How to Handle GST Errors and Excess Payments (Mar 25 Tax Update)

Relevant For:

Business owners needing guidance on correcting GST reporting errors.

Key Points:

• Excess GST paid to the ATO cannot be refunded from the ATO if passed to customers.
• If you reimburse customers, you can adjust your BAS to reclaim GST.
• Without reimbursement, ATO won’t refund excess GST.
• GST errors (up to four years) can be corrected on future or revised BAS.
• Always keep clear records; seek advice if unsure.

Full Article:

Even careful businesses occasionally make errors charging GST, leading to excess payments. Recognising and rectifying these errors properly can save your business money and trouble with the ATO.

Common mistakes include:

• Charging GST on non-taxable transactions.
• Incorrectly treating GST-free or input-taxed sales as taxable.
• Miscalculating GST liabilities on your BAS.

What Happens When Excess GST is Charged?

If you’ve mistakenly charged too much GST, you typically can’t reclaim this from the ATO directly. That’s because once you’ve reported it, the ATO views it as tax legitimately owed unless corrected through a specific process.

Steps to Fix the Mistake – Reimburse Your Customer

If you repay your customer the extra GST charged you can make a decreasing adjustment in your next BAS, reclaiming the GST you paid.

Ensure your customer, if GST-registered, reports a corresponding increase in their BAS.

Example:

If you charged $110 including $10 GST by mistake, and it should have been GST-free, you’d refund the $10 to your customer. Then, claim a decreasing adjustment for $10 in your next BAS.

What if You Haven’t Passed on the Excess GST?

In rare instances, you might have evidence you didn’t actually collect the excess GST from your customer. If that’s true, you can treat it as a GST error and correct it in your BAS.

You have two options:

1. Correct it in a future BAS – Suitable for smaller errors. You can correct mistakes in future BAS periods, usually within four years of the original transaction.
2. Revise the earlier BAS – You can also amend the original BAS where the mistake occurred, though this may be more complicated administratively.

Record Keeping is Crucial

Keep detailed records supporting your claims and adjustments. Proper documentation protects you during ATO reviews and ensures you’re compliant.

Seek Professional Help if Needed

GST issues can quickly become complex. Munro’s strongly advises consulting your accountant to manage GST errors effectively and maintain peace of mind.