What is debit adjustment

what is debit adjustment

GSTR 2013/2

This publication provides you with the following level of protection:

This publication (excluding appendixes) is a public ruling for the purposes of the Taxation Administration Act 1953.

A public ruling is an expression of the Commissioner's opinion about the way in which a relevant provision applies, or would apply, to entities generally or to a class of entities in relation to a particular scheme or a class of schemes.

If you rely on this ruling, the Commissioner must apply the law to you in the way set out in the ruling (unless the Commissioner is satisfied that the ruling is incorrect and disadvantages you, in which case the law may be applied to you in a way that is more favourable for you - provided the Commissioner is not prevented from doing so by a time limit imposed by the law). You will be protected from having to pay any underpaid tax, penalty or interest in respect of the matters covered by this ruling if it turns out that it does not correctly state how the relevant provision applies to you.

[ Note: This is a consolidated version of this document. Refer to the Legal Database (http://law.ato.gov.au) to check its currency and to view the details of all changes.]

What this Ruling is about

1. This Ruling sets out the requirements for adjustment notes under Division 29 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). 1

2. In particular, the Ruling outlines: · when a document is in the approved form for an adjustment note; · the information requirements that the Commissioner has determined under paragraph 29-75(1)(c), and an explanation of how those information requirements in A New Tax System (Goods and Services Tax) Adjustment Note Information Requirements Determination 2012 (the legislative instrument) apply; and · when the Commissioner will treat a particular document as an adjustment note even though that document does not meet all of the adjustment note requirements under subsection 29-75(1).

3. This Ruling also includes an appendix summarising the circumstances when a decreasing adjustment can be attributed without an adjustment note as determined by the Commissioner under subsection 29-20(3).

4. This Ruling does not consider third party adjustments and third party adjustment notes under Division 134. 2 The Ruling does not consider in detail special rules in the GST Act that may be relevant to adjustment notes, including those concerning agents, insurance brokers, GST groups and GST branches. However, so as to provide additional context, these rules are referred to in the Explanation.

Background

Adjustments

5. If GST or input tax credits are attributable to a tax period, but later events change the amount of GST or input tax credits for the supply or acquisition, a supplier or recipient may need to make adjustments to their net amount in the later tax period.

6. There are increasing adjustments and decreasing adjustments. An increasing adjustment increases the net amount for the tax period, while a decreasing adjustment decreases the net amount for the tax period. 3

Adjustment events

7. Adjustments can arise because of adjustment events. Under the GST Act, an adjustment event occurs when 4. · a supply or acquisition is cancelled; · the consideration for a supply or acquisition is changed; · a supply becomes taxable or stops being taxable; or · an acquisition becomes creditable or stops being creditable.

Obligation of the supplier to issue an adjustment note

8. The supplier must issue an adjustment note within 28 days of the earlier of: · receiving a request by the recipient of the supply; or · becoming aware of the adjustment (where the supplier issued, or was requested to issue, a tax invoice). 5

9. This means that if the supplier did not issue, and was not requested to issue, a tax invoice, they have to issue an adjustment note only if the recipient requests one.

10. Where the tax invoice in relation to the supply was (or would have been) a recipient created tax invoice, the recipient must instead issue the adjustment note.

Adjustment notes

11. A document is an adjustment note if it satisfies subsection 29-75(1). This subsection requires that an adjustment note relating to a taxable supply must: (a) be issued by the supplier, except for recipient created adjustment notes (paragraph 29-75(1)(a)); (b) set out the Australian Business Number (ABN) of the entity that issues it, which in most cases is the supplier (paragraph 29-75(1)(b)); (c) contain other information determined in writing by the Commissioner (paragraph 29-75(1)(c)); and (d) be in the approved form (paragraph 29-75(1)(d)).

Requirements for adjustment notes and recipient created adjustment notes

Adjustment notes

12. An adjustment note is a document that complies with the following requirements: · it is issued by the supplier of the taxable supply (paragraph 29-75(1)(a)); · it sets out the ABN of the entity that issues it (paragraph 29-75(1)(b)); · it is in the approved form (paragraph 29-75(1)(d)); · it meets the information requirements that the Commissioner has determined under paragraph 29-75(1)(c) - for an adjustment note (other than a recipient created adjustment note). This requires that an adjustment note contains the following information, or enough information to enable the following to be clearly ascertained: 6 - that the document is intended as an adjustment note and the effect of the adjustment 7 ; - the identity of the supplier or the supplier's agent; - the identity or ABN of the recipient, the recipient's agent, or another member of the recipient's GST group 8. if the adjustment note: (i) relates to a tax invoice showing the total price for the supply or supplies is at least $1,000 (or such higher amount as regulations made pursuant to subparagraph 29-70(1)(c)(ii) of the GST Act specify); or (ii) arises out of an adjustment event where a supply that was not taxable becomes taxable and the price of the supply is at least $1,000 (or such higher amount as regulations made pursuant to subparagraph 29-70(1)(c)(ii) of the GST Act specify); - the issue date of the adjustment note; - a brief explanation of the reason for the adjustment; - the amount of the adjustment to the GST payable; - the difference between the price of the supply before the adjustment event and the price of the supply after the adjustment event. If the supply is not a wholly taxable supply, the price of the supply is referable to that part of the supply that is affected by the adjustment event and that is, or becomes, taxable.

Recipient created adjustment notes

13. Under the legislative instrument a recipient created adjustment note must contain the recipient's ABN and the following information, or enough information to enable the following to be clearly ascertained: 9 · that the document is intended as a recipient created adjustment note and the effect of the adjustment; 10 · the identity and ABN of the supplier or the supplier's agent; · the identity 11 of the recipient or the recipient's agent; · the issue date of the adjustment note; · a brief explanation of the reason for the adjustment; · the amount of the adjustment to the GST payable; · the difference between the price of the supply before the adjustment event and the price of the supply after the adjustment event. If the supply is not a wholly taxable supply, the price of the supply is referable to that part of the supply that is affected by the adjustment event and that is, or becomes, taxable.

14. If the amount of the GST payable is 1/11th of the price, a statement can be included as an alternative to the requirement that the amount of the adjustment to the GST payable be clearly ascertainable from the document. The statement must make it clear that the difference in the price of the supply includes GST. 12

15. A supplier or a recipient must hold an adjustment note to attribute a decreasing adjustment from an adjustment event when completing their GST return 13 for a tax period. 14 There are, however, some circumstances in which a supplier or recipient can attribute a decreasing adjustment even if they do not have an adjustment note.

Circumstances in which an adjustment note is not required

16. Circumstances in which an adjustment note is not required to be held to attribute a decreasing adjustment include where: · the amount of the decreasing adjustment does not exceed

$75 (or such further amount as the GST Regulations may specify); 15 · the GST on the taxable supply is payable by the recipient because of section 15C of the A New Tax System (Goods and Services Tax Transition) Act 1999 16 (GST Transition Act); or · a legislative instrument under subsection 29-20(3) applies (these are summarised at Appendix 2).

17. A supplier or recipient does not need to hold an adjustment note to attribute an increasing adjustment.

18. The adjustment note provisions do not apply to adjustments for bad debts under Division 21. The writing off of a bad debt, or a debt becoming overdue for 12 months or more, is not an adjustment event. 17

19. There is no adjustment where an adjustment event occurs in the same tax period as the GST or input tax credit is attributable. Therefore there is no requirement to issue an adjustment note in these circumstances.

Ruling

Approved Form

20. A document is in the approved form 18 for an adjustment note if it includes the information required by subsection 29-75(1), including the additional information requirements which the Commissioner has determined in the legislative instrument, 19 and if applicable section 54-50 (which is about GST branches). 20

21. Paragraph 44 of Goods and Services Tax Ruling GSTR 2001/2 Goods and Services Tax. foreign exchange conversions. provides additional approved form requirements for adjustment notes where the consideration for the taxable supply is expressed in a foreign currency.

22. Details of more than one adjustment may be shown on an adjustment note. If a document includes multiple adjustments and does not meet the requirements of subsection 29-75(1) for a particular adjustment or adjustments, it remains an adjustment note in the approved form for all other adjustments for which the requirements of subsection 29-75(1) are met.

Adjustment notes in electronic form

23. A document in electronic form that meets the requirements of subsections 29-75(1) and 54-50(1) (if applicable) will be in the approved form for an adjustment note. 21

Information requirements in the legislative instrument

24. The legislative instrument outlines that for a document to be an adjustment note or a recipient created adjustment note, 22 it must contain certain information, or enough information to enable that information to be clearly ascertained, including the following: · it is intended as an adjustment note and the effect of the adjustment; · the identity of the supplier or the recipient as required; and · the difference between the prices of the supply before and after the adjustment event.

Clearly ascertained

25. Subclauses 5(1) and 5(2) of the legislative instrument require that the particular information listed can be clearly ascertained from the information in the document. This means that the information does not have to be specifically stated or in a particular format. What is required is that the information can be found in the document or determined from information within the document. It further means that to be clearly ascertained, enough information must be present and it must be clear what the information represents.

26. If the information required by subclauses 5(1) and 5(2) can only be determined by reference to another external source (such as the Australian Business Register (ABR)) or another document, then that information cannot be clearly ascertained from the information contained in that document as required by the opening words of subclauses 5(1) and 5(2). 23

27. One piece of information may be sufficient to satisfy more than one information requirement in subclauses 5(1) or 5(2) of the legislative instrument.

Example 1 - clearly ascertained

28. A supply of goods with a value (GST exclusive price) of $5,000 is treated as GST-free on the basis that the goods are to be exported. If some or all of the goods are not exported, the agreement provides that GST is to be imposed on the value of the goods not exported. Subsequently, the supplier exports goods to the value of $3,000 but at the recipient's request redirects goods to the value of $2,000 to a branch in Australia.

29. There is an adjustment event because the supply of the goods that remain in Australia becomes a taxable supply. Therefore, the price of the goods remaining in Australia is now $2,200 (including $200 GST). The difference in price so far as the supply becomes taxable is $200, and the amount of the adjustment to the GST payable is $200. Paragraphs 5(1)(f) and (g) of the legislative instrument would both be satisfied if the document included a statement to the effect that the price and the GST payable has increased by $200.

Document intended as an adjustment note or a recipient created adjustment note and the effect of the adjustment

30. It must be clear from the document that it was intended to be an adjustment note or a recipient created adjustment note. 24 This is an objective test that must be satisfied by reference to the document.

31. This requirement may be satisfied by including the words 'Adjustment Note'; 'GST Adjustment'; 'Tax Invoice Adjustment'; 'Amended Tax Invoice', 'Recipient Created Adjustment Note', 'Recipient Created GST Adjustment' or 'Adjustment Note Issued by Recipient' in the heading of the document. A statement in the body of the document could also make the intention clear.

32. In some situations, the context of the document itself may make the intention clear without any title to that effect. For example, a tax invoice could provide terms for a prompt payment discount including the amount of the discount from which it is clearly ascertainable that it is intended as an adjustment note.

33. It must also be clear from the document what the effect of the adjustment is. 25 This requirement can be satisfied, for example, by making it clear if the adjustment to the price is a debit or credit amount for the supplier or the recipient, or a positive or negative amount for the supplier or the recipient.

Identity of the supplier or the recipient

34. An adjustment note must include information to establish the identity of the supplier or supplier's agent, and the recipient or recipient's agent where applicable. 26 Information sufficient to identify the supplier or the supplier's agent, or the recipient or the recipient's agent, includes, but is not limited to, the legal name of the entity or the registered business name.

35. In the case where the supplier or the recipient is a trust, the identity of the trust must be clearly ascertainable from the document. Information sufficient to identify the trust includes, but is not limited to a registered business name 27 under which the trust's enterprise is carried on. In some cases, the identity of the trust may be clearly ascertainable if the trustee's name is included on the adjustment note. The ABN issued to the trust must also be clearly ascertainable from the document.

36. Where the supply or acquisition is made by a representative of an incapacitated entity in its capacity as the representative, the supplier or the recipient in most cases 28 is taken to be the[0][0] incapacitated [0]entity[0].[0][0] Therefore the identity of the incapacitated entity must be clearly ascertainable from the document.

37. Where a member, officer, or employee of a company has made a pre-establishment acquisition to which Division 60 applies, an adjustment note that is required to[0] identify the recipient should identify the member, officer or employee. The company needs to hold the adjustment note for attributing a decreasing adjustment.

The difference in the price of the supply

38. The difference in the price of the supply before the adjustment event and the price of the supply after the adjustment event needs to be shown, or enough information needs to be provided for the difference to be clearly ascertainable from the document. 29

Example 2 - difference in price

39. Kadel Pty Ltd sells a trail bike to Track Tours Pty Ltd for $6,600 and issues a tax invoice. In the next tax period, Kadel Pty Ltd discovers that they charged Track Tours Pty Ltd the recommended retail price for the trail bike rather than the end of model promotional sales price. Accordingly, Kadel Pty Ltd reduces the price to $5,500.

40. Kadel Pty Ltd is required to issue an adjustment note to Track Tours Pty Ltd within 28 days of becoming aware of the adjustment. The adjustment note may show the difference in the price as follows.

Source: law.ato.gov.au

Category: Bank

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