WHEN DO YOU HAVE AN ADJUSTMENT FOR A PROPERTY TRANSACTION?

1. Fact sheet for GST registered businesses Business
GST and property
adjustments
TERMS WE USE NEW RESIDENTIAL PREMISES AND A CHANGE
When 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 CONCERNS
An adjustment is a change that increases or decreases your AND FARMLAND
net GST liability for a reporting period. There are two types You may need to make an adjustment for property that is sold
of 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. For
WHEN DO YOU HAVE AN ADJUSTMENT FOR example, you purchase a residential unit as part of a GST-free
A PROPERTY TRANSACTION? sale of a going concern and intend to rent it out. The amount of
You may need to make an adjustment on your activity statement your increasing adjustment is usually worked out by using the
if 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 ceased
your enterprise and cancelled your GST registration.
NAT 73602-10.2010

2. GST AND PROPERTY ADJUSTMENTS
RECORD KEEPING
EXAMPLE 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 Goods
If 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 the
premises 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 number
concern, you do not need to make an adjustment. you need
■ Speak and Listen (speech-to-speech relay) users, phone
ADJUSTMENTS FOR ASSETS YOU HOLD AFTER 1300 555 727 and ask for the ATO number you need
CANCELLING YOUR GST REGISTRATION ■ internet relay users, connect to the NRS on
When you cancel your GST registration, you may still hold some www.relayservice.com.au and ask for the ATO number
business assets (such as property) for which you previously you need.
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).
2

3. GST AND PROPERTY ADJUSTMENTS
OUR COMMITMENT TO YOU
We are committed to providing you with accurate, consistent
and clear information to help you understand your rights and
entitlements and meet your obligations.
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.
If you make an honest mistake in trying to follow our information
in this publication and you owe us money as a result, we will not
charge 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 pay
it to you. We will also pay you any interest you are entitled to.
If you feel that this publication does not fully cover your
circumstances, 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 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.
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