GST Adjustments: Events and Adjustment Notes

GST adjustments change the GST payable or credits claimed when later events alter an earlier transaction or its business use. Identify the rule first, then establish the supporting records and reporting period. A later price change and an original coding error need different treatment.

Is the Change an Adjustment or an Error?

An adjustment responds to a later change. An error means the original GST treatment was wrong when you reported it. Compare the original invoice, contract and BAS with the document that records what changed.

Consider two fictional equipment purchases, each costing $11,000 including $1,000 GST. Both buyers use non-cash accounting and acquire the equipment entirely for creditable purposes.

Record	Later price change	Original coding mistake
Original treatment	The buyer correctly claims $1,000	The buyer incorrectly claims $1,100
What happens later	The supplier agrees to a $1,100 GST-inclusive rebate	The reviewer discovers the incorrect tax code
Relevant evidence	Rebate agreement and adjustment note	Original invoice and posted GST transaction
Correct route	A $100 increasing adjustment reduces the buyer’s earlier credit	Correct the $100 overclaim under the GST error rules

Use the ATO’s GST error correction rules to decide whether an original mistake qualifies for correction on a later BAS. Otherwise, amend the affected assessment. Do not apply an adjustment-note threshold as permission to leave an error uncorrected.

If the transaction has not yet been attributed to an earlier tax period, take the change into account in its first reporting. A cancellation within that same period does not create a separate Division 19 adjustment.

Identify the Adjustment Type

An increasing adjustment raises the net GST payable, while a decreasing adjustment lowers it. The same price change can have opposite effects for the supplier and buyer.

Later event	Supplier’s position	Buyer’s position
Taxable supply cancelled	Decreasing adjustment for GST previously attributed	Increasing adjustment for credit previously attributed
Taxable price reduced	Decreasing adjustment for the GST reduction	Increasing adjustment for the credit reduction
Taxable price increased	Increasing adjustment for extra GST	Decreasing adjustment for extra eligible credit
Supply becomes taxable	Increasing adjustment if GST becomes payable	Assess whether an additional credit becomes available
Supply stops being taxable	Decreasing adjustment for GST no longer payable	Increasing adjustment for credit no longer available

These outcomes assume the relevant GST or credit was attributed earlier. Mixed supplies and partly creditable purchases require calculations for the eligible portion.

A change in the extent of creditable purpose follows Division 129. Compare actual use with intended use, or with the actual use used for the last adjustment. Private use and use for input-taxed supplies generally reduce creditable purpose.

Bad debts follow Division 21, with further rules for partly taxable or creditable transactions. For non-cash accounting, a write-off or a debt overdue for at least 12 months can require an adjustment. A supplier’s bad debt can reduce GST, while the buyer’s unpaid acquisition can require a credit reduction. Later recovery or payment can reverse the relevant effect. Division 21 does not apply to cash-basis entities, and a bad-debt adjustment does not require a Division 19 adjustment note.

Check the Adjustment Note

An adjustment note must show what changed and its effect on GST. An accounting credit note qualifies only if it meets the GST requirements. The current adjustment-note determination sets the information requirements.

Check that the document establishes:

• Its intention as an adjustment note and whether the adjustment increases or decreases the relevant amount.
• The supplier’s identity and ABN.
• The recipient’s identity or ABN when the relevant invoice totals at least $1,000, or a newly taxable supply meets that price threshold.
• The issue date and reason for the adjustment.
• The GST adjustment amount and any difference between the price before and after the event.

For a wholly taxable supply taxed at one-eleventh of the price, the note can instead state that the price difference includes GST. Show the GST amount separately when that shortcut does not fit the supply.

The supplier generally issues the note within 28 days of the earlier relevant trigger. Those triggers are the recipient’s request or the supplier becoming aware of the adjustment after issuing, or being asked to issue, a tax invoice. Specific extensions and exceptions can apply. The ATO’s adjustment-note ruling explains the obligation.

Fictional Supplier Note

This worked note uses anonymous entity roles. In an issued note, identify the actual entities and supplier ABN, and enter the actual issue date.

Note field	Worked entry
Document	Adjustment Note AN-04
Issuer and recipient	Equipment supplier to business buyer
Original transaction	Equipment invoice INV-21, total $11,000 including $1,000 GST
Reason	Agreed rebate after the sale
Price difference	Credit to buyer of $1,100 including $100 GST
Revised price	$9,900 including $900 GST
GST effect	Supplier’s GST decreases by $100; buyer’s credit decreases by $100

The supplier has a decreasing adjustment. The fully creditable buyer has an increasing adjustment. Retain the original invoice and rebate agreement with the note.

Fictional Recipient-Created Note

When the original tax invoice was, or would have been, a recipient-created tax invoice (RCTI), the recipient issues the adjustment note instead. Both entities’ identities and ABNs must be ascertainable, regardless of the price. Check the original recipient-created tax invoice and the arrangement authorising that invoicing.

For a separate fictional purchase, the recipient’s RCTI RC-18 records a wholly taxable supply of $2,200, including $200 GST. A later quantity reconciliation reduces the price by $220, including $20 GST. Recipient Created Adjustment Note RCA-03 records the quantity correction, credits the supplier’s sale by $220 and reduces GST by $20. The revised total is $1,980, including $180 GST.

The recipient records an increasing adjustment of $20 and the supplier a decreasing adjustment of $20. The issued document also carries both entities’ identities and ABNs and its actual issue date. This example shows a voluntarily issued note below the usual decreasing-adjustment note threshold.

Establish the Applicable Threshold and Period

There is no universal GST adjustments threshold. Each limit answers a different question.

Rule	Threshold or timing	What it determines
Decreasing adjustment from an adjustment event	GST adjustment of $75 or less	General exemption from issuing and holding an adjustment note
Recipient identification on an ordinary note	Relevant total price of at least $1,000	Additional identity information, not whether an adjustment exists
Division 129, ordinary acquisitions	GST-exclusive value over $1,000	Whether this changed-purpose adjustment regime applies
Division 129, business-finance acquisitions	GST-exclusive value over $10,000	Separate entry threshold for that category
Division 129, ordinary acquisitions over $1,000 and up to $5,000	Two adjustment periods	How many periods remain available for assessing use
Division 129, ordinary acquisitions over $5,000 and below $500,000	Five adjustment periods	Longer assessment window
Division 129, ordinary acquisitions of $500,000 or more	Ten adjustment periods	Longer assessment window

Business-finance acquisitions have their own period bands. Disposal and registration changes can also affect the period count. Use the GST Act’s adjustment rules for the relevant category.

The general attribution rule uses the tax period when you become aware of the adjustment. For cash accounting, an adjustment event requiring you to provide consideration follows payment, including partial payments.

A decreasing adjustment from an adjustment event generally needs a valid note when the BAS is lodged. Without one, defer it to the first tax period for which you lodge while holding the note, unless a specific exception applies. Increasing adjustments do not wait for a note.

For the fictional $100 rebate adjustment, record the original period, later rebate agreement and awareness period. The buyer recognises its increasing adjustment under the applicable attribution rule. The supplier establishes the rebate, reimbursement and note before claiming its decreasing adjustment. If the supplier lacks the required note at lodgement, its claim waits under the note rule.

Division 129 instead uses a qualifying adjustment period. Generally, that period starts at least 12 months after the original attribution period ends and meets the statutory annual period-end rule. The ATO’s making-adjustments guidance gives the precise period-end conditions. Record the actual qualifying period in the workpaper before calculating.

Work Through a Changed-Use Example

Calculate a Division 129 adjustment from evidenced use over the whole relevant measurement period. A recent private-use estimate alone does not establish that percentage.

In this fictional example, a business buys equipment for $4,400, including $400 GST. It expects 80% creditable use and claims $320. The acquisition does not relate to business finance, and no annual apportionment election or other overriding adjustment applies.

At the first qualifying adjustment period, usage records show 1,000 operating hours since acquisition. Creditable business work accounts for 600 hours and private use for 400 hours. The cumulative actual creditable use is therefore 60%.

1. Confirm the full possible credit is $400, rather than the $320 originally claimed.
2. Compare intended use of 80% with actual use of 60%. The decrease is 20 percentage points.
3. Multiply $400 by 20%. The increasing adjustment is $80.
4. Record the $80 in that qualifying adjustment period and retain the usage calculation.

The GST-exclusive acquisition value is $4,000, so the ordinary two-adjustment-period band applies. At the next qualifying period, compare cumulative actual use since acquisition with the 60% used for the previous adjustment. Do not compare only the latest year with the original 80%.

The first adjustment leaves $240 of the original credit after the $80 reduction. Refunding the entire $320 would ignore the continuing 60% creditable use. If the recorded hours do not substantiate the business/private split, obtain the missing usage records before approving the percentage.

Check the BAS and Supporting Records

Reconcile the approved adjustment to its evidence and BAS treatment before sign-off. The accounts method reports increasing adjustments at 1A and decreasing adjustments at 1B. For the changed-use example, the workpaper supports an $80 increasing adjustment at 1A.

The calculation worksheet method records the overall adjustment multiplied by 11 at G7 for an increasing adjustment or G18 for a decreasing adjustment. Do not enter the same overall adjustment at both labels. Ensure software has not already included the effect before posting a manual adjustment.

Use this sign-off sequence:

1. Match the original transaction to the GST or credit previously reported, including the original tax period.
2. Identify the later event or changed-purpose rule and explain the increasing or decreasing result.
3. Match the calculation to the agreement, valid note or use records. Record any note exception relied on.
4. Confirm the attribution period, accounting basis and applicable BAS method.
5. Reconcile the proposed entry with the BAS, then obtain reviewer approval with the supporting records attached.

A missing required note delays the decreasing adjustment: obtain a corrected note or document an applicable exception. An unsupported private-use percentage needs usage evidence and a revised calculation. An original coding mistake needs the original invoice and an error-correction assessment, including whether a later BAS correction is permitted.

Once treatment and timing are settled, use BAS reconciliation to check the reported totals. Sign off when the original amount, supported change and final BAS effect agree, with no duplicate entry.