GST core
Adjustment event
An adjustment event is something that changes the GST position of an earlier sale or purchase, such as a refund, cancellation, discount, bad debt or price change, and may require a GST adjustment.
An adjustment event is any occurrence after a sale or purchase that changes the amount of GST originally accounted for, or changes whether GST applied at all. The GST law recognises that real life is untidy. Goods get returned, prices are changed, supplies are cancelled, and customers fail to pay. When this happens, the GST originally reported may no longer be correct, so the business needs to correct it.
The legislation describes adjustment events in general terms, and the typical examples are easy to understand. A supply is cancelled, the price is changed, a refund or discount is given, goods are returned, or a debt is written off as bad. In each case the original GST reporting needs adjusting so the total GST tracks the real economic outcome. Not every change is an adjustment event, though, and some are dealt with in other ways.
The adjustment itself is called a GST adjustment and can go in either direction. A decreasing adjustment reduces the GST you owe or increases your credits, for instance when you give a customer a refund. An increasing adjustment raises the GST you owe or reduces credits, for instance when a supplier gives you a discount after you have already claimed a credit on the original price.
Documentation supports the process. When an adjustment event happens, the supplier typically issues an adjustment note, which is a document recording the change, to the recipient. A business that is the recipient of a decreasing change in price usually needs that note to correct its credits. The note is separate from the original tax invoice, so keep both. In many cases, a credit note can serve as the adjustment note if it meets the requirements.
On the BAS, adjustments are reported through the relevant labels in the period in which you become aware of the event or receive the adjustment note, depending on the type. If you use cash accounting, some adjustments can be simpler, because GST is reported only when payments are made or received. The method you choose still needs consistent application.
A common misunderstanding is believing you can just alter the original invoice in your records. The better approach is to leave the original in place, record the adjustment through the correct channel, and report it in the right period. Another is overlooking adjustments completely. For example, writing off a bad debt for income tax purposes does not automatically fix the GST, which needs its own bad debt adjustment.
This overview is general information only. If you are unsure whether something is an adjustment event or how to report it, check with the ATO or a registered tax professional.
Worked example
A registered furniture retailer sells a lounge for $3,300 including GST, so GST of $300 is reported. Later the customer returns it and receives a full refund. This is an adjustment event. The retailer makes a decreasing adjustment of $300 on the BAS for the period in which the refund is given, and issues an adjustment note to the customer showing the $3,300 refund and the $300 GST.
Practical tips
- Issue and keep adjustment notes whenever a price changes or a refund is given after the invoice date.
- Do not edit the original invoice. Record the adjustment separately so the audit trail stays intact.
- Remember that a bad debt written off for income tax still needs its own GST treatment.