Adjustments to Sales and Purchases (Labels G7 and G18)

An adjustment is a correction to the amounts quoted for sales and purchases in a previous activity statement. An adjustment may increase or decrease the net GST amount payable or refundable. Adjustments are made in the tax period in which the change occurs at either G7 or G18.

To assist you, the adjustments worksheet divides the information into five areas for:

Adjustment for Sales (including GST)
Adjustments to Purchases
Bad Debts written off or recovered
Change in extent of creditable purpose
Adjustment Summary Worksheet

Further information specific to each of these tables and examples are provided with the help on the adjustments worksheets.

Some rules about working with Adjustments

Do not make adjustments to correct mistakes made in a previous BAS/IAS.
Adjustments are not necessary where an item is returned only for repair or maintenance.
Adjustments increase or decrease the net amount. The net amount shows at:
- G7 for an increase to the GST payable and
- G18 for a decrease to the input tax credits refundable.
  An adjustment may be made at Label G7 or G18 but not both.
Cessation of Registration: If you cease to be registered for GST and your assets include anything for which you were, or are, entitled to an input tax credit, there may be an increasing adjustment.
Second-hand vehicles are not subject to the phasing-in rules for new motor vehicles which are phased in over 2 years.
Adjustments are made for bad debts written off or recovered ONLY if you do not account for GST on a cash basis.
If the bad debt relates to a partly taxable sale or a partly creditable purchase, the amount of the adjustment is reduced. Contact the ATO on 13 24 78 for more information.
A decreasing adjustment may not be made for a purchase of more than $55 (including GST), other than for adjustments to bad debts, unless you have an adjustment note from the supplier.
If the change results from a discount, rebate or other change to the consideration originally accounted for at Label G1 for sales, or G10 or G11 for purchases, do not include that change in consideration as an adjustment at Label G7 or G18.

How to complete G7 or G18

Complete this worksheet only if an adjustment to the amounts for sales and purchases in a previous activity statement is required.

An adjustment may increase the GST net payable or refundable. Otherwise, an adjustment may decrease the GST net payable or refundable.

For each adjustment, entries are made at either G7 or G18 (not both) in the tax period in which the change occurs.

If the change results from a discount, rebate or other change to the consideration originally accounted for at Label G1 for sales, or G10 or G11 for purchases, do not include that change in consideration as an adjustment at Label G7 or G18.

Do not make adjustments to correct mistakes made in a previous activity statement. To correct a mistake, contact the ATO on 13 24 78.

When using the Accounts method, Adjustments that do not result from transactions recorded in the accounts must be included. These may be:

Bad debts where there is an adjustment for GST purposes but no corresponding entry in the accounts. For example, an adjustment for a debt outstanding for more than 12 months that is not yet written off in the accounts,
Changes in the extent of any creditable purpose,
Goods used solely for private or domestic purposes.

Adjustment for Sales

Enter the adjustments for changes to sales following adjustment events.

These are adjustments for changes to sales, including changes to the consideration for sales and cancellation of sales. These adjustments are made on the activity statement for the tax period in which the change occurs. Note that an adjustment does not arise if something is returned for repair or maintenance.

Increasing adjustment:

If any of the following occur after an amount of consideration has been included at G1 for a sale on a previous activity statement, too little consideration will have been included on that statement. Make an adjustment on the activity statement for the tax period in which it is discovered that:

the consideration for a sale has increased and the lower amount was included at G1 on a previous activity statement, or
a sale that was not treated as taxable (that is, the consideration was included G2, G3 or G4 on a previous activity statement) becomes taxable.

Decreasing adjustment:

If any of the following events occur after an amount of consideration has been included at G1 for a sale on a previous activity statement, too much consideration will have been included on that statement. Make an adjustment on the activity statement for the tax period in which it is discovered that:

a sale is cancelled and the consideration for the sale was included at G1 on a previous activity statement,
the consideration for a sale is reduced and the higher amount was included at G1 on a previous activity statement, or
the consideration for a sale was treated as taxable and included at G1 on previous activity statement and the sale stops being taxable.

Example

Jim and Maria operate a hardware store. They previously sold a toolbox to customer Alex and included the consideration for the sale of $350 on a previous activity statement. Alex returns the toolbox when he finds it is not suitable and Jim and Maria agree to refund the full sale price. The refund is shown against Cancellation of a sale on the worksheet below.

Customer Brian is a tradesman and puts his purchases from Jim and Maria on a monthly account. In the previous tax period Jim and Maria made credit sales to Brian of $3600. Jim and Maria included this amount on their previous activity statement. When Brian pays his account on time, Jim and Maria offer a discount of 3%, or $108. The new amount is shown against Reduction in consideration for a sale because of discount or rebate.

Adjustment for sales	Amount at G1 (before the adjustment)	New amount for the sales	Decreasing adjustment G18
Cancellation of a sale	350	0	350
Reduced consideration for a sale because of discount or rebate	3600	3492	108
Sale stops being taxable
Increased consideration for a sale
Sale becomes taxable
Total			458
Amount transferred to line 1 of adjustment summary worksheet:

Adjustments to Purchases

These adjustments are for changes to purchases and expenses, including changes to their consideration or cancellations. These adjustments are made on the activity statement for the tax period in which the change occurs and, where required, an adjustment note is issued.

Increasing adjustment:

If any of the following occur after an amount of consideration has been included at G10 or G11 for a purchase on a previous activity statement, too much consideration will have been paid. Make an adjustment on the statement for the tax period in which:

a purchase or expense is cancelled and the consideration for that purchase or expense has been included at G10 or G11 on a previous activity statement. For example, something that was bought for the business was returned and a refund or credit was received.
the amount of consideration for a purchase is reduced and the higher amount was included at G10 or G11 on a previous activity statement, or
the consideration for a purchase that was a creditable purchase** was included at G10 or G11 on a previous statement and the purchase stops being creditable.

Decreasing adjustment:

If any of the following occur after an amount of consideration has been included at G10 or G11 for a purchase on a previous activity statement, too little consideration will have been included. Make an adjustment on the statement for the tax period in which:

the consideration for a purchase is increased and the lower amount has been included at G10 or G11 on a previous statement, or

a purchase that was treated as not being a creditable purchase (the consideration for the purchase was included at G13, G14 or G15 on a previous statement) becomes creditable.

An adjustment cannot be made for a purchase of more than $55 (including GST) or for a purchase becoming creditable without an adjustment note from the supplier.

An adjustment note is generally issued by a supplier. It gives details of changes to consideration for a sale. An adjustment note is required to make an adjustment to claim additional input tax credits for an purchase for which a higher price had to be paid.

**A creditable purchase is a purchase for a creditable purpose. This occurs when a thing is purchased for use in a business (unless it is used for input taxed sales). Things purchased for private use are not creditable purchases.

Example

Jim and Maria return to their supplier electrical tools that customers have found to be faulty. The tools cost them $620, which they included on a previous activity statement. They show the amount to be refunded to them against 'Cancellation of a purchase or expense', below.

Jim and Maria sold a substantial number of mowers in the previous period. They receive from their supplier a volume rebate of $830. They show the amount of rebate received against 'Reduction in consideration for a purchase' on the worksheet below.

Jim decided he needed a new drill to use at home and took it out of stock (without treating it as a sale). The business paid $120 for the drill. Jim and Maria show this against Purchase or expense stops being creditable, below.

Adjustment for Consideration	Changed Purchases at G10/G11(before the change occurred)	New amount for the sales	Adjustment
Adjustment for Consideration		New amount for the sales	Increasing G7	Decreasing G18
Cancellation of a purchase	620	0	620
Reduced consideration because of discount or rebate	830	0	830
Purchase stops being creditable	120	0	120
Increased consideration for a purchase
Total			1570
Amount transferred to line 2 of adjustment summary worksheet:

Bad Debts written off or recovered

Make an adjustment for bad debts written off or recovered if:

an amount was included for a taxable sale at G1 on a previous activity statement or an amount will be included at G1 on the current statement, and
part or all of that amount has been written off as a bad debt, or
part or all of that amount has been due for 12 months or more
an amount was previously written off as a bad debt and all or part of that amount has since been recovered
an amount was or will be included for a creditable acquisition at G10 or G11 on this or a previous activity statement and the whole or part of that amount has now been:
written off as a bad debt by the supplier, or
due for 12 months or more or
the business pays an amount for a bad debt written off by its supplier or a debt that has been due for 12 months or more.

Example

Jim and Maria supplied building materials to Craig in a previous tax period that Craig is unable to pay for. Jim and Maria included $1500 in sales to Craig on previous activity statements. As they are not able to collect any of the debt, they write it off in their accounts. Jim and Maria show the amount written off against 'Written off bad debts' in the worksheet below.

Some time ago Maria sold some timber to Dianne, who was renovating her home. When they were unable to collect the debt, Jim and Maria wrote it off and made an adjustment on their activity statement for that previous period. Dianne's financial circumstances have improved and she makes a part payment of $300. Jim and Maria show the amount received against Recovering bad debts written off, below.

Amount written off or recovered			Adjustment
Amount written off or recovered			Increasing G7	Decreasing G18
Sales	Written off bad debts or debts overdue for 12 months or more	1500		1500
Sales	Recovering bad debts written off or debts overdue for 12 months or more	300	300
Purchases	Bad debts written off by your supplier or debts overdue for 12 months or more
Purchases			300	1500
Total
Amount transferred to line 3 of adjustment summary worksheet:

Change in extent of creditable purpose

The extent to which a purchase (or importation) is used for a creditable purpose is the extent to which it is used in the business other than for the purpose of making input taxed sales, or for a private or domestic purpose.

Adjustments for changes in extent of creditable purpose are made to make sure that the correct amount of input tax credits is claimed for purchases (expenses). If the actual use of a thing in carrying out the business is different from the intended use (or different from the actual use used to worked out a previous adjustment), an adjustment may be needed for the change in the extent of creditable purpose.

These are adjustments for purchases, including purchases of going concerns, and importations. They are made in an adjustment period, which is the tax period that ends closest to 30 June.

The first adjustment period is the adjustment period that starts at least 12 months after the end of the tax period in which the consideration for the purchase was included at G10 or G11. The number of these adjustment periods allowed for a purchase depends on the following limits:

Purchases and Expenses except those related wholly or in part to making financial sales:

Amount of consideration (excluding GST)	Number of adjustment periods
$1,000 or less	None
$1,001 - $5,000	Two
$5,001 - $499,999	Five
$500,000 or more	Ten

Purchases and expenses related wholly or in part to making financial sales:

Amount of consideration (excluding GST)	Number of adjustment periods
$10,000 or less	None
$10,001 - $50,000	One
$50,001 - $499,999	Five
$500,000 or more	Ten

Example

Jim and Maria purchased a vehicle of $35,000 for use in their business. However, as they intended to also use it for private purposes they did not claim the full input tax credit for the purchase. They estimated the extent of private use at the time of purchase to be 40% and so included the cost of $35,000 at G10 on their activity statement and the private use component of $14,000 (40% of $35,000) at G15. In effect, they claimed 60% (the extent of creditable purpose) of the full input tax credit.

At the end of the first adjustment period for the vehicle, Jim and Maria have found from their log book that the vehicle has actually been used 75% for business purposes since it was purchased. Therefore they make an adjustment for a change in extent of creditable purpose, as shown on the worksheet below.

Adjustment
		Increasing G7	Decreasing G18
Description: Vehicle
Date acquired:
Full amount of consideration (taking into account adjustments)	35000		5250
Intended (or previously claimed) extent of creditable purpose	60%
Actual extent of creditable purpose	75%
Change in extent of creditable purpose	15%
Amount transferred to line 4 of adjustment summary worksheet:

Adjustment Summary worksheet

The first four rows of the Summary table contain the totals from the previous four tables. The remaining rows provide for the following circumstances in which adjustments (increasing or decreasing) may be needed:

Insurance settlements: If as an insurer the business makes an insurance settlement, it may have an adjustment. Call the ATO on 13 24 78 for more information.
Company amalgamations: The amalgamated company is responsible for any adjustments that the amalgamating companies would have had if not for the amalgamation, including a change in creditable purpose by the amalgamated company compared with the amalgamating companies.
Sales of things used to make financial supplies: If the business purchased or imported some things, it would not be entitled to a full input tax credit if the things were used for making financial supplies. If the business later sold the goods in a taxable transaction, a decreasing adjustment may result.
Sales of going concerns: If the business purchases a going concern and intends to use it for private purposes or for making input taxed sales through the concern, it may have an initial increasing adjustment and later increasing or decreasing adjustments.
Becoming registered: If the business becomes registered after having purchased trading stock, it may have a decreasing adjustment.
Unredeemed vouchers: The business may have an increasing adjustment for certain vouchers that it sold for consideration if they have not been redeemed.
Tradex scheme goods: If the business is the holder of a Tradex order, it may have an increasing adjustment if goods relating to that order are dealt with contrary to the Tradex Scheme.
Cessation of registration: If the business ceases to be registered for GST and its assets include anything for which it was, or is, entitled to an input tax credit, it may have an increasing adjustment.

Example

Jim and Maria have several adjustments which are calculated using the Adjustment worksheets in G7 or G18. They use the summary worksheet below to work out their overall adjustment for the period. They then transfer the amount of $5338 to G18 on their activity statement.

Reason for Adjustment	Adjustments
Reason for Adjustment	Increasing G7	Decreasing G18
Adjustments for sales and other supplies following adjustment events		458
Adjustments for purchases following adjustment events	1570
Bad debts written off or recovered	300	1500
Change in extent of creditable purpose		5250
Goods used solely for private or domestic purposes
Insurance settlements
Company amalgamations
Sales of things used to make financial supplies
Sales of going concerns
Other adjustments
Total	A 1870	B 7208
If A is more than B, subtract B from A and show the amount at G7
If B is more than A, subtract A from B and show the amount at G18		5338