Even though the goods and services tax (GST) has been in place since 2000 it still provides small business owners with a lot of confusion today. The confusion is one of the reasons why the Australian Taxation Office (ATO) targets their audit activity in this area.
GST errors and mistakes can be made for a number of reason including (but not limited to) not understanding the GST legislation, claiming a GST credit where no invoice is provided, software incorrectly set up for GST and incorrectly treating inter-entity transactions.
Some common mistakes we see when reviewing the accounts for clients are listed below (note there are more examples but we just want to highlight the main ones):
- Claiming a GST credit on GST-free supplies. For example health services, basic foods and council rates and water.
- Claiming a GST credit on staff wages, superannuation or even contractors that are not registered for GST.
- Claiming full GST credits on cars that exceed the luxury car limit (currently $57,446 therefore maximum GST claim is $5,224).
- Claiming GST credits on input tax supplies such as monthly bank fees and cheque fees. Note however that GST credits can be claimed on merchant fees.
- Claiming full GST credits on insurance policies. The premium contains a stamp duty component that is not subject to GST.
- On insurance settlements you normally don’t need to pay GST assuming you have notified the insurer of the portion of the premium you can claim GST for.
- Claiming full GST credits on expenses that are for both private and business purpose such as mobile phones and cars. These are for sole traders and partnerships. Note FBT needs to be considered for other entities.
- Not reporting GST on some non business income eg commercial rent.
- Where tenants are liable for outgoings under a commercial lease, the landlord not charging GST on those charges to the tenant and the tenant not claiming GST on those charges (regardless of the nature of the underlying cost)
- Reporting GST in the wrong tax period. For example claiming GST on purchases when paid and not on invoice date (for entities reporting on accruals basis).
If you do make a mistake it can almost always be fixed. Normally this can be done through an amended BAS but also there are situations where you can make an adjustment in future BAS periods.
As the GST landscape is very technical it is recommended that you contact your LBW Chartered Accountants representative or Nick Klein (GST specialist) for further assistance.