Contracts, sales, or purchases are bound to be canceled with financial uncertainty plaguing the economy. To help you get through this, the ATO recommends making a goods and services tax (GST) adjustment when cancellations do occur.
In the event of contracts, sales, or purchase cancellation, you can make a GST-decreasing adjustment. A GST decreasing adjustment refers to when you originally paid for a product or service more than the amount payable after taking an adjustment event into account. This also means you pay less GST for the reporting period.
For further clarification, the adjustment amount is a decreasing adjustment if you claimed less for the purchase in the earlier tax period than the amount you could have claimed if the adjustment event had been considered.
According to the ATO, GST adjustments can be made when:
- The price of a taxable sale or purchase changes;
- Taxable sales or a purchase you’re entitled to a GST credit for is cancelled;
- You write off or recover a previously written-off bad debt or
- The actual usage purpose of a sale or purchase differs from your personal intended usage.
To make a GST adjustment, first, look over your previous BAS and paid invoices and check if you paid GST, how much you paid in GST, and when you paid. After that, you can adjust the amount paid in each previously lodged activity statement, provided that you are accounting for GST on a cash basis. If you account for your GST on an accrual basis, adjust during the activity statement period when you become aware of it.
When you become aware of a GST adjustment opportunity, you should report it in your activity statement for your current reporting period. The ATO provides you with adjustment reporting assistance in the form of worksheets designed for purchase recording purposes (for sales, purchases, bad debts, and creditable purposes) and also brief guides on their website.
Keep in mind that you only need to adjust GST if the contract, sale, or purchase was reported in a previous business activity statement. There’s no need to report an adjustment if your contract, sale or purchase occurred within your current business reporting period.
