Steps to Correct GST Mistakes and Stay Compliant
As a small business owner, you know how crucial it is to get your GST right. But mistakes can happen, even to the most diligent among us. If you’ve realised you’ve incorrectly charged GST on a sale, don’t panic—there are steps you can take to fix it.
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How Might This Happen?
Common reasons for incorrectly charging GST include:
- Treating a non-taxable transaction as a taxable sale.
- Charging GST on a GST-free or input-taxed sale.
- Miscalculating your GST liability, leading to an overstatement on your Business Activity Statement (BAS).
What Happens Next?
The key factor in correcting the error is whether you’ve passed on the excess GST to your customer.
If You’ve Passed on the GST
In most cases, if you’ve charged GST and issued a tax invoice, it’s considered to have been passed on to the customer. The excess GST is then treated as payable under the law, meaning the ATO cannot refund it to you directly. Here’s what you can do:
- Reimburse Your Customer: If you refund the excess GST to your customer, you can make a decreasing adjustment on your next BAS to recover the amount. If your customer is GST-registered, they’ll need to make a corresponding increasing adjustment.
- Request a Discretionary Refund: In limited circumstances, you can apply to the ATO for a refund of excess GST that hasn’t been reimbursed to the customer. However, this is only granted in cases where it wouldn’t result in a “windfall gain” for your business.
If You Haven’t Passed on the GST
If you have clear evidence that you didn’t pass on the excess GST to your customer (which is rare), you can treat this as a GST error. You have two options:
- Correct it on a later BAS.
- Revise the earlier BAS where the error was made.
Correcting on a Later BAS
The ATO allows businesses to correct GST errors on a future BAS, which is often simpler than revising an earlier BAS. However, this option is only available if:
- The later BAS is lodged within the review period for the original BAS in which the error occurred.
- For small businesses (GST turnover under $20 million), debit errors up to $12,500 can be corrected within 18 months of the original BAS due date.
Note: You cannot correct an error to claim additional GST credits if the four-year time limit for claiming those credits has expired.
Key Takeaways
If you discover you’ve incorrectly charged GST on a sale:
- Don’t ignore the error—address it promptly.
- Determine whether you’ve passed on the GST to your customer.
- Consider reimbursing your customer if possible.
- Keep detailed records of the error and how you corrected it.
- Seek professional advice if you’re unsure about the best course of action.
By staying proactive and addressing GST errors correctly, you can maintain compliance and avoid potential issues down the track. If you’re ever in doubt about your GST obligations or need guidance on handling a specific situation, consult a qualified tax professional or contact the ATO directly for advice.