Many small business owners continue to make errors when claiming GST credits in their GST returns or Business Activity Statements.
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A vast majority of these errors are easily avoidable and often relate to the over-claiming of GST credits. Here are the top ten common GST mistakes that can be made (and what you might be encountering yourself).
- Residential rental property: Incorrectly claiming GST credits on expenses relating to residential rental properties where the entity is registered for GST.
- Bank fees: Generally, annual fees, monthly fees and loan establishment fees are input-taxed, and therefore, there is no GST to claim. However, GST is charged on credit card merchants’ fees and can be claimed.
- Private expenses: GST is not claimable on private expenses such as personal loans, director fees and drawings etc.
- Interest: Interest paid on loan or chattel mortgage repayments or credit card payments does not incur GST, and cannot be claimed.
- The total cost of a business insurance policy: Insurance policies usually include stamp duty (which is GST-free), however, the rest of the policy is subject to GST. A GST credit cannot be claimed on the stamp duty portion of the policy as no GST is paid.
- Government fees: GST is not charged on government fees i.e. council rates, land tax, ASIC filing fees, motor vehicle registration and water rates, and therefore, GST credits cannot be claimed.
- GST-free purchases: Incorrectly claiming GST credits on purchases without GST, such as basic food items, exports and certain health services is a common mistake. Remember not all suppliers are registered for GST, so check the tax invoice before claiming credit.
- Entertainment expenses: Claiming the entire GST credits on entertainment expenses where the business has elected to use the 50/50 split method for fringe benefits tax is incorrect. Only 50 per cent of the GST credits can be claimed.
- Wages and superannuation payments: Both wages and super do not attract GST and cannot be claimed. Wages are not an expense to be included in G11; they are to be reported in W1 in your BAS. Superannuation is not included in BAS.
- Sole traders and partnerships: When claiming expenses that are used for both private and business use, you must apportion the expenditure to exclude private usage.
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If you find that a mistake was made on a previous activity statement, the ATO says you are able to:
- correct the error on a later activity statement if the mistake fits the definition of a “GST error” and certain conditions are met;
- lodge an amendment – the time limit for amending GST credits is 4 years starting from the day after the taxpayer was required to lodge the activity statement for the relevant period, or
- contact the ATO for advice.
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If you find this process is too time-consuming or too difficult to complete yourself, the best way to ensure that you remain compliant and avoid making these mistakes is to contact a registered BAS agent for assistance.
Have a great day,
The team at TAS Tailored Accounting Solutions
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