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-: Alpha Co purchases a new computer
on 15 November in year 1,
it intends to use the computer 60% for a creditable purpose.
Alpha accounts for GST on a quarterly basis
and claims an input tax credit
in its December BAS in year 1.
Alpha needs to assess the extent
of creditable use for the acquisition
in the first adjustment period.
The first adjustment period for Alpha's computer,
starts at least 12 months after the end of this quarter,
being 31 December in year 2.
However, the first adjustment period
is the tax period ending on 30 June.
This reflects the June quarter GST period for year 3,
which starts on 1 April in year 3
and ends on 30 June in year 3.
During the first adjustment period,
Alpha reasonably estimated
that it had actually used the computer only 50% of the time
for a creditable purpose throughout its ownership.
The actual use of the computer is less than the planned use
and so 10% too much has been claimed
as an input tax credit.
An increasing adjustment which increases the GST net amount
is included in the calculation of Alpha's net amount
for the June BAS in year 3.
The value and type of Alpha's acquisition
determines that there are only two adjustment periods.
Alpha's second and final adjustment period for the computer
is the reporting period 1 April to 30 June in year 4.
Adjustments to the GST net amount
are required when there is a change in the extent
of the creditable purpose for an acquisition.
For example, when an acquisition was intended
to be fully used for a business purpose,
but ends up only being used partially for business purposes,
or vice versa.
The extent of an entitlement to an input tax credit
is estimated in the period the acquisition is made.
This is based on the intended use.
However, if the actual creditable use differs,
then subject to time limits,
we must compare the actual use in a period
to its intended use.
An adjustment may be required
to reflect the input tax credits
that the entity is actually entitled to.
An increasing adjustment
is required when the actual creditable use
is less than intended.
This decreases the entitlement to input tax credits
as the original claim was too high.
A decreasing adjustment is required
when the actual creditable use
is greater than intended.
This increases the entitlement to input tax credits,
as the original claim was too low.
The timing of the acquisition
affects when the comparison between actual and intended use
is required to be made.
Adjustment periods are occasions
when the actual use of an acquisition
or importation for creditable purpose must be reviewed.
Adjustment periods end on 30 June,
being the June GST return.
Quarterly adjustment periods therefore start on 1 April
and monthly adjustment periods start on 1 June.
However, adjustment periods do not start immediately.
There is a delay to allow adequate time to assess each item.
The first adjustment period
is the tax period that starts at least 12 months
after the end of the tax period
in which the acquisition was made
and that ends on the following 30 June.
While we now know when the first adjustment period is,
it should be noted that we don't need to assess the extent
of credible use every adjustment period thereafter.
The maximum number of adjustment periods
varies with the value of the acquisition or importation.
It also depends on whether the acquisition or importation
related to business finance,
that is whether it was related to making a financial supply
that was not of a private or domestic nature.
No GST adjustment arises if the GST exclusive value
of the acquisition or importation
is below the relevant threshold.
However, adjustments may be required
for acquisitions or importations over the threshold
with the number of adjustment periods
depending on the GST exclusive value of the acquisition.
Higher value acquisitions
have more adjustment periods,
meaning that taxpayers need to compare
the intended creditable use with actual creditable use
over a longer timeframe.
If there's been a change in creditable use
in an earlier adjustment period,
this becomes the new benchmark
in which to compare the actual creditable use
since acquisition in future adjustment periods.
To recap, adjustments may be required
where the extent of creditable use
differs from the intended use upon acquisition.
If actual creditable use is greater than intended.
This leads to a decreasing adjustment
and a higher entitlement to input tax credits,
with the reverse also being true.
While adjustments are not required
for small value acquisitions,
larger acquisitions may require adjustments
in one or more future adjustment periods
depending on the GST exclusive value of the acquisition
and whether it relates to business finance.