GST is an area that commonly has mistakes made in it. Catching these errors in time can be costly and require additional measures to correct.
Many small business owners continue to make errors when claiming GST credits in their GST returns or Business Activity Statements.
A vast majority of these errors are easily avoidable and often relate to the over-claiming of GST credits. Here are the top ten common GST mistakes that can be made (and what you might be encountering yourself).
Top Ten GST Mistakes
- Residential rental property: Incorrectly claiming GST credits on expenses relating to residential rental properties.
- Bank fees: Generally, annual fees, monthly fees, and loan establishment fees are input-taxed, and therefore, there is no GST to claim. However (to keep things simple), claiming GST on credit card merchants’ fees is possible.
- Private expenses: GST is not claimable on private expenses such as personal loans, director fees, drawings, etc.
- Interest: Interest paid on loan or chattel mortgage repayments or credit card payments does not incur GST.
- The total cost of a business insurance policy: Insurance policies usually include stamp duty (GST-free). However, the rest of the policy is subject to GST. You cannot claim a GST credit on the stamp duty portion of the policy.
- Government fees: Government fees, i.e. council rates, land tax, ASIC filing fees, motor vehicle registration and water rates, do not attract GST.
- GST-free purchases: Incorrectly claiming GST credits on purchases without GST, such as basic food items, exports, and certain health services, is a common mistake. Not all suppliers charge GST, so check the tax invoice before claiming a credit.
- Entertainment expenses: Claiming the entire GST credits on entertainment expenses where the business has elected to use the 50/50 split method for fringe benefits tax is incorrect. The employer can claim only 50 per cent of the GST credits.
- Wages and superannuation payments: Both wages and super do not attract GST. Wages do not hang out with other expenses on the BAS; they appear in their own section (W1). On the other hand, Superannuation doesn’t want anything to do with the BAS.
- Sole traders and partnerships: When claiming expenses used for both private and business use, you must apportion the expenditure to exclude private usage.
Help I Have Made A Mistake With My GST
If you find that you have made a mistake on a previous activity statement, the ATO says you can:
- correct the error on a later activity statement if the mistake fits the definition of a “GST error”. You will also need to meet certain other conditions;
- lodge an amendment – the time limit for amending GST credits is four years starting from the day after the due date to lodge the activity statement for the relevant period; or
- contact the ATO for advice.
For tips on preparing the BAS, check out our blog article.
If you find this process is too time-consuming or too difficult to complete yourself, the best way to ensure that you remain compliant and avoid making these mistakes is to contact a registered tax or BAS agent for assistance (like us).
