GST and Property Adjustments


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GST and Property Adjustments

  1. 1. Fact sheet for GST registered businesses Business GST and property adjustmentsTERMS WE USE NEW RESIDENTIAL PREMISES AND A CHANGEWhen we say: IN CREDITABLE PURPOSE■ property, we are referring to the GST term real property You may need to make an adjustment on your June activity including statement in relation to GST credits you have previously claimed – selling a freehold interest in land if you use the premises differently from the way you originally – selling a stratum unit planned. If you build residential premises with the sole intention – granting or selling a long term lease of selling, you will be building the premises solely for a creditable purpose of making a taxable sale of new residential premises.■ sale, we are referring to the GST term supply However, if you rent out the premises you will be using the■ purchase, we are referring to the GST term acquisition premises to make input taxed supplies of renting residential■ payment, we are referring to the GST term, consideration premises. If you change your use of the premises between■ GST credit, we are referring to the GST term input tax credit selling and renting, you will have a change in creditable purpose■ business, we are referring to the GST term enterprise. and will need to make an adjustment.WHAT IS A GST ADJUSTMENT? ADJUSTMENTS FOR GOING CONCERNSAn adjustment is a change that increases or decreases your AND FARMLANDnet GST liability for a reporting period. There are two types You may need to make an adjustment for property that is soldof adjustments: to you as either:■ increasing adjustments, which increase your net GST liability ■ part of a business that was a GST-free sale of a going for a reporting period concern■ decreasing adjustments, which decrease your net GST liability ■ GST-free farmland. for a reporting period. SALE OF A BUSINESS AS A GST-FREE GOING CONCERN For more information on adjustments, refer to Making If you purchase a going concern (business) and the sale to you is adjustments on your activity statement (NAT 11035). GST-free, you may have an increasing adjustment if you intend that some or all of the sales that you subsequently make through that business are sales that are not taxable or GST-free. ForWHEN DO YOU HAVE AN ADJUSTMENT FOR example, you purchase a residential unit as part of a GST-freeA PROPERTY TRANSACTION? sale of a going concern and intend to rent it out. The amount ofYou may need to make an adjustment on your activity statement your increasing adjustment is usually worked out by using theif you have recently bought, sold or rented a property and you following formula:have: 1 the sale the proportion of■ changed how you intended to use the property – for example, × × you rent out, rather than sell new residential premises. This is 10 price non-creditable use known as a change in creditable purpose You may also need to make subsequent increasing or■ purchased a property as part of a business sold to you as decreasing adjustments if this proportion of non-creditable a GST-free going concern use changes over time.■ purchased GST-free farmland.You may also need to make an adjustment if you have ceasedyour enterprise and cancelled your GST registration.NAT 73602-10.2010
  2. 2. GST AND PROPERTY ADJUSTMENTS RECORD KEEPINGEXAMPLE If you purchase property that is for business use (a creditable acquisition) you must keep records that show and explain all Michael, who is registered for GST, bought an investment transactions that are relevant to that purchase, such as: unit for $495,000 in the Seabreeze Resort Complex as a ■ sales contract GST-free going concern. When the unit was purchased it ■ settlement statement was leased to the operator by the previous owner. The unit was sold to Michael as a GST-free going concern of a ■ tax invoices leasing enterprise. Michael made a written agreement with ■ other agreements entered into between seller and purchaser. the previous owner that: ■ the sale would be a GST-free sale of a going concern ■ the lease would be assigned to Michael who would MORE INFORMATION continue leasing the unit to the operator. For more information, refer to: As Michael is making an input taxed supply of the residential ■ Making an adjustment on your activity statement unit to the operator, this use of the unit is for a fully (NAT 11035) non-creditable purpose. Michael will have an increasing ■ GST and property – creditable purpose adjustments adjustment. Using the above formula, the adjustment will be: (NAT 73095) 1 ■ Goods and Services Tax Ruling GSTR 2009/4 Goods and $495,000 100% (non × × = $49,500 services tax: new residential premises and adjustments 10 (sale price) creditable use) for changes in extent of creditable purpose. Other products that you may find helpful include:FARMLAND ■ GST and property (NAT 72957)Farmland can be sold as GST-free if: ■ Common GST errors and property (NAT 73112)■ the land has been used for a farming business for at least ■ Reporting mistakes on GST and property transactions the five years preceding the sale, and (NAT 72625)■ the purchaser intends to carry on a farming business on ■ Sale of a business as a going concern (NAT 10147) the land. ■ Goods and Services Tax Ruling GSTR 2002/5 GoodsIf a residence is used as part of the seller’s farming business, and services tax: when is a ‘supply of a going concern’then the sale of the residence will form part of the GST-free sale GST-free?of a going concern. For example, if the residence is leased to If you do not speak English well and need help from us,a manager of the entity operating the farming business. If you phone the Translating and Interpreting Service on 13 14 50.continue to lease the residence to the manager or use thepremises for your own private residence, you will need to make If you are deaf, or have a hearing or speech impairment,a GST adjustment. phone us through the National Relay Service (NRS) on the numbers listed below:If residential premises were not sold as part of a GST-free going ■ TTY users, phone 13 36 77 and ask for the ATO numberconcern, you do not need to make an adjustment. you need ■ Speak and Listen (speech-to-speech relay) users, phoneADJUSTMENTS FOR ASSETS YOU HOLD AFTER 1300 555 727 and ask for the ATO number you needCANCELLING YOUR GST REGISTRATION ■ internet relay users, connect to the NRS onWhen you cancel your GST registration, you may still hold some and ask for the ATO numberbusiness assets (such as property) for which you previously you need.claimed GST credits. If so, you may need to repay some ofthose credits by making an increasing adjustments. For more information on adjustments, refer to Making adjustments on your activity statement (NAT 11035).2
  3. 3. GST AND PROPERTY ADJUSTMENTSOUR COMMITMENT TO YOUWe are committed to providing you with accurate, consistentand clear information to help you understand your rights andentitlements and meet your obligations.If you follow our information in this publication and it turns outto be incorrect, or it is misleading and you make a mistake asa result, we must still apply the law correctly. If that means youowe us money, we must ask you to pay it but we will not chargeyou a penalty. Also, if you acted reasonably and in good faith wewill not charge you interest.If you make an honest mistake in trying to follow our informationin this publication and you owe us money as a result, we will notcharge you a penalty. However, we will ask you to pay the money,and we may also charge you interest.If correcting the mistake means we owe you money, we will payit to you. We will also pay you any interest you are entitled to.If you feel that this publication does not fully cover yourcircumstances, or you are unsure how it applies to you,you can seek further assistance from us.We regularly revise our publications to take account of anychanges to the law, so make sure that you have the latestinformation. If you are unsure, you can check for a more recentversion on our website at or contact us.This publication was current at October 2010.© COMMONWEALTH OF AUSTRALIA 2010 PUBLISHED BYThis work is copyright. Apart from any use as permitted under the Copyright Act 1968, Australian Taxation Officeno part may be reproduced by any process without prior written permission from the CanberraCommonwealth. Requests and inquiries concerning reproduction and rights should October 2010be addressed to the Commonwealth Copyright Administration, Attorney-General’sDepartment, 3–5 National Circuit, Barton ACT 2600 or posted at JS 17626