A GST adjustment event does not simply reverse or correct a previous transaction — it creates a new, separate GST event that must be reported in the BAS period in which the adjustment arises, and the rules governing when an adjustment is required are more nuanced than most bookkeepers realise.
Division 19 of the A New Tax System (Goods and Services Tax) Act 1999 sets out the adjustment event rules. Getting these right ensures your BAS figures accurately reflect actual GST obligations and entitlements, and avoids the downstream problem of incorrect BAS lodgements that require amendment.
What Is a GST Adjustment Event?
An adjustment event is any event that causes the original GST treatment of a supply or acquisition to be incorrect. Common examples include:
- A credit note issued by a supplier reducing the price of an acquisition
- A price reduction given to a customer after the original invoice was issued
- A full or partial refund to a customer
- A bad debt written off (for entities on cash accounting, this does not give rise to a separate adjustment — it simply means the GST was never included)
- A change in the intended use of a thing acquired (changing from taxable use to input-taxed use, or vice versa)
The adjustment event does not cancel the original supply or acquisition — it creates a new GST outcome on top of it. The original tax period's figures remain as lodged; the adjustment is reflected in the current period's BAS.
Decreasing Adjustments vs Increasing Adjustments
Decreasing adjustment: An event that reduces your net GST obligation. For a supplier, a decreasing adjustment arises when a credit note reduces the consideration for a supply (less GST payable). For an acquirer, a decreasing adjustment arises when the intended use of an acquisition changes from taxable to input-taxed (reducing the input tax credit previously claimed).
Increasing adjustment: An event that increases your net GST obligation. For a supplier, an increasing adjustment arises when additional consideration is received after the original invoice. For an acquirer, an increasing adjustment arises when the intended use changes from input-taxed to taxable (creating a new input tax credit entitlement that was not previously claimed).
From a bookkeeping perspective:
- A decreasing adjustment for a supplier = a credit note from you to your customer = reduces GST payable (1A) on the BAS
- A decreasing adjustment for an acquirer = a credit note received from a supplier = reduces input tax credits (1B) on the BAS
These are often confused because the direction of the adjustment depends on whether you are the supplier or the acquirer — not on whether money is coming in or going out.
When Does the Adjustment Arise?
An adjustment event occurs in the tax period in which the adjustment event itself takes place — not in the period the original supply was made. Under section 29-20 of the GST Act, an entity has a decreasing adjustment for a tax period if an adjustment event occurs during that period.
Example: You issue an invoice in the September BAS quarter for $11,000 (including $1,000 GST). In December, you issue a credit note for $2,200 (including $200 GST) because the customer returned part of the goods. The $200 decreasing adjustment is reported in the December quarter BAS — not in the September quarter. The September quarter figures remain correct as lodged.
This is the critical rule: adjustments go in the current period, not the original period. Amending the original period's BAS is only required if the original transaction was incorrectly classified in the first place (e.g., a supply was treated as GST-free but should have been taxable). An adjustment event is a different thing from an error in the original return.
Adjustment Periods: The 4-Year Limitation
Adjustment events can only be reported within the "adjustment period" for the relevant supply or acquisition. Under Division 129 of the GST Act, the adjustment period is:
- The tax period in which the adjustment event occurs, plus
- Any tax period within the following 4 years (for most businesses with annual turnover under $2 million)
For large businesses (annual turnover $2 million or more), the adjustment period is generally limited to the current period.
This 4-year limitation means that a credit note received from a supplier more than four years after the original acquisition cannot give rise to an input tax credit entitlement — the adjustment period has expired. In practice, this rarely affects most SME clients, but it is relevant for:
- Long-term construction contracts with retentions released years later
- Warranty claims on goods imported several years ago
- Insurance recoveries for events covered by policies issued in earlier years
Coding Adjustment Events in the Accounts
For a credit note received from a supplier (decreasing adjustment for the acquirer):
Do not simply reverse the original purchase entry and create a new net entry. The correct approach:
- Credit Accounts Payable (or Cash) for the gross credit note amount
- Debit the original expense or asset account for the net amount
- Debit GST Collected/Payable (reducing input tax credits) for the GST component
In your BAS, include the GST amount from credit notes received in G11 (non-capital acquisitions) as a reduction — or specifically code it in a dedicated "GST on Adjustment Events" account that flows to the correct label.
For a credit note issued to a customer (decreasing adjustment for the supplier):
- Debit Accounts Receivable (or Cash) for the gross credit note amount
- Credit the relevant revenue account for the net amount
- Credit GST Collected (reducing GST payable on 1A) for the GST component
For a change in intended use: The calculation is more complex and should be reviewed by the tax adviser — the adjustment depends on the proportion of taxable vs input-taxed use, the acquisition cost, and the remaining adjustment periods.
Practical Tips for BAS Preparation
- Run a credit notes report at the end of each BAS period and confirm each credit note has been coded with the GST component correctly separated
- Check that credit notes dated in the current period are included in the current period's BAS — not backdated to the original invoice period
- For bad debts claimed under the cash-accounting concession, confirm the client is on cash accounting — accruals-basis businesses cannot simply claim a deduction when a debt goes bad without following the bad debt write-off procedures
- Where the credit note relates to an export supply (zero-rated), there is no GST adjustment — the original GST-free treatment is simply maintained
- Document the reason for each credit note in the transaction memo — "price reduction," "goods returned," or "billing error" all have potentially different GST treatments