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Is the entity, a primary producer, required to make an increasing adjustment under Division 129 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it claims an input tax credit for costs incurred in relation to its primary produce and later uses or consumes that primary produce?

Yes, the entity is required to make an increasing adjustment under Division 129 of the GST Act when it claims an input tax credit for costs incurred in relation to its primary produce and later uses or consumes that primary produce.

However, an adjustment is only necessary if the acquisition that gave rise to the input tax credit has a GST exclusive value of more than $1000.

The entity is a sole trader operating a fruit orchard in Australia. The entity is registered for goods and services tax (GST) and has quarterly tax periods.

The entity purchases irrigation equipment for $8800 and fertiliser for $660 on 15 March 2001 and claims full input tax credits for these acquisitions in the tax period ending 31 March 2001.

Some time later, the entity decides to use some of its primary produce for its own consumption.

Generally, the planned extent of creditable purpose for an acquisition determines the amount of input tax credit that an entity is entitled to claim. However, where the extent to which the acquisition is subsequently applied for a creditable purpose differs from the planned extent, an adjustment may arise under Division 129 of the GST Act.

In this case, entity acquires the irrigation equipment and fertiliser for use in carrying on its enterprise and thus was able to claim full input tax credits under Division 11 of the GST Act. However, to the extent that the primary produce is used or consumed by the entity, the entity' s application of the fertiliser and irrigation equipment for a creditable purpose differs from the planned extent. Therefore an adjustment may be necessary under Division 129 of the GST Act.

Subsection 129-10(2) of the GST Act provides that an adjustment does not arise under Division 129 of the GST Act if the GST exclusive value of the acquisition does not exceed a certain threshold. For acquisitions that do not relate to business finance, no adjustments will arise under Division 129 of the GST Act if the GST exclusive value of the acquisition does not exceed $1000.

In this case, the GST exclusive value of the irrigation equipment and fertiliser are $8000 and $600 respectively. Therefore, an adjustment can only arise in respect of the irrigation equipment.

The adjustments are made in a tax period called an adjustment period. This is defined in subsection 129-20(1) of the GST Act as a tax period that: (a) starts at least 12 months after the end of the tax period to which an input tax credit for the acquisition is attributable; and (b) ends on 30 June, or, if none of your tax periods end on 30 June, the tax period which ends closer to the 30 June than any other tax period.

In this case, an input tax credit for the acquisition of the irrigation equipment is attributable in the tax period ending 31 March 2001. Therefore, the adjustment will need to be made in the tax period ending 30 June 2002. [Note: Where primary produce is used or consumed by the producer, the produce is not supplied in carrying on the enterprise. Therefore, the producer is not making a taxable supply of the produce under section 9-5 of the GST Act when it consumes the produce.]