Goods and Services Tax Ruling

GSTR 2000/24

Goods and services tax: Division 129 - making adjustments for changes in extent of creditable purpose

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FOI status:

may be releasedFOI number: I 1021364

Preamble

What this Ruling is about

1. This Ruling explains our view on how to work out an adjustment for an acquisition or importation under Division 129 of A New Tax System (Goods and Services Tax) Act 1999 ('GST Act'). Adjustments may increase or decrease your net amount for a tax period. In particular, the Ruling explains:

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the circumstances when an adjustment will arise for an acquisition or importation;

•

what are the adjustment periods for an acquisition or importation;

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how to work out if an adjustment has arisen; and

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how to work out the amount of an adjustment and when to attribute the adjustment.

2. Certain terms used in this Ruling are defined or explained in the Definitions section of the Ruling. These terms, when first mentioned elsewhere in the body of this Ruling, will appear in bold type.

3. This Ruling applies to you if:

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you are registered or required to be registered for the Goods and Services Tax ('GST');

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you make acquisitions or importations on or after 1 July 2000; and

•

the actual use of the acquisition or importation for a creditable purpose differs from the planned use of it.

4. This Ruling does not explain how to account for Division 129 adjustments on your Business Activity Statement (BAS). We explain this in the instructions for the BAS.

5. In explaining how to work out the actual use for a creditable purpose, the Ruling draws on several methodologies for determining the extent of creditable purpose. We explain these methodologies in Goods and Services Tax Ruling GSTR 2000/22 (for financial supplies) and Goods and Services Tax Ruling GSTR 2000/15 (for supplies that are not financial supplies). In addition, Goods and Services Tax Bulletin GSTB 2000/2 explains how to calculate input tax credits on car expenses.

6. An adjustment under Division 129 may result in an amount being assessable income or an allowable deduction for income tax purposes.^[F1] The income tax effects of Division 129 adjustments are not explained in this Ruling.

Date of effect

7. This Ruling, when finalised, will apply on and from 8 July 1999 (the date of Royal Assent to the GST legislation).

Background

8. If you are registered or required to be registered, GST is payable on the taxable supplies you make in a tax period. However, you are entitled to a credit (called an input tax credit ) for the GST included in the price of things you acquire for carrying on your enterprise (called creditable acquisitions ).^[F2] You are also entitled to an input tax credit for the GST payable on goods you import for carrying on an enterprise ( creditable importations ).^[F3]

9. The amount of the input tax credit depends on the extent to which the acquisition or importation is for a creditable purpose . By way of example, if you acquire a computer which you plan to use 60% for your business and 40% privately, your extent of creditable purpose for the computer is 60%. You are entitled to 60% of the full input tax credit.^[F4]

10. The difference between your total GST payable and your total input tax credits for a period is called your net amount.^[F5] Your net amount is increased or decreased by adjustments you have for the tax period.^[F6]

Ruling and Explanations

11. The following topics are addressed in this Ruling:

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when an adjustment arises under Division 129 (see paragraph 12);

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the acquisitions or importations to which the Division applies (see paragraphs 13 to 14);

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acquisitions or importations for which an adjustment does not arise (see paragraphs 15 to 27);

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what are the adjustment periods for an acquisition or importation (see paragraphs 28 to 44);

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how to work out if an adjustment arises for the acquisition or importation in an adjustment period (see paragraphs 45 to 67);

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how to work out the amount of that adjustment for the acquisition or importation (see paragraphs 68 to 82);

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in what tax period you must attribute the adjustment (see paragraph 83);

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pooling where you have a large number of acquisitions or importations (see paragraphs 84 to 87);

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treatment of consumables (see paragraph 88);

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record keeping (see paragraphs 89 to 91).

When an adjustment arises

12. You may have an adjustment for an acquisition or importation where there is a difference between the actual use and the planned use of the thing for a creditable purpose. An adjustment also arises where there is a difference between the actual use of the thing up to the end of one adjustment period, and the actual use of it up to the end of the previous adjustment period.^[F7] These adjustments are made in a tax period called an adjustment period.

Acquisitions or importations to which the Division applies

13. Adjustments can arise under Division 129 for all acquisitions or importations even if they are not creditable acquisitions or creditable importations.^[F8]

Example

14. Andrew is a landscape architect who is registered for GST. He acquires a four wheel drive car solely for private use. Therefore, the acquisition is not a creditable acquisition and he was not entitled to an input tax credit. Later, he starts to use the car in his business. Andrew can apply Division 129 to work out if an adjustment has arisen for the car, even though it is not a creditable acquisition.^[F9]

Acquisitions or importations for which an adjustment does not arise

15. An adjustment does not arise under this Division for an acquisition or importation:

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if the GST exclusive value of the acquisition or importation does not exceed a certain threshold;^[F10]

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if a previous adjustment for the acquisition has arisen under Division 130;^[F11]

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applied in making financial supplies if you do not exceed the financial acquisitions threshold ;^[F12] or

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if it is a creditable acquisition and is supplied as a gift to certain types of charitable entities.^[F13]

No adjustment where the GST exclusive value of the acquisition or importation does not exceed certain thresholds

16. An adjustment cannot arise where the GST exclusive value of an acquisition or importation is less than or equal to:^[F14]

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$10,000 - for an acquisition or importation which relates to business finance ; or

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$1,000 - for any other acquisition or importation.

17. The GST exclusive value of the acquisition or importation is also relevant for determining the number of adjustment periods for the acquisition or importation (adjustment periods are explained below - see paragraphs 28 to 44).

What is an 'acquisition' or 'importation' for the purposes of the GST exclusive value thresholds

18. You can acquire or import several things when you make an acquisition or an importation. For the purpose of applying the thresholds in Division 129, we consider that the GST exclusive value of an acquisition or importation means the GST exclusive value of each thing acquired or imported.

Example

19. Sophie's Hardware buys a computer package, desk and photocopier from Acme Office Supplies. The price and GST exclusive value of the items are:

All of the items are delivered at the same time and are recorded on the one invoice. Sophie's Hardware applies the GST exclusive value thresholds against each item separately. An adjustment can only arise in respect of the computer and the photocopier. The GST exclusive value of the desk is below the threshold. Supplies and acquisitions made for a period or on a progressive basis

20. An acquisition that is made for a period or on a progressive basis, and for consideration that is to be provided on a progressive or periodic basis, is treated as if each progressive or periodic component of the acquisition were a separate acquisition.^[F15] For example, if you lease a building, each progressive component of the lease is treated as a separate acquisition.

No adjustment where there has been an adjustment under Division 130

21. Division 130 is about adjustments arising for an acquisition or importation of goods because you have applied the goods solely to a private or domestic use. An adjustment cannot arise under Division 129 for an acquisition where you have already had an adjustment under Division 130 for the acquisition or importation of the goods.^[F16]

No adjustment where you do not exceed the financial acquisitions threshold

22. Under the basic rules in the GST Act, you apportion input tax credits according to the extent to which you acquire or import a thing for a creditable purpose.^[F17] For working out the extent of creditable purpose, you can treat the intended use of an acquisition for making financial supplies as being for a creditable purpose, if you do not exceed the financial acquisitions threshold.

23. Similarly, under Division 129, if you do not exceed the financial acquisitions threshold you disregard any change in the extent to which the thing is applied in making financial supplies in determining if an adjustment arises.^[F18]

24. Thus, an adjustment does not arise if the intended or former application differs from the actual application merely because there is a change in the extent to which the thing is applied in making financial supplies.

Example

25. Acme Co uses its computer to record its financial supplies and taxable supplies. Acme does not exceed the financial acquisitions threshold. Therefore, Acme disregards any change in the extent to which the computer is used for making financial supplies when determining whether an adjustment arises.

No adjustment for the supply of certain gifts to some charitable entities

26. If you were entitled to an input tax credit for an acquisition, an adjustment does not arise for the acquisition only because you supplied it as a gift to a charitable institution, a trustee of a charitable fund or a gift-deductible entity.^[F19] That is, an adjustment does not arise if the intended or former application differs from the actual application because the thing is supplied as a gift to a charity. Gifts are unconditional. If you supply the thing to a charity in exchange for something else, the supply will not be a gift.

Example

27. Michael owns and operates a mini-bus for which he is entitled to an input tax credit. He supplies some transportation services to a gift-deductible entity as a gift. He receives nothing in return for the supply. Michael disregards the extent to which he supplied the transport services to the gift-deductible entity when working out the actual application of the mini bus for a creditable purpose.

What are the 'adjustment periods' for an acquisition or an importation

28. An adjustment period is a tax period in which you make an adjustment under Division 129. Adjustment periods generally occur once a year. The number of adjustment periods for a thing depends on its value and whether or not it relates to business finance. There are some special rules for deciding your last adjustment period for a thing (see paragraphs 37 to 44).

What is an adjustment period

29. An adjustment period for an acquisition or importation is a tax period applying to you that:^[F20]

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starts at least 12 months after the end of the tax period to which an input tax credit for the acquisition or importation is attributable; and

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ends on 30 June, or, if none of your tax periods end on 30 June, the tax period which ends closer to the 30 June than any other tax period.

Example

30. Farmco Ltd is registered and has quarterly tax periods. It acquires some machinery on 15 March 2001 for its agricultural business. The GST exclusive value of the machinery was $100,000. An input tax credit of $10,000 was attributable to the tax period ending 31 March 2001.

31. Farmco's first adjustment period is the tax period 1 April to 30 June 2002. This is the first tax period that ends on the 30 June and starts at least 12 months after the end of the tax period to which the input tax credit for the acquisition is attributable..

32. If an input tax credit was not attributable because the thing was not a creditable acquisition or creditable importation, you treat the thing as if it was a creditable acquisition or a creditable importation.^[F21] Then you work out the adjustment period as above.

Determining the number of adjustment periods there are for an acquisition or importation

33. The number of adjustment periods for an acquisition or importation you have depends on:^[F22]

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the GST exclusive value of the acquisition or importation; and

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whether or not the acquisition or importation relates to business finance.

34. The adjustment periods for acquisitions or importations that do not relate to business finance are:^[F23]

You will not have an adjustment under Division 129 where the GST exclusive value of the acquisition or importation that does not relate to business finance is $1,000 or less.^[F23A] However, even where the GST exclusive value of the acquisition or importation is $1,000 or less, you may have an increasing adjustment under Division 138 if your registration is cancelled.

35. The adjustment periods for acquisitions or importations that relate to business finance are:^[F24]

You will not have an adjustment under Division 129 where the GST exclusive value of the acquisition or importation that relates to business finance is $10,000 or less.^[F24A] However, even where the GST exclusive value of the acquisition or importation is $10,000 or less, you may have an increasing adjustment under Division 138 if your registration is cancelled.

Example

36. Continuing the example in paragraph 30, as the GST exclusive value of the machinery is $100,000 and it is not used in relation to business finance, Farmco has 5 adjustment periods for the machinery. The adjustment periods are:

1 April 2002 to 30 June 2002;

1 April 2003 to 30 June 2003;

1 April 2004 to 30 June 2004;

1 April 2005 to 30 June 2005; and

1 April 2006 to 30 June 2006.

Other rules which affect the timing of your last adjustment period

37. The way you work out your last adjustment period for an acquisition or importation will be different if:

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you have a concluding tax period under section 27-40;

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the acquisition or importation belongs to a class for which the Commissioner has determined a fewer number of adjustment periods;

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your acquisition or importation is disposed of, lost, stolen, or destroyed, or the thing is acquired for a certain period which expires.

Your concluding tax period under section 27-40

38. Your concluding tax period is an adjustment period.^[F25] A concluding tax period is the tax period in which:^[F26]

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an individual dies, becomes bankrupt, or ceases to carry on any enterprise;

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any other entity goes into liquidation or receivership, ceases to carry on any enterprise, or for any reason ceases to exist; or

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an entity's registration is cancelled.

39. If you ceased to carry on an enterprise, your tax period concludes at the end of the day on which the cessation occurs.^[F27] If a person dies or becomes bankrupt, or if an entity goes into liquidation or receivership, the tax period concludes at the end of the day before the particular event occurs.^[F28] If your registration is cancelled your tax period at the time is taken to have ceased at the end of the day on which the cancellation takes effect.^[F29]

The Commissioner's determination having regard to record keeping requirements under income tax law

40. For acquisitions or importations not relating to business finance, the Commissioner can determine that there are a fewer number of adjustment periods for a particular class of acquisitions or importations. In making his determination, the Commissioner shall have regard to the record keeping requirements for income tax.^[F30]

Acquisitions or importations disposed of, lost, stolen, or destroyed, etc.

41. An acquisition or importation may be disposed of, lost, stolen, or destroyed, or the period for which you acquired it may expire. If such an event occurs, the last adjustment period for the acquisition or importation is the next tax period applying to you that ends:^[F31]

(a)

on 30 June; or

(b)

if none of them end on 30 June, the tax period that ends closer to 30 June than any other tax period applying to you.

Example

42. Isabelle accounts for GST on a 3 monthly basis and has made an acquisition with a GST exclusive value of $10,000 on 20 August 2000. The acquisition does not relate to business finance. There are 5 adjustment periods in respect of the acquisition, the first of which starts 1 April 2002 and ends 30 June 2002. The acquisition was destroyed on 15 March 2002, before the first adjustment period. The last adjustment period for the acquisition is the tax period starting 1 April 2002 and ending 30 June 2002.

43. A separate rule applies if the disposal is one which gives rise to a decreasing adjustment under Division 132.^[F32] You may have a decreasing adjustment under Division 132 if you sell an acquisition or importation that you acquired, imported or subsequently applied solely or partly to make financial supplies, or was solely or partly of a private or domestic nature.^[F33]

44. If the disposal is one which gives rise to a decreasing adjustment under Division 132, then the adjustment period which preceded the disposal is the last adjustment period.^[F34] In the case where the disposal occurs before the first adjustment period for the thing, then the thing does not have an adjustment period but will have a decreasing adjustment under Division 132.^[F35]

How to work out if an adjustment arises for an acquisition or importation in an adjustment period

45. An adjustment arises for an acquisition or importation in an adjustment period where there is a difference between the actual use and the planned (or intended) use of the thing for a creditable purpose. An adjustment also arises where there is a difference between the actual use of the thing up to the end of one adjustment period, and the actual use of it up to the end of the previous adjustment period (the former use).^[F36] The Commissioner may determine, in writing, one or more ways to work out the extent to which an acquisition is for a creditable purpose.45A

46. The actual use of a thing for a creditable purpose over a certain period of time is called the 'actual application of the thing'. The planned or former use of a thing for a creditable purpose is called the 'intended or former application of the thing'.

47. To work out if an adjustment has arisen, you must:^[F37]

References