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What should you do when contracts, sales or purchases are cancelled?

Posted on May 4, 2020 by admin

Contracts, sales or purchases are bound to be cancelled with financial uncertainty plaguing the economy as a result of COVID-19. To help you get through this, the ATO recommends making a goods and services tax (GST) adjustment when cancellations do occur.

In the event of contracts, sales or purchase cancellation, you can make a GST decreasing adjustment. A GST decreasing adjustment refers to when you originally paid for a product or service more than the amount payable after taking in an adjustment event into account. This also means you pay less GST for the reporting period.

For further clarification, the adjustment amount is a decreasing adjustment if you claimed less for the purchase in the earlier tax period than the amount you could have claimed if the adjustment event had been taken into account.

According to the ATO, GST adjustments can be made when:

To make a GST adjustment, first look over your previous BAS and paid invoices and check if you paid GST, how much you paid in GST and when you paid. After that, you can make your adjustments for the amount paid in each previously lodged activity statement, provided that you are accounting for GST on a cash basis. In the case that you account for your GST on an accruals basis, make your adjustment during the activity statement period when you become aware of it.

When you become aware of a GST adjustment opportunity, you should report it in your activity statement for your current reporting period. The ATO provides you with adjustment reporting assistance in the form of worksheets designed for purchase recording purposes (for sales, purchases, bad debts and creditable purpose) and also brief guides on their website.

Keep in mind that you only need to adjust GST if the contract, sale or purchase was reported in a previous business activity statement. There’s no need to report an adjustment if your contract, sale or purchase occurred within your current business reporting period.

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