This is to ensure the correct amount of input tax credits (also known as GST credits) has been claimed, based on the extent to which the acquisitions or importations relate to making taxable and/or GST-free supplies.
These change of use adjustments are required to be made in your June Business Activity Statement, which is due on 21 July (for monthly reporters) and 28 July (for quarterly reporters).
Some examples of when change of use adjustments are required include:
- assets (which could include a building) bought or imported to make taxable and/or GST-free sales, but instead used to make input taxed supplies;
- assets (which could include a building) bought or imported to make input taxed sales have been used to make taxable and/or GST-free sales;
- an asset used partly for business and partly for private purposes;
- newly constructed residential premises have been rented out instead of being sold; and
- build to rent residential premises have been sold instead of being rented out.
The number of adjustment periods for acquisitions or importations (not relating to business finance) varies based on their GST exclusive value:
- $5,000 or less, but more than $1,000 – 2 adjustment periods;
- $5,001 to $499,999 – 5 adjustment periods; and
- $500,000 or more – 10 adjustment periods.
The first adjustment period commences when at least 12 months have passed since the end of the tax period that the acquisition or importation occurred and ends on 30 June each year. However, the following tax period end dates apply in these specific circumstances:
- where the enterprise ceases to be carried on, the tax period concludes at the end of the day on which the cessation occurs;
- if an entity goes into liquidation or receivership, the tax period concludes at the end of the day before the particular event occurs; and
- where the entity’s GST registration is simply cancelled, the tax period ceases at the end of the day on which the cancellation takes effect.
The change of use calculations required by the GST law are complicated, so Grant Thornton has developed a proprietary tool which utilises powerful best practice technology to assist with these calculations.
Where it is determined that too much GST has been claimed, the entity is required to remit the over-claimed GST as an “increasing adjustment” to the Australian Taxation Office. Alternatively, where too little GST has been claimed, the entity is entitled to claim additional GST credits as a “decreasing adjustment”.