Common gst Error

Record keeping issues tend to be most frequent in smaller entities and also in entities which are growing quickly. Poor record keeping is usually related to inadequate accounting systems and untrained system users. Some of the common errors on activity statements which are related to record keeping issues include:

• Double counting of GST credits.
• Incorrect transposition of figures.
• Incorrect classification within chart of accounts.
• Incorrect application of discounts and rebates within client systems regularly arise.
• Misclassification of disbursements with reimbursements.
• Not regularly reconciling sales with bank statements.
• Not issuing appropriate tax invoices.
• Claiming GST credits on 1/11^th of all expenses.
• Not closing off the accounting period by locking off previous months records.
• Not keeping appropriate records such as log books to substantiate motor vehicle claims.
• Not keeping stock-take records.
• Not keeping appropriate records where an Australian business number (ABN) is not quoted.

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The only time you don’t have to lodge is if you receive an instalment notice (they have the letter N, R, S or T in the top left-hand corner) and pay the pre-printed instalment amount by the due date

However, you should write a zero (0) if:

• you are using GST Option 1 or Option 2, you haven’t traded for a tax period, and have nothing to report, write 0 at G1 and 1A (these boxes must always be completed)
• you are using PAYG Option 2 but you don’t have any instalment income, write 0 at T1 and 5A, and/or
• If you are varying your instalment down to 0 for either GST or PAYG, you must complete the appropriate variation labels and write 0 at 1A for GST and/or 5A for PAYG.

• Use a black pen only to complete your form(s).
• Leave labels blank where you have nothing to report or code zeros if necessary at labels 1A, 1B & 9.

• Provide a contact name and daytime phone number.
• Sign and date your activity statement before lodging it with us by the due date.

The following amounts should not be reported at label G1:

• inter-entity loans
• transfers between bank accounts
• private money
• other entities’ income (eg rent for rental property that is in another entity’s name/individual’s name).

• You should report the following only at G2:
  • the free on board value of exported goods that meet the GST-free export rules
  • payments for the repairs of goods from overseas that are to be exported, and
  • payments for goods used in the repair of goods from overseas that are to be exported.

GST credits claimed by an entity that does not import goods for a creditable purpose

GST credits incorrectly claimed in respect of a creditable importation by a non-resident where:

• the entity claiming the GST credits is not a resident agent of the non-resident or
• the non-resident is neither registered nor required to be registered for GST .

Failure to account for GST when goods are not exported within 60 days (or such further period as the Commissioner allows)

GST-free supplies when all the relevant conditions for export have not been satisfied. - failure to retain adequate documentation to substantiate that export conditions have been satisfied.

GST credits are often being incorrectly claimed on invoices issued in foreign currency where a conversion into Australian currency is not specified on invoice.

*2006-07 luxury car tax threshold.

· for bank fees and charges, third party insurance and stamp duty

Where the sale is a GST-free sale of a going concern, the sale is to be reported at label G1 and also at label G3.

Where the sale is taxable, you must report the GST amount at 1A.

Instalment variations received after the due date will generally not be accepted.

Examples of changes in legal structure includes:

• changing from a sole trader to a partnership, trust or company, or vice-versa, and
• reconstituting a partnership. (except in certain circumstances)

• You claim the GST credit for the deposit or full payment of a creditable purchase of land under a completed standard land contract in the activity statement for the tax period in which settlement occurs. This applies whether or not you account for GST on a cash basis.
• In order to claim GST credits in relation to property transactions, at the time of lodging the activity statement, the purchaser must hold a valid tax invoice from the vendor. The settlement statement is not adequate substantiation for the GST credit claim.

• Incorrect calculation of the margin figure.
• Confusion as to how valuations under the margin scheme are to be applied.
• Property sold under market value to associates.

A requirement to have a written agreement for supplies under the Margin Scheme applies in respect to contracts entered into on or after 29 June 2005.

GSTR 2000/21 applies to supplies of real property made before 1 December 2005, where the property was held prior to 1 July 2000.

GSTR 2006/7 applies to supplies of real property made on or after 1 December 2005 where the property was acquired or held pre 1 July 2000.

GSTR 2006/8 applies to supplies of real property where the property was acquired or held on or after 1 July 2000.

The common problems are :

• The supplier and the recipient have agreed in writing that the supply is of a going concern but the purchaser incorrectly claims GST credits in respect to the purchase.
• The supplier does not supply to the recipient all of the things that are necessary for the continued operation of the enterprise.
• The supplier does not carry on the enterprise until the day of the supply.

Refer GSTR 2002/5 Goods and services tax: when is a 'supply of a going concern' GST-free

These adjustments form part of the taxable supply and they therefore should be added to label G1 and 1A.

• Entities who cancel their registration after acquiring an asset for which they claimed GST credits may have an increasing adjustment to repay the GST credits claimed under Div 138 of the GST Act. Simply registering for GST does not reverse the increasing adjustment if the property is not trading stock under Div 137 of the GST Act. Many entities acquiring properties which they intend holding as commercial landlords fall within this category, as do motor vehicles, office equipment and furniture and the like.
• This error can affect the viability of micro business who enter into the GST system and later cancel their registration when they realise they are not required to be registered, especially if they have used the GST refund to offset loans or otherwise used the GST refund not realising that it needed to be repaid.
• Additional information can be found in Leaving the GST system (NAT 14829)

• It is important to ensure that you are correctly registered for all your tax obligations.
• If the correct registrations do not occur, amounts recorded on the activity statement labels corresponding to those registrations may not be detected in processing by the Tax Office.
• To register or cancel registration for PAYG withholding, goods and services tax, luxury car tax or wine equalisation tax phone 13 28 66.

• Restaurants and cafes are using Simplified Accounting Methods not appropriate to their particular industry.
• ‘Business Norms’ Simplified Accounting Methods can not be used by café & restaurants. However, cafés & restaurants may be eligible to use either the snapshot method or the SAM for small restaurants, cafés and caterers.
• Refer to Simplified GST Accounting Methods - NAT 3185 for more information.
• Some restaurants & cafes are failing to keep till tapes or proper records of sales.

• You must have a valid tax invoice at the time of lodging the activity statement to claim GST credits if the acquisition is over $82.50 (including GST)
• Claiming GST credits on invoices where an ABN is provided but no GST registration exists.
• Claiming of GST credits against tax invoices that are not in the name of the entity making the claim.
• Recipient Created Tax Invoices being used by entities when there is no reason why a tax invoice could not have been provided by the supplier and/or there is no Commissioner approval or agreement in place.
• Failure to issue tax invoices between non-grouped entities.

• Some deposits received are being incorrectly treated as ‘Security Deposits’.
• For clients who report on an accruals basis, deposits, along with the balance of the sale amount, should generally be attributed to the period in which the deposit is received.
• For the correct GST treatment of security deposits, refer GSTR 2006/2 Goods & Services Tax: deposits held as security for the performance of an obligation.

• Incorrect treatment of purchases from non registered sources under the second hand goods provisions.
• Dealers are incorrectly claiming the GST credits (Notional Input Tax Credits) before the vehicles are sold.
• Dealers fail to create Recipient Created Tax Invoice or obtain Tax Invoice in relation to GST registered business trade ins.
• Clients avoiding Luxury Car Tax by falsely representing themselves as wholesalers.

• Signed Voluntary Agreements are not in place.
• Both parties are not GST registered.
• No Tax Office authority exists to issue RCTI’s

• Failure to keep proper records
• Failure to declare gross taxi takings
• Failure to register.

• Clients who take settlement discounts may not reduce their entitlement to a GST credit originally calculated on the price shown on the tax invoice received and processed. Settlement discounts are generally taken off invoice by the purchaser by short paying the supplier and in the absence of an adjustment or credit note or a system prompt; the purchaser has not been making an entry to the GST control account to reduce their GST credit claim on the original purchase. This error can result in a significant over claim of GST credits over a period of time.

• The GST amounts claimed and payable were not reconciled to the control accounts in the General Ledger (GL)
• Monthly manual adjustments made by journal entries, through the GL, were not accounted for in the preparation of the activity statement.

• Those who are engaged in mergers & acquisitions will often make input taxed financial supplies in the course of these transactions. As a large proportion of these clients are not engaged in financial supplies on a daily basis, a high level of GST errors has been detected.

• Entities who are constructing new residential properties for sale but due to the market conditions at the time or for other reasons, are unable to sell.
• These properties are then either tenanted (leased) or occupied by the client privately.
• This situation usually gives rise to a change in creditable purpose (an increasing adjustment), and these entities are often failing to make the increasing adjustment to refund the GST credits claimed on the construction costs.
• If you are making an increasing adjustment, care needs to be taken in identifying the appropriate time line.
  • The relevant dates are :
  • Date of change of creditable purpose.
  • Date of first adjustment period.

Refer GSTR 2000/24 Goods and services tax: Division 129 - making adjustments for changes in extent of creditable purpose.

• In this situation, these properties are considered to be new residential properties and therefore taxable supplies.
• The common errors are where :
  • clients are not remitting GST on the sale of new residential properties that have been leased for up to (but not more than) 5 years.
  • clients are not recognising a change of creditable purpose has occurred and are not carrying out a decreasing adjustment for claiming the GST credits on the initial construction costs.

Refer GSTR 2000/24 Goods and services tax: Division 129 - making adjustments for changes in extent of creditable purpose.

Failure to remit GST on supplies made under transitional contracts from 1 July 2005 onwards.

Refer GST Long Term non-reviewable Contracts NAT 12997.

Examples include stamp duties on hire fees which are passed on and recovered from customers.