As a small business owner, getting your GST right is crucial, but mistakes can happen, even to the most careful among us. If you’ve realised you’ve incorrectly charged GST on a sale, don’t worry – there are steps you can take to correct it. Let’s go over how this mistake might have occurred:

• You treated something that isn’t actually a sale as a taxable sale.
• You mistakenly 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).

So, what happens now?

The Key Factor: Did You Pass on the Excess GST to Your Customer?

If you’ve passed on the GST to your customer, in most cases, the excess GST is considered payable under the law. The ATO cannot directly refund this amount to you. Your options are:

1. Reimburse Your Customer: If you 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’ll need to make a corresponding increasing adjustment.
2. Request a Discretionary Refund: In limited situations, you can apply to the ATO for a discretionary refund of the excess GST that hasn’t been reimbursed to the customer. However, this is only allowed in specific cases 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 the excess GST wasn’t passed on to the customer (which is rare), you can treat it as a GST error. In this case, you have two options:

1. Correct It on a Later BAS: The ATO allows you to correct GST errors on a later BAS, which can be simpler than revising an earlier period. However, this option is only 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 original BAS due date.
2. Revise the Earlier BAS: If needed, you can revise the earlier BAS where the error was made. However, this may be more complex than correcting it on a later BAS.

Note: You cannot correct an error to claim additional GST credits if the four-year time limit for claiming those credits has expired.

Key Takeaways

In summary, if you’ve incorrectly charged GST on a sale:

• Don’t ignore the error – address it promptly.
• Determine whether you’ve passed on the GST to your customer.
• Consider reimbursing your customer, if possible.
• Keep detailed records of the error and your correction actions.
• Seek professional advice if you’re unsure about the best course of action.

By staying proactive and addressing GST errors correctly, you can stay compliant and avoid potential issues down the line. If you ever have doubts about your GST obligations or how to handle a specific situation, it’s always best to consult a qualified tax professional or contact the ATO directly for guidance.