How to correct GST errors?

On September 26, 2023, the Australian government updated the rules for fixing mistakes on your Goods and Services Tax (GST). Think of it as an update to the GST instruction manual.

The old rules from 2013 were replaced with a new document called "A New Tax System (Goods and Services Tax) (Correcting GST Errors) Determination 2023".

The main change is an adjustment to the dollar amounts that determine how you correct a GST error. This is because of inflation (prices going up) over the past ten years. Basically, the government recognised that what was considered a "small" error in 2013 might be a bigger deal in 2023 due to inflation.

What about fuel tax?

Similar changes were also made to the rules for correcting fuel tax errors. The new document for that is called "Fuel Tax (Correcting Fuel tax Errors) Determination 2023".

The fuel tax rules are almost the same as the GST rules, so understanding one helps you understand the other.

Why is this important?

These determinations provide guidelines for businesses and individuals on how to correct GST and fuel tax errors. This ensures everyone is paying the correct amount of tax and helps maintain fairness in the tax system.

Key aspects

• Overreported GST: If GST was overpaid, the business could amend the error in a subsequent BAS, provided it adhered to a time limit.
• Underreported GST: Corrections for underpayment could also be made in a subsequent BAS, but these had to fit within both time and financial constraints.

Vocabulary and coverage

The ATO defines a GST error as a mistake made when calculating the net amount for a previous reporting period. These errors are divided into:

• Credit error: This occurs when there is an overpayment or overstatement of GST.
• Debit error: This concerns an underpayment or understatement of GST.

Exclusions

Specific errors are not considered, such as:

• Input tax credits that have gone beyond a four-year claim limit as per Division 93.
• Errors that relate to amounts not subject to ATO refunds if the transaction period started before 30 May 2014.

Non-errors:

These apply where the reported net amount remains accurate. For example, if an input tax credit was correctly attributed in a later BAS within the prescribed time limit, as allowed by section 29-10(4).

GST adjustments

Adjustments differ from errors, focusing more on changes in business operations that affect GST reporting but don’t involve previous mistakes. Adjustments often relate to annual reporting, like a change in creditable purpose.

Broad restrictions

Correcting GST errors involves a set of criteria that must be met:

• The error pertains to GST amounts, input tax credits, or adjustments.
• The initial mistake occurred from 1 July 2012 onwards, and corrections must appear in a BAS lodged within four years.
• Ongoing compliance activities, like audits by the ATO, should not be in progress unless the ATO notices permit corrections.
• The error must not have been reported in any other tax period.
• Additional conditions apply for errors relating to underpaid GST.

Entities are not compelled to use these guidelines and may opt to amend the original BAS, bypassing the determination rules. Under these rules, each error can only be rectified once.

Deadlines and financial caps

Credit errors

A credit error, such as a GST overstatement, can be corrected in a later BAS if:

• The mistake falls within the four-year review period.
• The error has not been corrected in another BAS.

For example, if a business reported a GST overstatement in September 2013, it must correct it by October 2017 if the BAS was lodged on October 1, 2013.

Debit errors

Debit errors indicating GST understatements can be corrected under these conditions:

• Occurred within the four-year time limit.
• Not previously corrected in another BAS.
• Correction occurs before the "debit error time limit."
• The error value does not exceed the "debit error value limit."
• Errors are not due to reckless or intentional non-compliance.

Applying these criteria carefully ensures compliance with the GST framework, potentially lowering costs associated with penalties or interest. Additionally, businesses should consider separate GST law provisions addressing adjustment events and changes in use circumstances to ensure proper error correction without overlapping these distinct areas.

How Thriday can take the stress out of GST

The ATO recently updated its guidelines for correcting GST errors, acknowledging the impact of inflation and the need for a more contemporary approach.  These changes, while positive, add another layer of complexity to GST compliance.

This is where Thriday comes in. We help businesses like yours not only understand these changes but also implement strategies to avoid errors in the first place.

Tired of manually calculating GST for every transaction?  With Thriday, those days are over. Our platform automatically calculates and tracks GST for any payments processed through your Thriday Visa Debit card* or business bank account*.  This means less time spent on tedious calculations and more time focusing on what truly matters: growing your business.

Book a free consultation today with one of our SME to learn more about it.

Frequently asked questions

How do I fix a mistake in a GST invoice?

It is important to issue a new, corrected GST invoice to fix a mistake in the original one. The revised document should have a note explaining that it replaces the original one. Keep a copy of the incorrect and corrected invoices for your records to support your accounting entries and future audits.

What is the limit for correcting debit and credit errors in GST?

Specific thresholds are set for adjusting debit and credit errors in the GST. These limits are based on the business's turnover. For companies with less than $20 million in current GST turnover, errors can generally be corrected in later Business Activity Statements if they are within a certain value, ensuring compliance with GST legislation.

Is there a time limit for changing GST errors?

Amending GST errors must be done within a specific timeframe. Typically, errors can be corrected in a Business Activity Statement for when the mistake occurred or within a set time frame specified by the Australian Taxation Office, often within four years from the date the original statement was due.

What actions are needed to cancel an incorrectly claimed GST credit?

If a GST credit has been wrongly claimed, it’s important to adjust this by making a correcting entry in your next BAS. You should reduce the amount of GST credits claimed by the incorrect amount. Ensure you document this correction clearly in your records.

Can GST errors be corrected on a Business Activity Statement (BAS), and what is the process?

Yes, GST errors can be corrected on a BAS. To do this, identify the period in which the error was made, then address it in a subsequent BAS. When preparing the next BAS, include the correction by adjusting the total sales or purchases accordingly, following the ATO guidelines.

What rules apply to correcting GST errors under the Goods and Services Tax: Correcting GST errors Determination 2013?

The 2013 Determination sets out rules for correcting GST errors. It details when and how errors can be corrected, distinguishing between those qualifying for correction in later BAS and those requiring immediate amendment. This regulation ensures that corrections are made efficiently and according to legal standards.

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