GST core
Increasing adjustment
An increasing adjustment is a GST adjustment that increases the GST a business must pay or reduces the credits it can claim, usually because a purchase price fell or its business use declined.
An increasing adjustment is one of the two directions a GST adjustment can take. It makes your net GST position worse. Either the GST you must report goes up, or the input tax credits you are entitled to go down. The adjustment keeps your GST reporting honest when an earlier claim turns out to have been higher than the final economic result justifies.
The most common trigger is a change in price on something you bought. Suppose you claimed a credit based on the invoice price, and the supplier later gives you a rebate, a discount for early payment, or a refund after you return some goods. You received less value than you paid for, so the credit you claimed was too high, and you reduce it through an increasing adjustment. The supplier will normally issue an adjustment note that records the change and the GST involved.
Another trigger is a change in how an asset is used. If you claimed credits on equipment because it was for use in your business and later start using it for private purposes or to make input-taxed supplies, such as residential rent, part of that earlier credit may need to be paid back. This kind of adjustment can apply over a number of adjustment periods and the calculation can be technical, particularly for assets above certain values, so it is worth getting advice for larger items.
Increasing adjustments can also arise on the sales side. If a customer pays you more than the original price because of a later price increase, or if a previously written-off bad debt is recovered, you may have to account for extra GST. In these cases the extra amount received is treated as part of the original taxable supply, and the matching GST is reported in the period of the event.
On the BAS the increasing amount is reported through the standard labels in the period when you become aware of the event or receive the adjustment note. You do not generally amend the BAS of the earlier period, which is why the current statement is the right place to deal with it. Keep the adjustment note, your calculation and a brief explanation with your records so the figures can be supported later.
A frequent mistake is ignoring a supplier rebate because the credit has already been claimed. Another is believing that an increasing adjustment means you did something wrong. In fact, it is a normal part of the system and simply reflects a change in facts. Failing to report it, though, can leave you with a shortfall, interest charges and possibly penalties.
This information is general in nature. If you are not sure whether an event calls for an increasing adjustment, confirm the position with the ATO or a registered tax professional before lodging.
Worked example
A registered landscaper bought a $5,500 GST-inclusive mower in January and claimed a $500 credit. In July the supplier pays an $1,100 GST-inclusive rebate and issues an adjustment note. The GST in the rebate is $1,100 divided by 11, which is $100. The landscaper makes an increasing adjustment of $100 on the BAS for the period in which the note is received, reducing the credits claimed that quarter.
Practical tips
- When a supplier gives you a rebate or discount after you have claimed the credit, ask for an adjustment note and report the increasing adjustment.
- Do not try to amend the earlier BAS unless advised. The adjustment normally goes in the current period.
- Watch for assets that begin to be used privately, since that can also trigger an increasing adjustment.