Made a mistake charging GST? Don’t panic

As a small business owner, you know how important 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 rectify the situation.

First, let’s look at how this might have occurred:

• You treated something that’s not actually a sale as a taxable sale.
• You treated a GST-free or input taxed sale as a taxable sale.
• You miscalculated your GST liability, resulting in a higher amount reported on your business activity statement (BAS).

So what happens now? The key factor 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. In this situation, the excess GST is treated as correctly payable under the law, and the ATO cannot refund it to you directly.

Your options are to:

• Reimburse your customer: If you choose to reimburse the customer for the excess GST, you can make a decreasing adjustment on your next BAS to recover the amount. Your customer, if GST-registered, will need to make a corresponding increasing adjustment.
• Request a discretionary refund: In limited circumstances, you can apply to the ATO for a discretionary refund of excess GST that hasn’t been reimbursed to the customer. However, this is only granted in very specific situations 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; or
• revise the earlier BAS where the error was made.

Correcting on a later BAS

The ATO allows you to correct GST errors on a later BAS, which is often simpler than revising an earlier period. However, this option’s only available if the later BAS is lodged within the review period for the earlier period when the error was made. For most small businesses (GST turnover under $20 million), you can correct debit errors up to $12,500 within 18 months of the due date of the original BAS. Remember too that you can’t correct an error to claim additional GST credits if the four-year time limit for claiming those credits has expired.

Key takeaways

In summary, if you find 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 your actions to correct 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. Remember, if you’re ever in doubt about your GST obligations or how to handle a specific situation, it’s best to consult a qualified tax professional or contact the ATO directly for guidance.

Source: www.ato.gov.au/businesses-and-organisations/small-business-newsroom/have-you-incorrectly-charged-gst-on-a-sale