Acquisitions and input tax credits – GST fact sheet 1

Fact sheet

1.0 Introduction

RMIT, being registered for GST will be entitled to an input tax credit in respect of an acquisition where:

• it has a creditable purpose;
• it was a taxable supply;
• there is a tax invoice supporting the acquisition;
• RMIT has provided or is required to provide consideration for the acquisition

2.0 What is a creditable purpose ?

A creditable purpose is similar to a business purpose. An acquisition has a creditable purpose where it is used in the carrying on of an enterprise. An acquisition does not have a creditable purpose to the extent that it is used in making input taxed supplies or is used for private or domestic purposes. Where an acquisition has only a partly creditable purpose, an input tax credit will only be allowable for the creditable portion.

The diagram below summarises the general concepts of acquisitions and input tax credits.

Has RMIT made an acquisition?	no	No input tax credit is available.
yes
Was the acquisition solely or partly for a creditable purpose?
yes
Was the supply a taxable supply?
yes
Is RMIT providing or liable to provide consideration for the acquisition?
yes
RMIT is entitled to an input tax credit.

3.0 Adjustment for acquisitions

Acquisition adjustments arise when the incorrect amount of input tax credits is claimed. An adjustment is made to the net amount for the tax period if:

• there is an adjustment event for an acquisition;
• an input tax credit for that acquisition was attributable to an earlier tax period; and

• the input tax credit previously attributed is no longer correct because of that adjustment event.

3.1 How to calculate adjustments

To calculate the amount of adjustment:

• Determine the input tax credit amount claimed on the acquisition for the previous period;
• Determine the corrected input tax credit amount claimed on the acquisition in the current period

The difference between the previous input tax credit amount claimed and the corrected input tax credit amount is the necessary adjustment.

3.2 Increased acquisitions amount

If the corrected input tax credit amount is lower that the previous input tax credit claimed, too many input tax credits have been claimed. An increasing adjustment will be needed. E.g. RMIT Library sells printing paper in bulk. RMIT Library sells ten boxes of printing paper to Jeff for $110 (including $10 GST), which is recorded in the net amount of the GST return. After delivery, Jeff discovers that one box contains manila folders. When Jeff received a refund of $11, he is required to make an increasing adjustment of $1 due to one box of glasses being broken and returned to the manufacturer. Jeff therefore only claimed a net $9 input tax credit.

3.3 Increased acquisitions amount

If the corrected input tax credit amount is greater than the previous input tax credit amount, too few input tax credits have been received and a decreasing adjustment will be needed. If a previously non-business acquisition becomes a business acquisition, there are no previously attributed input tax credits in respect of that acquisition. A decreasing adjustment will always be needed in these circumstances.

3.4 Timing of adjustments

The adjustment will be included in RMIT’s net amount in the GST return in the tax period, which the adjustment was made.

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