GST core
GST adjustment
A GST adjustment is a correction made on a Business Activity Statement to the GST originally reported on a sale or purchase because something has changed, such as a refund, discount or change in use.
A GST adjustment is the actual correction a business makes to its GST figures when circumstances change after the original sale or purchase. It is the outcome that follows an adjustment event. The idea is to keep the total GST accounted for in line with what really happened, rather than leaving the original figures untouched when they no longer reflect reality.
There are two directions. A decreasing adjustment reduces GST payable or increases credits, and an increasing adjustment adds to GST payable or reduces credits. If you issue a refund to a customer, you generally make a decreasing adjustment, because you collected GST that you no longer keep. If a supplier gives you a rebate after you claimed a credit, you generally make an increasing adjustment, because your credit was too high.
Beyond sales and purchases, there are adjustments that arise because of changes in how something is used. If you claimed full credits on an asset for use in your business and later start using it partly for private purposes, you may have to make an adjustment for the change. The reverse can apply too, where something first treated as private becomes used for the business. These are often called change in creditable purpose adjustments and may be calculated over a period.
Where the adjustment is reported depends on what triggered it. Many adjustments are reported on the BAS at the relevant GST labels for the period in which you became aware of the event, or in which you issued or received an adjustment note. Some small adjustments do not need to be reported separately in every case, and the rules vary depending on the amounts and the type of event, so check ATO guidance on the current approach.
Evidence is important. If your supplier gives you a discount or refund, ask for an adjustment note. If you give a customer a refund, issue one. These documents let both sides report the same correction. If the notes are missing, the other party may not realise they have a correction to make, and a mismatch could attract ATO attention.
A frequent mistake is to ignore adjustments because the amounts feel small. Over time they can add up, and under-reported increasing adjustments can leave you with a shortfall plus interest. Another mistake is to treat an adjustment as a reason to amend an earlier BAS when the law allows you to report it in the current one.
Because adjustments depend on the exact facts and the period involved, this information is general only. Confirm your approach with the ATO or a registered tax professional if the situation is more than routine.
Worked example
A registered builder claimed a $550 GST-inclusive credit of $50 on a laptop in March. In the next quarter the supplier gives a $110 GST-inclusive rebate for volume purchasing and issues an adjustment note. The GST in the rebate is $110 divided by 11, which is $10. The builder makes an increasing adjustment of $10 on his BAS, reducing his credits for that period.
Practical tips
- Ask suppliers for an adjustment note whenever you receive a rebate or refund after the invoice date.
- Review your reconciliation each period for refunds, write-offs and price changes that need a GST correction.
- Record the reason for each adjustment so you can explain it if the ATO asks.