10 common GST mistakes and how to avoid them in your business
It can be easy to make a mistake when preparing your Business Activity Statements (BAS) and costly to fix those GST inaccuracies. Save your business time and money by avoiding the 10 most common GST errors or contact us if you need any further advice.
- Claiming GST against all expenses
Most expenses have a GST component and it’s easy to assume that all do. However, mistakes creep in and miscalculations are made if you add all of your expenses up and divide by 11. Some expenses do not include a GST component.
There are the obvious non-GST expenses such as bank charges, PayPal transaction fees, interest and director’s drawings. But non-GST applied expenses can also include vehicle registration, ASIC fees and some advertising, such as Google AdWords.
- Claiming GST against all sales
Similar to purchases, not all sales are created equal, with some sales also having no GST component attached to them. Certain medical or health care products and services do not attract GST, nor do particular educational courses or materials. Other products which are generally GST-free include childcare services, international transport or mail, exports or farmland. See the ATO website for a more comprehensive list.
- Forgetting to include all cash purchases and sales
The ATO has some very clever systems in place to cross-match data with cash sales or purchases. Discounting for cash payment can be effective marketing or as a sales closer, as long as the right amount of GST is still collected on the discounted amount. Don’t be tempted to only discount the GST when receiving cash payment or you could find yourself significantly out of pocket at the end of the quarter.
- Claiming GST credits on purchases where the supplier is not registered for GST
A business needs to be registered for GST when they are generating more than $75,000 of income per year. Anything less than this, and they can be exempt from charging or collecting GST. Any invoice should clearly have the GST component set out or otherwise it should be stated “No GST has been charged.”
If you are ever in doubt as to whether GST should be charged by the supplier, you can check their business name and GST status on the ABN lookup page.
By law, suppliers need to provide their ABN when providing goods or services worth more than $75. If they refuse and don’t have an ABN exemption, you are obliged to withhold a ‘No ABN withholding’ amount which is calculated at 46.5 percent.of the total amount charged.
- Including wages or superannuation as a purchase
Wages are different from non-capital purchases and must be reported on a different part of the BAS statement. Wages are used to calculate the amount of PAYG withholding due, whereas purchases are used to calculate the amount of GST owed.
Superannuation should not be included as part of the gross wage.
- Accidentally claiming GST twice
This applies particularly to business owners with hire purchase or leases on plant or business equipment. On the purchase of a vehicle or equipment, the full GST component can be claimed in the first quarter.
The regular monthly payments which follow, therefore do not have the GST component attached, as the full amount has already been claimed. If these amounts are grouped together with other purchases, the cost of GST may be incorrectly calculated again on these items, which will need to be repaid when the error is realised.
- Claiming GST on private purchases
Your company cannot collect a GST credit on private purchases, even when purchased on a company credit card or bank account. As well as personal items and purchases bought for private use, this also extends to personal loans and directors fees.
- Not including capital sales
Some capital sales items can slip under your radar, so it’s important to remember that capital extends to the sale or trade-in of vehicles, tools, plant or office equipment too.
- Remember, it is not your money
This is perhaps one of the most important points to remember and can set you up to successfully manage your cash flow — the GST you collect is not your money.
An easy way to remain aware of this is to create a separate business bank account. Every week, transfer the collected GST, or 10 percent of the total sales, until it needs to be repaid at the end of the quarter.
In some cases, GST doesn’t have to be paid quarterly, so if you do have the option, choose a payment cycle that works for your business and cash flow. Get the best out of your business and speak with Morris Finance today.