible for a GST credit.
- Purchase Ceases to be Creditable: An event occurs that causes your purchase to no longer be eligible for a GST credit.
Working out Adjustments for Purchases
When you need to make an adjustment for a purchase you previously made, the adjustment amount falls into one of the following categories:
Increasing Adjustment: If, upon considering the adjustment event, you find that you claimed more for the purchase in the earlier tax period than the amount you could have claimed if the adjustment event had been taken into account, you are required to make an increasing adjustment.
This means you need to adjust for the excess GST claimed in the current reporting period.
Decreasing Adjustment: Conversely, if you claimed less for the purchase in the earlier tax period than the amount you could have claimed if the adjustment event had been considered, you need to make a decreasing adjustment. This implies you should adjust for the additional GST credit you are eligible for in the current reporting period.
Adjustment Events for Unaccounted Sales and Purchases
When an adjustment event takes place, but you have not yet recorded the associated sale or purchase in your activity statement, there is no immediate need to make an adjustment.
You have the option to consider the change when you initially report the transaction on your activity statement. For instance, if there is a price change, you can include the revised and final price when reporting the transaction on your activity statement. This allows you to account for the adjustment without the need for separate amendments.
How To Make GST Adjustments
When reporting Goods and Services Tax (GST) on your activity statements, the approach you use depends on whether you follow the full reporting method or the Simpler BAS reporting method. Each method has its own way of calculating and reporting GST adjustments.
1. Accounts Method
(Applicable to Full Reporting Method and Simpler BAS Reporting Method (for activity statements)
If you utilize the accounts method, you determine the GST amounts for both your sales and purchases from your accounting records. Subsequently, you report these figures on your activity statement.
a. For Full Reporting Method:
- For Increasing Adjustments, report at “Label 1A” on your Business Activity Statement (BAS).
- For Decreasing Amounts, report at “Label 1B” on your BAS.
b. For Simpler BAS Reporting Method:
- Use the Accounts Method to complete each activity statement.
2. Calculation Worksheet Method
(Applicable to Full Reporting Method only)
If you opt for the calculation worksheet method under the full reporting method, you calculate the overall adjustment amount and then multiply it by 11.
You will need to show this adjusted amount at either “G7 (adjustments)” for overall increasing adjustments or “G18 (adjustments)” for overall decreasing adjustments on the GST calculation worksheet.
The specific amounts you report on your activity statement will vary depending on whether you report on a cash basis (recording transactions based on cash inflow/outflow) or non-cash basis (recording transactions based on invoicing dates).
Tracking Your Adjustments – Worksheets for Recording
To facilitate the process of calculating adjustments during a reporting period, we have designed helpful worksheets where you can document all your adjustments. These worksheets enable you to keep track of your adjustments related to sales, purchases, bad debts, creditable purpose, and provide an adjustments summary.
The five worksheets are as follows:
- Sales Worksheet: This worksheet allows you to record any adjustment events related to your sales, such as cancellations, price changes, or events impacting the tax status of your sales.
- Purchases Worksheet: Use this worksheet to document adjustment events concerning your purchases, such as cancellations, price changes, or events affecting the creditability of your purchases.
- Bad Debts Worksheet: Here, you can note down any bad debts that occurred during the reporting period, which may require adjustments.
- Creditable Purpose Worksheet: This worksheet is for capturing adjustments relevant to transactions with a creditable purpose for GST claims.
- Adjustments Summary Worksheet: The adjustments summary sheet allows you to consolidate all your recorded adjustments, separating the total increasing adjustments from the total decreasing adjustments for the reporting period.
By utilizing these worksheets, you can easily organize and review your adjustments, ensuring accurate reporting and compliance with GST regulations.
Types of Adjustments for GST Reporting
- Bad Debt Adjustment: If you account for GST on a non-cash basis and face a situation of bad debt (e.g., unpaid invoice), you may need to adjust the GST previously claimed on that sale.
- Changes in Creditable Purpose: When the extent of the creditable purpose (business use) of a purchase changes, adjustments are required to ensure accurate GST credits are claimed for business-related expenses.
- Annual Apportionment Adjustments: Businesses eligible for annual apportionment can claim the entire GST amount on a purchase as a credit and make a single adjustment annually, instead of apportioning GST for business and private use at the time.
- Third-Party Payments: In cases where a business supplies a product for re-sale through a third party and makes a payment related to the payee’s purchase, a third-party payment decreasing adjustment may be necessary.
- Company Mergers: When companies merge and continue as one, the new company must make adjustments that the merged companies would have had to make if they hadn’t merged, considering changes in business use.
- Change to Taxable Sale: A decreasing adjustment may occur if a purchase used for private use or financial sales is later sold as a taxable item.
- Purchases of Going Concerns: When purchasing a business as a GST free supply of a going concern, an increasing adjustment may arise if there are plans to make non-taxable or non-GST free sales through the acquired business.
- Unredeemed Vouchers: If a business sells unredeemed vouchers and writes back reserves for their redemption, an increasing adjustment is necessary.
- Tradex Scheme Goods: Importers under the Tradex scheme must follow specific procedures; any deviation may result in an increasing adjustment.
- GST Registration: Registering for GST allows a decreasing adjustment for already purchased stock to claim input tax credits.
- Gross-up Clauses: Gross-up clauses can trigger adjustments to ensure the correct amount of GST is accounted for when there is a change in a supply contract’s consideration.
This article is for general information only. It does not make recommendations nor does it provide advice to address your personal circumstances. To make an informed decision, always contact a registered tax professional.