GST core
Division 129
Division 129 is the part of the GST law that requires or allows you to adjust GST credits when your actual use of a purchase turns out differently from what you first expected.
When you buy something for your business, you claim a GST credit based on how you intend to use it. If you buy a laptop and plan to use it only for business, you claim the full credit. Division 129 of the A New Tax System (Goods and Services Tax) Act 1999 deals with what happens if your intended use later turns out to be wrong. In that case you may need to make an adjustment over time, so that the credits you end up keeping match your real use.
The idea is sometimes called a change in creditable purpose. It applies to assets and other purchases where the final use takes time to settle. If you originally intended 100% business use and later use it half for private purposes, some of the credit you claimed was too high. You then make an increasing adjustment. If the reverse happens, for instance you claimed only partial credits but the item ends up being used wholly for business, you can usually claim an additional amount through a decreasing adjustment.
The law does this through adjustment periods. Instead of re-examining a purchase forever, each purchase has a defined adjustment period, and the length of the period depends on the value of the purchase. Over that period the actual use is reviewed and the adjustments are worked out. Smaller purchases, below a threshold set by the law, generally fall outside the rules altogether, so you do not need to track every low-cost item.
Typical situations include vehicles that start out as business assets and later become family cars, premises bought for taxable activities that are later let as residential rent, or equipment used in a business that moves into providing input-taxed supplies. A change of business model can also trigger it, for example from making taxable sales to making mainly financial supplies, which are input-taxed and carry no credits.
In practical terms, adjustments under this Division are reported on the Business Activity Statement. The adjustment is worked out and included with the figures for the relevant tax period, and records should show how it was calculated. Accounting software will not usually do this automatically, so someone must remember to review the creditable purpose of larger purchases at the end of each adjustment period.
One misunderstanding is that Division 129 is only about private use. In fact, it covers any change in the extent to which a purchase is used for a creditable purpose, including business use that was unexpectedly low or high. Another misunderstanding is that it applies at the time of sale of the asset. Selling an asset has its own GST consequences, such as GST on the sale price, which are separate from these adjustments.
The calculations can be complex and depend on the cost of the purchase, the adjustment period and the use in each year. Because of that, this page is general information only, and you should confirm your position with the ATO or a registered tax professional.
Worked example
A registered business buys a machine for $22,000 including GST and claims the full $2,000 credit. Over the first adjustment year, it turns out that only 80% of use was for taxable business activity and 20% was for input-taxed activity. The share of credit that was not justified is about $400 for the year, worked out under the adjustment period rules, and is reported as an increasing adjustment on the BAS.
Practical tips
- Review larger purchases each year for changes in how they are used, because a change in creditable purpose can trigger an adjustment.
- Keep a simple use diary or log for assets that mix business and private use, so you can support your percentages.
- Check the ATO guidance on adjustment periods and thresholds, since the value bands are set by legislation and the ATO publishes the details.