No Invoice - No Credit, so issue and retain those invoices
What is a tax invoice, and what must it contain?
Tax invoices must be retained for a period of 5 years
Adjustment Notes must be issued when the credit changes
Change in the extent of creditable purpose
Which tax period is GST and input tax credits attributed to?
It all depends on the
Tax Invoices (Subdivision 29-C)Generally, an entity cannot claim an input tax credit unless the entity has a tax invoice.
The tax invoice must be issued by the supplier and be in the form approved by the Commissioner.
A
tax invoice must include the following details:
the entity's Australian Business Number;
the price for the supply; and
other information which the regulations require.
The regulations also require the following details:
the words `TAX INVOICE';
name of the supplier;
name and address of recipient;
date of issue;
brief description of supplied items;
quantity or volume; and
either the total amount payable and a statement that the amount includes GST, or the
amount charged for the supply, the amount of GST and the total amount payable.
Does the entity need to supply a tax invoice for every taxable supply it makes?
Where the value of the goods or services
supplied is no more than $50, the supplier will not have to issue a tax invoice.An
entity will need a tax invoice to claim an input tax credit for acquisitions of more than $50 value. For input tax credits where the value of the supply is $50 or less an entity does not have to hold a tax invoice. (However, an entity should have some documentary evidence to support claims.)
Where a tax invoice has not been provided at the outset, the supplier will be required to provide a tax invoice within 28 days
of being requested to do so.In certain situations it may be possible for the
recipient of the supply to create a tax invoice. These situations will occur where the value of the supply is determined by the recipient. The Commissioner may issue a determination as to when a recipient created tax invoice may be prepared.
How long must the entity keep the tax invoice for?
Tax invoices must be retained for a period of 5 years
after the occurrence of the transaction to which they relate.(Division 19, 21 and 129)
Situations will occur where adjustments will need to be made to the amount of GST paid or input tax credits claimed in the previous tax period. For instance, where either
too much GST has been paid or
too little GST has been paid or
items purchased are returned to a supplier.
There are basically three circumstances that will give rise to the entity being required to make an adjustment:
adjustment events (Division 19);
bad debts (Division 21); and
a change in the extent of the creditable purpose (Division 129).
A supplier should give the recipient of a supply an adjustment note where there is an adjustment event relating to a taxable supply. The adjustment note must:
be issued by the supplier of the taxable supply (unless the recipient created the tax invoice);
contain the ABN of the entity issuing the tax invoice;
contain any information required by the Commissioner; and
be in the approved form.
An adjustment note must be issued by the supplier of the taxable goods or services within 28 days of either a recipient's request, or of becoming aware of the adjustment.
Adjustment events
(Division 19)Section 19-10 provides that adjustment events arise where:
all or part of a supply or acquisition is cancelled (eg. goods are returned due to poor quality);
the consideration for a supply or acquisition is altered (eg. a volume discount is given due to a certain threshold being exceeded);
a supply becomes, or stops being taxable; or
an acquisition becomes, or stops being creditable.
Where any of the above events occur, an adjustment must be made to the net amount
attributable to the entity for the tax period. The adjustment must be made, as the occurrence of one or more of the above events means that the amount of GST payable or input tax credits attributed to a previous tax period in relation to the transaction, is no longer correct.Can adjustments occur either increasing or decreasing the net amount?
Yes
.There can be both increasing and decreasing adjustment events in relation to both
supplies and
acquisitions.
Section 17-10 provides for two types of adjustments to the net amount:
increasing adjustments, which add to the net amount; and
decreasing adjustments, which reduce the net amount.
Increasing adjustments
will occur where the GST amount in a previous tax period has been understated.Section 19-50 provides that the
adjustment will be the difference between the corrected GST amount (what the GST amount should have been in a previous tax period) and the
previously attributed GST amount (the actual GST amount calculated in a previous tax period).
In contrast, a decreasing adjustment will occur where the GST amount in a previous tax period has been overstated. Section 19-55 provides that the adjustment will be the difference between
the amount of GST that was previously attributed in a previous tax period, and
the amount of GST which should have been paid (the corrected GST amount).
In relation to creditable acquisitions, where the correct GST input tax credit amount is greater than the previously calculated amount, a decreasing adjustment equal to the difference will arise.
Creditable acquisitions, where the correct GST input tax credit amount is less than the previously calculated amount, will give rise to an increasing adjustment equal to the difference.
Example of an adjustment.
For example, GNP Pty Ltd attributes GST of $5,000 for a supply of a washing machine in a previous tax period. The item had received enhancements prior to sale which were later paid for, incurring a further $500 GST. The previously attributed GST amount of $5,000 no longer reflects the correct amount of $5,500. As the corrected amount is greater than the previously attributed amount, GNP Pty Ltd has an increasing adjustment. The adjustment increases the net amount for the current period by $500.
(not applicable if the entity accounts on a cash basis) (Division 21)
Where the entity does not account for GST on a cash basis, an adjustment may be required where the entity writes off a debt as bad or recovers amounts previously written off.
As a
supplier, the entity will have a decreasing adjustment where: the entity made a taxable supply;
the whole or part of the consideration for the supply was not received; and
the entity writes off as bad the whole or part of the debt, or the debt has been owing for 12 months or more.
GST adjustments may also apply in relation to the entity making the creditable acquisition where no payment is made for the supply.
Division 21 also provides for adjustments to input tax credits claimed by the recipient where:
the entity makes a creditable acquisition;
the whole or part of the consideration is due but the entity is yet to provide the consideration; and
the supplier of the goods or services provided writes off the whole or part of the debt as bad, or
the whole or part of the debt has been due for 12 months or more.
Example of treatment of a bad debt.
For example, Comps Corporation makes a taxable supply to YUS Pty Ltd. YUS was invoiced for the amount of $110,000 but has not paid for the goods one year later. Although Comps
Corporation has commenced legal action, no recovery of monies occurred or is reasonably likely to occur. Comps Corporation does not account on a cash basis and writes off the $110,000 as a bad debt.
GST of $10,000 has already been remitted to the ATO. However, when the total amount of $110,000 is written off, an adjustment must occur.
The adjustment of $10,000 ($110,000 x 1/11) reduces Comps Corporations net amount for the tax period in which the amount is written off.
Change in the extent of creditable purpose
(Division 129)Where the actual use of an acquisition by the entity differs from the original intended use which was the basis the entity used to claim an input tax credit, the entity will need to make an adjustment for the change in use.
These adjustments are calculated at the end of an adjustment period
. The number of adjustment periods will vary depending on the value of the goods or services acquired.What is an adjustment period?
How does an entity measure a change in use of goods or services purchased, over the adjustment period?
An adjustment period
starts at least 12 months after the end of the tax period which the input tax credit for the acquisition is attributed and
ends on 30 June in any year or the end of whichever tax period ends closer to 30 June.
For example, if the acquisition is made in March 2001, the first adjustment period will end on 30 June 2002.
The adjustment period that applies to a particular acquisition will depend on whether or not it relates to making financial supplies.
How to determine your adjustment period
Subdivision 129-C provides a step by step method to assist in calculating whether the entity has an adjustment. It will be necessary to keep records of the actual application of the thing to be able to perform the relevant calculations. The actual application and the intended application of the thing must be expressed as percentages.
For example, consider the situation where a laptop computer was originally purchased for the purpose of providing administration and tracking of work in progress for an accounting firm, but the purpose later changes. The computer may be used to track financial supplies (eg) the performance of a Treasury function, or alternatively to include private usage (such as games or use for private study purposes). Where the purpose changes to input-taxed supplies or private use, it will be necessary to apportion the creditable business use versus non-creditable business and private usage and adjust the input tax credit claimed accordingly.
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