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GST is an area that commonly has mistakes made in it – mistakes that can be costly and require additional measures to correct it if they aren’t caught in time.
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).
- Residential rental property: Incorrectly claiming GST credits on expenses relating to residential rental properties where the entity is registered for GST.
- Bank fees: Generally, annual fees, monthly fees and loan establishment fees are input-taxed, and therefore, there is no GST to claim. However, GST is charged on credit card merchants’ fees and can be claimed.
- Private expenses: GST is not claimable on private expenses such as personal loans, director fees and drawings etc.
- Interest: Interest paid on loan or chattel mortgage repayments or credit card payments does not incur GST, and cannot be claimed.
- The total cost of a business insurance policy: Insurance policies usually include stamp duty (which is GST-free), however, the rest of the policy is subject to GST. A GST credit cannot be claimed on the stamp duty portion of the policy as no GST is paid.
- Government fees: GST is not charged on government fees i.e. council rates, land tax, ASIC filing fees, motor vehicle registration and water rates, and therefore, GST credits cannot be claimed.
- 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. Remember not all suppliers are registered for 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. Only 50 per cent of the GST credits can be claimed.
- Wages and superannuation payments: Both wages and super do not attract GST and cannot be claimed. Wages are not an expense to be included in G11; they are to be reported in W1 in your BAS. Superannuation is not included in BAS.
- Sole traders and partnerships: When claiming expenses that are used for both private and business use, you must apportion the expenditure to exclude private usage.
If you find that a mistake was made on a previous activity statement, the ATO says you are able to:
- correct the error on a later activity statement if the mistake fits the definition of a “GST error” and certain conditions are met;
- lodge an amendment – the time limit for amending GST credits is 4 years starting from the day after the taxpayer was required to lodge the activity statement for the relevant period, or
- contact the ATO for advice.
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 BAS agent for assistance.