The Australian Taxation Office highlights common GST reporting errors. ATO assistant commissioner Jennifer Moltisanti highlights the mistakes that cost businesses time and money.
Registered tax professionals are a key element of the tax and superannuation system, a fact with which Australian taxpayers clearly agree. 70% of them use a professional to prepare and/or lodge their income tax return, while 90% of business taxpayers rely on their professionalism and expertise for business advice.
The ATO understands that a capable, sustainable and well regulated tax profession is pivotal in ensuring taxpayers understand their rights and obligations and in influencing good taxpayer behaviour. But, the devil is in the detail. When it comes to the business tax regulatory landscape, the Business Activity Statement (BAS) is the “tool” which holds it all together. Get it right and the system works smoothly with minimal cost in both time and money for taxpayers and the ATO.
Here are some of the more common BAS pitfalls:
BAS labels: the most basic of mistakes involves entering the wrong amount on a BAS label or, no amount at all, particularly where taxpayers are registered for full reporting. When total sales are recorded don’t forget GST payable. Be careful not to transpose amounts for sales and purchases or for GST on sales and GST on purchases and remember, report whole dollars only.
Variations: need to vary the pre-printed instalment amount? Make sure the taxpayer also provides a revised tax estimate for that year. A taxpayer can opt to pay GST by quarterly instalments where their annual turnover is $2 million or less (GST option 3). Make sure GST on sales tallies with the pre-printed or varied amount.
Calculations: it’s often simple arithmetic errors such as adding what is owed to the ATO to the amounts of credits the taxpayer can claim instead of subtracting this figure or, when calculating a PAYG instalment, adding the wrong figures. When claiming Fuel Tax Credits, make sure you check the rates at ato.gov.au/fueltaxcreditrates as these change from time to time. Use the online Fuel tax credit eligibility tool to ensure the taxpayer only claims what they should and the Fuel tax credit calculator to check calculations. Make sure the amount is entered on the BAS in $ and not in litres.
Accounting: if turnover is $2 million or less a taxpayer can use the “cash” accounting method. Otherwise they are generally required to use the “non-cash” method. A taxpayer registered for GST on a monthly basis can still be required to report PAYG quarterly. Remember accounting reports need to tally with what is reported on the BAS.
Registering: a taxpayer must be registered for GST, PAYG withholding and FBT before filling these labels on the BAS. If they are leaving the GST system, some input tax credits may need to be repaid. The adjustment is usually 1/11th of the asset market value immediately before the GST registration is cancelled.
Lodgement and processing: a BAS identification number is unique for each BAS so make sure it isn’t the same as a BAS previously lodged.
Tax invoices: private expenses can’t be claimed and make sure correct apportionment is made for GST claims on both private and business use items. The ATO’s online GST apportionment decision making guide helps a taxpayer get it right. Make sure GST claims on motor vehicles don’t exceed the Luxury Car Tax limit. A taxpayer can’t claim GST from a non-registered entity or substantiate a claim using a tax invoice made out to another entity.
Other common errors
• Incorrectly treating a sale as GST free
• claiming GST on property purchased in a tax period before settlement
• charging GST on input taxed supplies such as rent
• not lodging adjustments for input tax credits when the intended use changes, and
• failing to substantiate claims because of poor record keeping.
There’s a range of online assistance available from the ATO including essential references and regularly used forms and decision-making tools.
For more information, call the registered agent phone line on 13 72 86.