GST – Error or Correction?

Before working out how and when to ‘rectify errors,’ it’s critical to first understand when GST liabilities and credits should or could have been declared. Otherwise, it’s impossible to know if there is an error or correction at all.

Key Considerations:

• Adjustment events: These are attributable when you become aware of them, such as changes in intention. They are not corrections or errors, even though they relate to past disclosures of liabilities or credits.
• Delayed input tax credits: Claiming input tax credits years after you were first entitled to do so is not a correction or error. You are allowed to delay claiming them, and when you do, that becomes the correct timing.

Basics: GST Fundamentals

You are liable to pay GST and entitled to claim GST input tax credits only if:

1. You are registered for GST, or
2. You are required to be registered for GST.

Exceptions:

• Importing Goods:
  • Importers do not need to be registered for GST or carry on an enterprise. For example, consumers can be importers.
  • GST liabilities arising from importing physical goods must be declared in an ‘Entry for Home Consumption’ with the Australian Border Force (ABF).
  • ABF collects GST on behalf of the ATO unless you are registered for GST and use the Import Deferral Scheme.
• Other Examples:
  • Representatives like liquidators and administrators (who register for GST).
  • Mortgagees in possession (who do not register).

Self-Assessment and Attribution:

• GST liabilities are self-assessed and disclosed in an Activity Statement (BAS) lodged with the ATO.
• If the GST you owe is less than the GST owed to you, the ATO pays you the difference, and vice versa.
• Unlike other GST/VAT regimes, Australian GST laws do not have ‘time of supply’ rules. Instead, attribution rules determine the tax period for declaring liabilities and credits.

For example:

• Non-cash basis accounting: GST is payable in the period an invoice is issued or cash is received, regardless of when the supply occurs.
• Input tax credits: Attributable similarly but require a valid tax invoice when lodging the relevant BAS.

Adjustments:

• Adjustments are usually attributable when you become aware of them.
• Decreasing adjustments may require an ‘Adjustment Note.’

Understanding these rules helps determine if disclosures were made at the right time or if an error occurred, which could result in penalties or missed deadlines.

Time Limits: Period of Review

GST liabilities, credits, and error corrections must generally be disclosed within four years of the BAS lodgment due date. This applies equally to taxpayers and the ATO. However:

• Fraud or evasion removes the four-year limit.

Errors, Corrections, and Adjustments

Assume you:

• Registered for GST on time.
• Lodged BASs on time.
• Disclosed liabilities and credits based on what you believed was accurate at the time.

Later, you discover:

• Information was incomplete.
• Disclosures were incorrect.
• Subsequent events made previous disclosures incorrect.

Scenarios:

1. Late Claiming of Credits

• If you made a creditable acquisition but did not claim the GST input tax credit in the first attributable tax period, you can claim it in any later period within four years.
• This is NOT an error or correction.
• No amendment to the original BAS or ATO notification is required.

2. Corrections

• The ATO allows some errors to be corrected in the current BAS instead of amending the original BAS.
• For underpayments, corrections are exempt from penalties or interest.

Credit Corrections:

Examples of overpaid GST:

• Overstating GST payable on supplies (e.g., double counting or miscalculating).
• Understating a decreasing adjustment or overstating an increasing adjustment.

Overpaid GST can be deducted in a future BAS within the four-year review period without amending the original BAS.

Debit Corrections:

Examples of underpaid GST:

• Understating GST payable or supply values.
• Overstating a decreasing adjustment or understating an increasing adjustment.

Underpaid GST can be disclosed and paid in a future BAS, subject to time limits (shorter than four years). Corrections within these limits avoid penalties and interest.

Example:

• Net off undisclosed credits and debits in one BAS to remain within the $12,500 limit or 12/18-month timeframe.
• Larger corrections require amending prior BASs and may attract penalties.

3. Amended Assessments

• BAS lodgment is deemed a Notice of Assessment.
• Amendments to assessments can be self-initiated or requested through the ATO portal.
• The four-year review period resets if an amendment is made but only for the specific matter amended.
• Extensions of time may apply for objections, appeals, or ongoing audits.

4. Adjustments: General Adjustments address previous disclosures that were correct but require modification due to new events. Adjustments are attributed to the current BAS.
5. Adjustments: Change of Intention Steps to determine adjustments:
   • Calculate the actual application of an acquisition or importation.
   • Compare with the intended or former application.
   • If the actual application is less, it’s an increasing adjustment; if more, it’s a decreasing adjustment.

6. Adjustments: Going Concerns

• Increasing adjustments arise when GST-free supplies become taxable.

7. Adjustments: Cease Registration

• Increasing adjustments occur if registration is cancelled and assets include items with input tax credits.

Voluntary Disclosures

Under the self-assessment regime, errors or corrections must be addressed proactively. Making voluntary disclosures can:

• Avoid penalties and interest on overpayments.
• Reduce penalties on underpayments by up to 80%.

Mistakes happen, but understanding these rules ensures compliance and minimizes risks.

Key Takeaway

GST is always as simple as it may seem. Incorrect reporting can result in significant tax consequences, including interest and penalties.

Ensure you understand your obligations and consult your tax agent if you’re ever in doubt.