As a small business owner, getting your GST right is crucial. However, mistakes can happen, even to the most diligent among us. If you discover that you’ve incorrectly charged GST on a sale, don’t worry—there are steps you can take to correct the mistake.
How This Might Happen
There are a few common reasons why you might end up incorrectly charging GST:
- You mistakenly treated something that isn’t 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).
Now, what should you do next? The key consideration is whether you’ve passed the excess GST onto your customer.
If You’ve Passed on the GST
In most cases, if you’ve charged GST and issued a tax invoice, it’s assumed you’ve passed the GST onto your customer. In this scenario, the excess GST is considered correctly payable under the law, and the ATO cannot refund it directly to you.
Your options are:
- Reimburse your customer: If you decide to reimburse the customer for the excess GST, you can make a decreasing adjustment on your next BAS to recover the amount. If your customer is GST-registered, they will need to make a corresponding increasing adjustment on their BAS.
- Request a discretionary refund: In limited cases, 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 available in 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 then have two options:
- Correct it 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. This option is available if the later BAS is lodged within the review period for the earlier period when the error occurred. 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 for the original BAS. Keep in mind that you cannot claim additional GST credits if the four-year time limit has passed.
- Revise the earlier BAS: Alternatively, you can revise the earlier BAS where the error was made, but this may be more complicated.
Key Takeaways
If you realize that you’ve incorrectly charged GST on a sale:
- Don’t ignore the mistake—take action promptly.
- Determine whether you’ve passed on the GST to your customer.
- If possible, consider reimbursing your customer.
- Keep accurate records of the error and your corrective actions.
- If you’re unsure about the best course of action, seek professional advice.
By addressing GST errors promptly and correctly, you can maintain compliance and avoid future complications. If you’re ever in doubt about your GST obligations or need assistance, it’s a good idea to consult a tax professional or contact the ATO directly for guidance.
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If you have any questions or would like further information, please feel free to give our office on 08 9221 5522 or via email – info@camdenprofessionals.com.au or arrange a time for a meeting so we can discuss your requirements in more detail.
How can we help?
If you have any questions or would like further information, please feel free to give our office on 08 9221 5522 or via email – info@camdenprofessionals.com.au or arrange a time for a meeting so we can discuss your requirements in more detail.
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