Have your clients had a change in creditable purpose?

 

Sometimes your clients may use a property they purchase in a way that is different to what they originally planned.

Remind them that if they claimed GST credits for property purchases they now use to make input-taxed supplies, they need to report adjustments for this change in creditable purpose in their activity statement.

For example, if your client constructed a new residential premise to sell, but then rents it out, they need to make an increasing adjustment on their BAS. They must do this even if they still market the property for sale. Your client may also need to make an adjustment if they use the property for private purposes.

Adjustments are required for changes in creditable purpose because the GST credit originally claimed will either have been too much or too little.

Generally an adjustment will not be needed for a change in creditable purpose if:

  • the value of the purchase or importation was $1,000 (GST-exclusive) or less
  • the value of the purchase or importation related to business finance and was $10,000 (GST-exclusive) or less.

Adjustment periods
“Adjustment periods” are the reporting periods in which your client has to account for any adjustments in their activity statement.

An adjustment period for a purchase or importation is a reporting period that both:

  • starts at least 12 months after the end of the reporting period a taxpayer claimed a GST credit in (or would have claimed had the purchase or importation been creditable), and
  • ends on 30 June (or, if none of their reporting periods end on 30 June, their reporting period that ends closest to 30 June).

The maximum number of adjustment periods in which a taxpayer makes adjustments depends on the value of the purchase or importation and also upon the nature of them.

Adjustment periods for most purchases and importations
Value of the purchase or importation (GST-exclusive) Number of adjustment periods
$1,001 to $5,000 2
$5,001 to $499,999 5
$500,000 or more 10
Adjustment periods for purchases or importations that relate to business finance
Value of the purchase or importation (GST-exclusive) Number of adjustment periods
$10,001 to $50,000 1
$50,001 to $499,999 5
$500,000 or more 10

If your client cancels their GST registration, their final reporting period is also an adjustment period for purchases and importations.

Have your clients had a change in creditable purpose? Have your clients had a change in creditable purpose? Have your clients had a change in creditable purpose? Have your clients had a change in creditable purpose?