Special arrangements
Cashback and discounts
A discount reduces the price of a supply, so GST is worked out on the lower amount. Cashback and later rebates may need an adjustment and an adjustment note.
Discounts and cashback offers are everyday commercial tools, but they affect GST because GST is based on the amount actually paid for a supply. If a business sells goods for $110 including GST and gives a $11 discount at the register, the customer pays $99, and the GST on the sale is based on the $99, which is $9. There is no GST on the discount itself, because it simply reduces the price.
Timing matters. A discount given at the time of sale is easy, because the invoice shows the lower price and the GST is correct from the start. A discount, rebate or refund given after the sale is different. The original invoice showed more GST than the final price supports, so the supplier makes a decreasing adjustment, and the customer, if registered and having claimed credits, makes an increasing adjustment. An adjustment note is generally issued to document the change.
Early payment discounts are a common example. A supplier may offer 2% off if the invoice is paid within seven days. If the customer takes the discount, the final price is lower, and the GST should reflect the discounted price. Many accounting systems handle this by recording an adjustment when payment is received. Ignoring it means the GST reported will be overstated by the supplier and understated as a credit by the buyer.
Cashback offers can be more complex. A cashback paid to a customer by the same business that supplied the goods is generally a price reduction. If the cashback is funded by a third party, such as a manufacturer paying a rebate to a customer, the treatment depends on the nature of the arrangement and who is making which supply. The paperwork and the contract terms are often important in sorting this out.
Volume rebates, where a supplier refunds part of the price once a customer buys a certain amount, are also treated as adjustments. The reduction in price is recognised when it becomes known, and both parties adjust for GST in the relevant tax period. Over time, many businesses build a system for tracking rebates so they do not lose track of credits and liabilities.
One common misunderstanding is that discounts are always GST-free. They are not, because the GST is on the final price, not on the discount. Another is giving a customer a credit note without issuing correct documentation. If an adjustment note is needed and not issued, the customer may not be able to prove the adjustment, and the records may not stand up in a review.
As the rules depend on the structure of the offer, this page is general information only. Confirm your position with the ATO or a registered tax professional.
Worked example
A registered retailer sells a TV for $1,100 including GST, so GST is $100. Two weeks later the retailer gives the customer a $110 refund as a price reduction. The new price is $990, with GST of $90. The retailer makes a decreasing adjustment of $10 and issues an adjustment note, and a registered business customer would make a matching $10 increasing adjustment.
Practical tips
- Always work out GST on the final price actually paid, not the original list price.
- Issue an adjustment note when a discount or rebate is given after the original invoice.
- Check who funds a cashback, because third-party funding can change the GST treatment.