It’s not uncommon for people to unintentionally make mistakes or cause delays within their business when it comes to all areas surrounding GST.
It is important to stay up to date with the collection of this tax on the goods, services and other items your business sells, as well as it’s payment to the ATO when due.
Otherwise, you may find yourself in a bit of a sticky situation when that times arises.
To avoid that, here are 8 common mistakes typically made regarding GST; as well as the ways you can fix them when it comes to your business.

 

 

(1) Failing to Register for GST

The ATO has an almost specific criteria for the recognition of the GST threshold; that is, when a business typically needs to be applying for GST.

Generally you will need to register for the GST if your current or projected annual turnover is at or above $75000, $150000 for a not for profit organisation.

It is important to pay attention to how this $75000 is reached.

Current GST turnover: Revenue that has GST in it, these calculation excludes input taxed sales, private and out of scope purchases.
Projected GST Turnover: Forecast revenues for the current and next 11 months. This does not include out of scope supplies and your input taxed or private supplies.

Not registering for GST when you have reached the threshold whether intentionally or unintentionally will mean that your business will

  • not be able to include GST in your fees,
  • not be able to claim GST credits for your business purchases.
  • potentially be required to pay GST on all sales subject to GST – even if you did not collect GST from your customers.
  • potentially pay penalties and interest to the ATO

 

(2) Not having a Tax Invoice

 

It is essential for you to receive (as well as keep) tax invoices relating to business expenses. This is so that you don’t fall into the trap of not getting a tax invoice or keeping sufficient records to claim GST. If you make a purchase above $75 plus tax for your business and do not get a tax invoice, your purchase is likely not to be considered a creditable purchase. You will not be able to claim GST or an input tax credit for it.

(3) Not Claiming Input Tax Credit (GST) on creditable Purchases

 

If you are registered for GST, you participate in the tax regime. You collect GST on the goods you sell and you can claim GST when you yourself buy goods for the business.

If you make a computer purchase of $1100 (including GST) your expense for the computer is $1000. The $100, or  1/11 of the purchase price (including Gst) is the GST that you can claim on your BAS.

Not claiming Input Tax Credit on creditable purchases means you simply will not be able to claim back that 1/11 tax from that original purchase.

 

(4) Not putting aside money to pay GST Obligation

 

For better cash flow, keep GST collected in a separate account.

Estimate about 10% of your taxable supplies. If you are registered for GST on a quarterly basis, you will be expected to pay the GST collected minus the GST you paid for that quarter.

(5) Not verifying the ABN

 

Claiming GST without verifying the ABN status of businesses or sole traders you deal with is another common mistake. Use the ABN Lookup tool to verify the registration status of a business if in doubt.

If you are dealing with businesses that are an exception, meaning that they are not required to quote an ABN, they should provide you with a document called “Statement by Supplier”. This document outlines why they are not quoting an ABN.

A business that is not registered for GST cannot claim a deduction of GST paid, or remit GST collected.

(6) Claiming full GST on a mixed purchase

 

tax invoices that have mixed components are not fully taxable, and cannot be claimed as such.

Mixed components refers to a purchase or sale that has GST and non GST elements. Some of the line items may be GST free or out of scope for GST. This difference needs to be recorded and GST should not be fully claimed.

(7) Improper recording of Deferred GST on imports

Most businesses pay the GST pre filled at box 7A when they file their BAS, but forget to claim the GST paid for that period.

Deferred GST (or DGST) is the name given to the GST charged on imports. It allows importers into Australia who have entered into the DGST scheme to pay for the GST or get the deduction when they lodge their BAS. As opposed to paying the tax inclusive amount at the time of purchase.

The Deferred Gst needs to be recorded in your accounting software.

If you are not sure how to do this yourself get expert advice from a registered Tax agent or a BAS agent.

(8) Not filing GST on time

 

This is a very common mistake. Lodgement or filing of GST  can either be monthly or quarterly. Your registration letter from the ATO will have the basis of your reporting; whether cash or accrual and the reporting period, whether monthly or quarterly.

Not lodging on time can lead to penalties such as

  1. General Interest Charges of up to 8,500$*
  2. Failure to lodge prosecution*

*Failure to lodge a tax return is an offence under section 8C of the Taxation Administration Act 1953.

How to Avoid these Mistakes

As you can see, there’s really no room for making and not amending any outstanding errors regarding GST.

So, how do we go about fixing these mistakes?

Set up your  chart of accounts correctly.

 

Most accounting software will allow you to pre-assign GST to an accounting code.

However you will need to review all the pre assigned GST codes. Some expenses may be assigned a wrong GST code.

Most businesses will make the mistake of coding donations as eligible expenses. Donation are out of scope do not claim an input tax credit.

Some of the most common chart of account mistakes include assigning GST to:

  • Dividend accounts,
  • Interest
  • Inter company transfers
  • Wage payments and
  • Superannuation

Do not auto sync mixed purchases into your accounts

 

If you have automated your data entry or bookkeeping, do not auto sync mixed purchases until you have manually adjusted or set up the proportions correctly.

Mixed purchases or supplies are those which may have a GST component and an out of scope component.

A popular example in Australia is the vehicle registration payment which has stamp duty (out of scope) as well as a creditable proportion if used for business.

Create Reminders for GST lodgements

 

Set up a reminder at the end of the quarter to submit and pay Gst, simple!

Save money for your GST payment

 

Have a separate bank account to put away money for the payment of  your obligations of Superannuation, BAS and Income tax.

Separate Business from Private Expenses

 

Separate your business expenses from your non business or private expenses. If you are running a company this is mandatory.

This will result in you decreasing the probability of making the mistake of claiming GST on non-creditable purchases

Use An Accounting Software

 

I recommend you get an accounting software that works for you. An accounting software will make GST audits and correction easier. The use of accounting software where the set up has been done correctly can also reduce human errors and GST mistakes.

Besides, mistakes are way easier to track and correct with an accounting software.

Reconcile Your Books

 

Keep your books current and up to date. Before lodging your BAS put in place procedures that include a sign off on all bank and general ledger reconciliations.

This will reduce the probability of under paying or over-claiming GST. If you report on a cash basis,

your GST collected is the GST on the paid sales for the period and

your GST paid is the GST on expenses you actually paid.

Unless your bank accounts are reconciled the figures in your accounts may be wrong.

A bank reconciliation will allow you to catch duplicated payments and underpayments.

Get a Registered BAS Agent

 

Get expert help. It may be easy to press the file button from your accounting software but to ensure compliance get a registered tax agent or BAS agent to review your  GST set up and accounts.

If you are registered for Deferred Tax ensure that the set up is correct in your accounts and that your are claiming the input tax credit when you submit your  BAS.

Consult with the ATO

 

Contact or check the ATO website for updates on the GST and how to remain compliant.

If you need help with your Gst  or need a review of your GST processes contact us here.

 

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