Fact sheet for GST registered businesses Business

TERMS WE USEWhen we say:■ property, we are referring to the GST term real property

including– selling a freehold interest in land– selling a stratum unit– granting or selling a long term lease

■ sale, we are referring to the GST term supply ■ purchase, we are referring to the GST term acquisition■ payment, we are referring to the GST term, consideration■ GST credit, we are referring to the GST term input tax credit ■ business, we are referring to the GST term enterprise.

WHAT IS A GST ADJUSTMENT?An adjustment is a change that increases or decreases your net GST liability for a reporting period. There are two types of adjustments:■ increasing adjustments, which increase your net GST liability

for a reporting period■ decreasing adjustments, which decrease your net GST liability

for a reporting period.

For more information on adjustments, refer to Making adjustments on your activity statement (NAT 11035).

WHEN DO YOU HAVE AN ADJUSTMENT FOR A PROPERTY TRANSACTION?You may need to make an adjustment on your activity statement if you have recently bought, sold or rented a property and you have: ■ changed how you intended to use the property – for example,

you rent out, rather than sell new residential premises. This is known as a change in creditable purpose

■ purchased a property as part of a business sold to you as a GST-free going concern

■ purchased GST-free farmland.

You may also need to make an adjustment if you have ceased your enterprise and cancelled your GST registration.

NEW RESIDENTIAL PREMISES AND A CHANGE IN CREDITABLE PURPOSEYou may need to make an adjustment on your June activity statement in relation to GST credits you have previously claimed if you use the premises differently from the way you originally planned. If you build residential premises with the sole intention of selling, you will be building the premises solely for a creditable purpose of making a taxable sale of new residential premises. However, if you rent out the premises you will be using the premises to make input taxed supplies of renting residential premises. If you change your use of the premises between selling and renting, you will have a change in creditable purpose and will need to make an adjustment.

ADJUSTMENTS FOR GOING CONCERNS AND FARMLANDYou may need to make an adjustment for property that is sold to you as either:■ part of a business that was a GST-free sale of a going

concern■ GST-free farmland.

SALE OF A BUSINESS AS A GST-FREE GOING CONCERNIf you purchase a going concern (business) and the sale to you is 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. For example, you purchase a residential unit as part of a GST-free sale of a going concern and intend to rent it out. The amount of your increasing adjustment is usually worked out by using the following formula:

1

10× the sale

price × the proportion of non-creditable use

You m ay also need to make subsequent increasing or decreasing ad justments if this proportion of non-creditable use changes over time.

GST and property adjustments

NAT 73602-10.2010

GST AND PROPERTY ADJUSTMENTS

2

RECORD KEEPINGIf you purchase property that is for business use (a creditable acquisition) you must keep records that show and explain all transactions that are relevant to that purchase, such as: ■ sales contract■ settlement statement■ tax invoices■ other agreements entered into between seller and purchaser.

MORE INFORMATION

For more information, refer to: ■ Making an adjustment on your activity statement

(NAT 11035) ■ GST and property – creditable purpose adjustments

(NAT 73095)■ Goods and Services Tax Ruling GSTR 2009/4 Goods and

services tax: new residential premises and adjustments for changes in extent of creditable purpose.

Other products that you may find helpful include:■ GST and property (NAT 72957)■ Common GST errors and property (NAT 73112)■ Reporting mistakes on GST and property transactions

(NAT 72625)■ Sale of a business as a going concern (NAT 10147)■ Goods and Services Tax Ruling GSTR 2002/5 Goods

and services tax: when is a ‘supply of a going concern’ GST-free?

If you do not speak English well and need help from us, phone the Translating and Interpreting Service on 13 14 50.

If you are deaf, or have a hearing or speech impairment, phone us through the National Relay Service (NRS) on the numbers listed below:■ TTY users, phone 13 36 77 and ask for the ATO number

you need ■ Speak and Listen (speech-to-speech relay) users, phone

1300 555 727 and ask for the ATO number you need ■ internet relay users, connect to the NRS on

www.relayservice.com.au and ask for the ATO number you need.

EXAMPLE

Michael, who is registered for GST, bought an investment unit for $495,000 in the Seabreeze Resort Complex as a GST-free going concern. When the unit was purchased it was leased to the operator by the previous owner. The unit was sold to Michael as a GST-free going concern of a leasing enterprise. Michael made a written agreement with 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

continue leasing the unit to the operator.

As Michael is making an input taxed supply of the residential unit to the operator, this use of the unit is for a fully non-creditable purpose. Michael will have an increasing adjustment. Using the above formula, the adjustment will be:

1

10× $495,000

(sale price) × 100% (non creditable use) = $49,500

FARMLANDFarmland can be sold as GST-free if:■ the land has been used for a farming business for at least

the five years preceding the sale, and■ the purchaser intends to carry on a farming business on

the land.

If a residence is used as part of the seller’s farming business, then the sale of the residence will form part of the GST-free sale of a going concern. For example, if the residence is leased to a manager of the entity operating the farming business. If you continue to lease the residence to the manager or use the premises for your own private residence, you will need to make a GST adjustment.

If re sidential premises were not sold as part of a GST-free going concern, you do not need to make an adjustment.

ADJUSTMENTS FOR ASSETS YOU HOLD AFTER CANCELLING YOUR GST REGISTRATIONWhen you cancel your GST registration, you may still hold some business assets (such as property) for which you previously claimed GST credits. If so, you may need to repay some of those credits by making an increasing adjustments.

For more information on adjustments, refer to Making adjustments on your activity statement (NAT 11035).

GST AND PROPERTY ADJUSTMENTS

PUBLISHED BY

Australian Taxation OfficeCanberraOctober 2010

JS 17626

© COMMONWEALTH OF AUSTRALIA 2010

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If you follow our information in this publication and it turns out to be incorrect, or it is misleading and you make a mistake as a result, we must still apply the law correctly. If that means you owe us money, we must ask you to pay it but we will not charge you a penalty. Also, if you acted reasonably and in good faith we will not charge you interest.

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We regularly revise our publications to take account of any changes to the law, so make sure that you have the latest information. If you are unsure, you can check for a more recent version on our website at www.ato.gov.au or contact us.

This publication was current at October 2010.