The ATO on Wed 28.3.2012, issued Practice Statement Law Administration PS LA 2012/1 (GA) concerning the calculation of input tax credits and bad debt adjustments when a dividend is paid to creditors. It applies to representatives of an incapacitated entity who pays a dividend of less than 100 cents in the dollar to creditors towards satisfaction of debts owed. It does not consider the GST consequences for creditors who receive such a dividend.
The ATO says the payment of such a dividend may create either an increasing adjustment (as a consequence of the creditor writing off the remainder of the debt), or an input tax credit entitlement, depending on the incapacitated entity’s accounting basis (ie cash or accruals basis) for GST purposes. Broadly, the Practice Statement sets out the calculation of the increasing adjustment (bad debt increasing adjustment) or the input tax credit impact on the dividend, if any, that is payable by the representative of the incapacitated entity.
The ATO has also withdrawn GST Bulletin GSTB 2003/1 (How to calculate input tax credits and bad debt adjustments when a dividend is paid to creditors) with effect from Wed 28.3.2012.
[LTN 60, 28/3]