Magnifying glass

Understanding how to correct mistakes on a Business Activity Statement (BAS) can be confusing for businesses, especially in determining whether it is a mistake or an adjustment. The confusion also relates to whether there is a requirement to amend the previous BAS.

There is a distinction between mistakes and adjustments and the action required to account for them.

Mistakes include:

- clerical errors, generally a mathematical error or exclusion in calculating the correct GST payable or refund amount; and

- incorrect classification of the GST status of a supply.

On the other hand, adjustments relate to a change in circumstances that impact on the GST outcomes of the transaction. This may be either an increase or a decrease in the GST payable.

Adjustment events may include:

- cancellation of a taxable sale or purchase;

- change in price of a taxable sale or purchase;

- GST-free export supplies that are not exported and therefore become taxable;

- bad debts; and

- changes in creditable purpose.

Determining whether the circumstances are a mistake or an adjustment dictates what action is required.

An adjustment event is accounted for in the tax period in which the taxpayer becomes aware of the event, which is generally in the current BAS. 

This is in contrast to a mistake, where the correction needs to be made for the tax period that the error occurred, by revising the BAS for that period. However, in certain instances the Australian Taxation Office (ATO) allows for the correction of mistakes to occur in the current BAS. The following discusses the availability and application of such circumstances.

Unclaimed GST Credits

GST credits can be claimed on any BAS from when the requirements are met.  This means that GST credits not claimed, despite entitlements to do so, can be claimed on any future BAS, within the four year time limit.

The four year time limit ends four years from the due date of the BAS for the earliest period in which the GST credit was entitled to be claimed.

Other Corrections that Reduce GST Payable

Corrections that reduce the GST payable may be made on the current BAS subject to correction limits defined with reference to the business’ annual turnover.

It should be noted that the four year time limit also applies to such corrections, as the taxpayer is effectively claiming a refund of GST, albeit GST overpaid.  This means that the correction cannot be made if more than four years have passed since the end of the tax period in which the mistake occurred.

Corrections can be made on the current BAS where the net GST effect is within the correction limits detailed in the following table.

Annual Turnover

Correction Limits

Less than $20 million

Less than $5,000

$20 million to less than $100 million

Less than $10,000

$100 million to less than $500 million

Less than $25,000

$500 million to less than $1 billion

Less than $50,000

$1 billion and over

Less than $300,000

 

Note that the ‘net GST effect’ is the total of all mistakes being corrected on the BAS, it is not calculated on a ‘per mistake’ or ‘per earlier BAS’ basis.  The ATO provides the following example:

A small business with an annual turnover of $1 million incorrectly included five taxable sales on its previous two quarterly activity statements. The GST-inclusive amount of these sales was $11,220 each (totalling $56,100), with GST of $1,020 to be paid on each (totalling $5,100). The total amount overpaid on the earlier activity statements and needing correction is $5,100, which exceeds the limit of $5,000, even though the amount of each mistake was below the limit.

In working out if your corrections are within these limits, you can offset total overpayments against total underpayments. Assume this business has also incorrectly included GST credits of $1,500 for a purchase on its earlier activity statement (the GST-inclusive amount of the purchase was $16,500). The net effect of all the corrections is a reduction in GST of $3,600 (that is, $5,100 - $1,500), which is less than the limit. This business could correct these mistakes on its current activity statement.

Where the net GST effect of the mistakes exceeds the correction limit then the mistakes must be corrected by revising the original BAS.

Corrections that Increase GST Payable

Corrections that increase the GST payable can be made on the current BAS, subject to limits on the timing of the correction together with the correction, limits detailed in the previous table.

The time limit periods are again defined with reference to the business’ turnover as detailed in the following table.

Annual Turnover

Time Limit

Less than $20 million

Up to 18 months

$20 million and over

Up to 3 months

The 18 month time limit may be 18 monthly BAS, six quarterly BAS on one annual GST return.  Businesses with a turnover of $20 million or more will be required to lodge their BAS on a monthly basis, so the three month time limit will relate to three monthly BAS.

Where the mistakes fall outside of the time or correction limits then the mistakes must be corrected by revising the original BAS.

It should also be noted that these rules apply to the correcting of genuine and reasonable mistakes.  The ATO will not allow these rules to be applied where the taxpayer is deliberately manipulating their calculations in order to benefit from the arrangements.

Adelaide Office

Level 1
136 Greenhill Road Unley
South Australia 5061

P 08 8300 0000
F 08 8300 0001

 


 

Member of
 

Business SA is a proud member of the Australian Chamber of Commerce and Industry (ACCI)