Wāhanga 4 - Ngā panonitanga Part 4 - Adjustments

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GST workshop - Adjustments

We're here to help

Part 4

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Narrator

An introduction to GST, adjustments.

When you’re registered for GST, it’s important to know when an adjustment is needed, and how it’s calculated.

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GST adjustments - overview

Adjustments are needed when there is business use of private goods/services or private use of business goods/services.

• Assets acquired before registering for GST
• Assets used privately and for business
• Home office and motor vehicles

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Narrator

Adjustment are needed for GST, when an expense is partly business, and partly private.

We’re going to cover 3 situations.

How to claim GST on business assets you owned before you registered for GST.

How to claim GST on assets purchased after you registered for GST, and that are also used privately.

And 2 common examples of adjustments, a home office, and motor vehicles.

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GST adjustments

Claiming GST on assets acquired before registering for GST.

To work out what you can claim, you will require:

• Original date of purchase
• Original purchase price
• GST registration date
• Percentage of business use of the asset

The GST claim is made at the end of the tax year, i.e. the GST return for the period ending 31 March.

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Narrator

Firstly, we’ll discuss how to claim GST on assets used in your business that you owned before you registered for GST.

You’re able to claim a portion of the GST based on the percentage of time the asset’s been used for GST purposes.

For example, if you’ve owned an asset for 2 years in total, and it’s been used for GST purposes for 6 months, then you’ll be able to claim 25% of the GST.

To calculate your GST claim, you’ll need the following details.

The original date you purchased the asset, the original price you paid, the date you registered for GST, and the percentage of business use of the asset, which could be 100%.

The GST claims for these assets is made at the end of the tax year, not when you register for GST.

For most businesses, that means the GST adjustment is included in your GST return for the period ending 31 March.

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Example – asset acquired before GST registration

Scenario details

• Purchase date 11 April 2023
• Purchase price $13,800
• GST registration date 1 October 2024
• Business use 60%

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Narrator

Here’s a typical example of an adjustment for a business vehicle.

The vehicle was bought in April 2023.

We paid $13,800, and we registered for GST in October 2024.

The car has been used in the business since then.

We’ve kept a logbook which shows the car is used 60% of the kilometres travelled for business, and 40% privately.

We’re making the GST claim in the GST return for March 2025.

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Example – asset acquired before GST registration

(months used for taxable supplies divided buy total months asset owned) multiplied by business use multiplied by GST content on cost

(6 months divided by 24 months) multiplied by 60% multiplied by ($13,800 multiplied by 3 divided by 23)

25% multiplied by 60% multiplied by $1,800 equals $270

The adjustment of $270 is shown as a credit adjustment in the GST return for 31 March 2025.

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Here’s how the calculation works.

First, we need to work out the portion of time the car’s been used for GST purposes, or for taxable supplies.

As at 31 March, we’ve owned the car for 24 months, and it’s been used for GST purposes for a total of 6 months.

This means the car’s been used for taxable supplies for 25% of the time we’ve owned it.

Step 2 is the portion of business use.

Our logbook shows that 60% of the kilometres travelled are for business.

At step 3, we calculate the GST on the original purchased price.

To do this, we multiply the purchase price of 13,800 by 3, and then divide by 23.

The answer we get is $1,800.

So our calculation is 25% times 60% times $1,800 of GST, and the answer is $270.

So, $270 is our credit adjustment for our March 2025 GST return.

If this seems a little complex, your tax agent can do this calculation for you, or you can contact us for assistance.

There’s further info and examples on our website if you search, GST adjustments.

The important thing to be aware is that an adjustment needs to be made in these circumstances.

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GST adjustments

Claiming GST on assets over $10,000 used privately and for business.

To work out what you can claim, you will need to:

• Estimate your intended business use
• Claim GST based on your estimate
• Retain the required taxable supply information (such as receipts, invoices and other documents)
• Keep records of your actual business use
• Compare the actual use with your original estimate at the end of the tax year

The GST is claimed as a credit adjustment on your GST return.

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Narrator

Now we’ll look at how to calculate the GST claim for assets we purchase after our GST registration date.

If the asset is $10,000 or less (excluding GST), but not principally used for business, we cannot claim any GST.

For assets over $10,000 that aren’t used 100% for business, we can’t claim 100% of the GST.

First, we estimate how much business use there’ll be.

Then, work out the GST on the purchase price.

Next, multiply the GST by the estimated business use, the answer is your credit adjustment.

Claim this GST figure as a credit adjustment in your GST return.

We make this claim in the GST return where we purchased the asset.

We must also have the required taxable supply information when we make the claim.

The information may be contained in receipts, invoices, or other documents.

Note, you’ll need to keep records of the actual business use.

For a car, this could be a 90-day logbook if this is reflective of your typical use.

If the purchase price of your asset is over $10,000 you need to review your claim at the end of the tax year.

Compare your estimate with the actual use, and if there’s a difference between the two figures, you may need to make a further adjustment to balance the difference.

Our website has the details regarding how often you must review your claim, and if this extra adjustment is required.

Keep in mind the associated persons rule, which may limit your GST claim, or reduce it to zero.

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GST adjustments – home office

An example showing an area of 6 square metres is being used as home office space in a 100 square metre house.

Claim a percentage of power, rates, house and contents insurance.

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Narrator

Now we’ll look at how to claim GST for a home office.

You’ll need to measure the floor space of the home, and the space that’s been used for business.

Divide the home area by the office area to calculate the home office percentage.

You then claim this percentage of the costs relating to the home, and some of these costs have GST.

In our example, the floor space for the home is 100 square metres, and we use 6 square metres for business.

This gives us a home office percentage of 6%.

This business owner can claim 6% of the power, rates, and insurances in their GST return.

Most business owners claim the GST for their home office at the end of the tax year.

For most businesses, this would be the GST return for the period ending 31 March.

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GST adjustments – motor vehicle

• Use your vehicle logbook and taxable supply information for:
  • Fuel
  • Tolls and parking fees
  • Insurance
  • Repairs
  • WOF and registration
  • An asset, for example, your vehicle

• Claim the logbook percentage of these vehicle expenses in your GST return.

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A logbook is a good way to work out how much of your vehicle expenses and GST you can claim.

You can claim the GST on expenses such as fuel, road user charges, insurance, etcetera.

Ensure you retain taxable supply information for these expenses.

If you’re using a logbook, you should complete it for a minimum of 90 days to work out the business use percentage.

You can use the result of the logbook to claim for the business share of your vehicle expenses for the next 3 years.

After 3 years, or if your business use changes by more than 20%, you’ll need to start a new logbook to work out a new business use percentage.

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GST adjustments – motor vehicle

• You cannot claim expenses related to the private running of your vehicle.
• If you use the kilometre rate, you cannot claim GST.

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Narrator

If you run your business as a company and your vehicle is registered in the company name, any non-business use is likely to be subject to Fringe Benefit Tax (FBT).

On that basis, you can claim all of the costs for the vehicle and you may not need a logbook.

But you will need to keep records of non-business use.

GST adjustments for motor vehicle are for business related expenses, you cannot claim expenses related to the private running of your vehicle.

Also, if you claim a kilometre rate for vehicle costs for income tax, you can’t claim any GST on the kilometre rate.

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GST adjustments

• Errors in previous returns

A table showing different types of errors and when to make the correction

• Forgotten business expense – Within 2 years of when it was missed
• Error of $1,000 of less – In your next GST return
• Error of $10,000 or less – In your next GST return* if its not to delay the payment of GST
• All others – Correct the original return or send message in myIR

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Narrator

Adjustments can also be made when fixing errors from previous returns.

You may occasionally pick up mistakes you’ve made in past GST returns.

You might’ve forgotten to claim a business expense or may have missed a payment a customer made to you.

There are three situations when you’ll be able to fix the error in a later GST return.

First, if you’ve forgotten to claim a business expense, you’ll generally be able to include it in a return within 2 years of when it was missed.

Second, you’ll also be able to correct errors of $1,000 or less in your next GST return.

Third, if it’s not to delay the payment of GST - you’ll be able to correct errors that are $10,000 or less, and 2% or less of the GST collected in your next return.

If you owe more GST, then include the GST owed as a debit adjustment.

If you’re claiming for a missed expense, then include the GST amount as a credit adjustment.

For all other errors you’ll need to correct the original return or send us a message in myIR.

We’ll need to know what the error was, which return to adjust, and by how much.

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GST adjustments

• For products taken for personal use:
  • you’ll need to pay back some of the GST you originally claimed
  • the GST is added as a debit adjustment in your GST return

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Narrator

The last adjustment we’ll cover is if you take business stock for personal use.

In these situations, you’ll need to pay back some of the GST you originally claimed.

For example, if a builder buys a load of timber for a job and then takes some home to build a deck, they’ll need to pay back the GST on that timber.

In this example they originally claimed GST on all the timber purchased as a business expense, and now need to work out the amount of GST on the timber used for their deck at home.

The GST for the timber used privately is added as a debit adjustment in their GST return.

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