GST core
Private use adjustment
A private use adjustment is a correction to GST credits when a business asset ends up being used privately more than first expected, which reduces the credit that can be kept.
A private use adjustment is a specific example of a correction to GST credits. You first claimed a credit based on how much you expected to use a purchase for your business. If it then turns out you used it privately more than expected, the credit you claimed was too high, and you may have to pay back part of it through an adjustment on your BAS.
This is most common with vehicles, equipment, phones and computers where a business owner or staff may use the item for personal purposes. Sole traders and small business owners should be especially careful, as the line between personal and business use is often blurred. The ATO looks closely at vehicles and similar items in audits of small businesses.
To work out the adjustment, compare the percentage of private use you originally allowed for with the actual private use over the relevant period. The difference decides how much of the credit is to be adjusted. The details, including the timing and how many adjustment periods apply, are set out in the GST law and depend on the cost of the purchase. Records of actual use are crucial. A logbook for a car, for instance, is the best evidence.
The adjustment is reported on your BAS in the period when you discover the change or when the adjustment period ends, depending on the rule that applies. It will increase the GST you owe or reduce the refund you receive. If you realise you have understated private use in earlier periods, you can also correct previous BAS statements, subject to the ATO's guidance on how to do so.
Common misunderstandings include believing that a private use adjustment is only required if you sell or dispose of the asset, or that the business percentage chosen at the time of purchase can never be changed. Another is assuming that casual or occasional private use does not matter. Even small amounts can matter over time, particularly for expensive assets.
Keep a log of actual use, review it regularly and make adjustments when needed. If you are not sure how to calculate the figure, get advice before you lodge. This page is general information only, so confirm the correct method with the ATO or a registered tax professional.
Worked example
A registered business owner buys a $33,000 (GST-inclusive) car and claims a credit based on 80% business use. GST included is $33,000 / 11 = $3,000, so the credit claimed is $3,000 x 80% = $2,400. If a logbook later shows only 60% business use, the credit should have been $3,000 x 60% = $1,800, so a decreasing adjustment of $600 may be needed.
Practical tips
- Keep a logbook or usage record so you can show actual business and private use.
- Do not wait for an audit to correct your percentage. Adjust on your BAS when you find actual use differs.
- Make a habit of recording private use as it happens, rather than reconstructing it at the end of the year.