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How and when to adjust GST for bad debts

By John Kelly on March 1st, 2013

Smart Tax Bulletin

Last Friday, I talked about when you can claim a deduction for a bad debt, and on Wednesday I looked at accounting for GST on a cash or accruals basis. Today, I’ll outline how to make a GST adjustment for a bad debt.

If you account for GST on an accruals basis and claim a credit from the ATO for a supply you don’t end up paying for, you’ll need to adjust your GST claim. Equally, if you pay GST on a sale you made and you don’t end up getting paid for that sale, you can adjust your next BAS to claim back the GST you paid.

When do you have to make the adjustment?

You can make an adjustment to claim back GST if:

  • you paid GST to the ATO for a sale that you made; and
  • you did not end up receiving payment for the sale; and
  • you have written off the debt as a bad debt or it has been overdue for 12 months or more (remember that you must keep a written record of your decision to write off any debt ).

You can make an adjustment to pay more GST or repay a previously claimed GST input tax credit if:

  • you claimed GST from the ATO on a purchase that you made; and
  • you did not end up paying for the purchase; and
  • your supplier has written off your debt (which you may or may not be aware of) or you have not paid for the purchase within 12 months.

GST adjustments are made in the period that you write off the debt, have your debt written off or when the amount has been overdue for 12 months (whichever is relevant). For example, if you pay GST on an invoice raised on 31 March 2012, and you do not receive payment for the invoice by 31 March 2013, you should adjust the GST in your March 2013 BAS.

How do you make your adjustment?

If you use the GST calculation worksheet the ATO sends with your BAS (you can find one at http://www.ato.gov.au/content/downloads/n4203.pdf), you make an increasing adjustment at G7 and a decreasing adjustment at G18.

It is also possible to make a partial adjustment if you only receive or pay some of the amount due.

Obviously, these rules do not apply if you account for GST on a cash basis, as you only claim a credit or pay GST once the payment has been made or received.

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