10 Common GST Mistakes Australian Businesses Make and How to Avoid Them
Navigating the complexities of Goods and Services Tax (GST) in Australia can be challenging for Australian businesses, regardless of size. At ACT Tax Group, we frequently see businesses struggling with GST compliance, often making costly errors that can trigger Australian Taxation Office (ATO) scrutiny. Understanding these common pitfalls is the first step toward maintaining accurate financial records and avoiding penalties. Here are the ten most common GST mistakes Australian businesses make and practical solutions to help you avoid them.
1. Mistakenly Claiming Goods and Services Tax (GST) Twice
One of the most frequent errors occurs when handling hire purchase or lease agreements for vehicles or equipment. Many business owners claim the entire GST component at the time of purchase in the first quarter, then continue to code monthly repayments as either GST or capital expenses. This creates a situation where both GST and CAP tax codes appear on the Business Activity Statement (BAS), leading to accidental duplication in GST credits claimed.
How to Avoid It
Always check your tax invoices and regularly review your BAS records to ensure monthly repayments are coded correctly. Consider implementing a tracking system for major business purchases to prevent double-dipping on GST credits.
2. Incorrect Tax Codes in Chart of Accounts
Setting up improper tax codes in your chart of accounts is a simple mistake with significant consequences. Incorrect coding can lead to systematic errors across your entire BAS reporting process, causing either overclaiming or underclaiming of GST credits.
How to Avoid It
Consult with an experienced accountant or BAS agent to configure your tax codes correctly before using any accounting software. Review your chart of accounts periodically to ensure all codes align with current ATO requirements and services tax legislation.
3. Claiming GST on Expenses Without GST
Not all business expenses include a GST component. Common examples include bank fees, loan interest payments, most basic food items (which are GST free), medical supplies, water and sewerage charges, ASIC fees, vehicle registration, and most overseas transactions. These items are not subject to GST and are often input taxed or exempt.
How to Avoid It
Create a reference list of common non-GST expenses for your business. When processing tax invoices, always check whether GST is actually included before claiming input tax credits. Modern accounting software can help flag these items automatically.
4. Forgetting to Charge GST on Taxable Sales
Some businesses incorrectly treat taxable sales as GST free. Common examples include restaurants misclassifying takeaway meals or service providers mistakenly assuming certain invoices don’t require GST. Most goods and services sold in Australia are subject to GST unless specifically exempted.
How to Avoid It
Develop a clear understanding of which goods and services in your business are taxable sales under the GST Act. Regular training for staff who handle retail sales transactions is essential. Remember that most goods and services in Australia attract GST unless specifically exempted for income tax purposes.
5. Waiting Too Long to Register for GST
Australian businesses must register for GST once their annual GST turnover reaches or exceeds $75,000 ($150,000 for non-profit organisations). Failing to register on time can result in fines and the requirement to back-pay GST on sales made from the date registration was required. This is a key obligation under federal government tax legislation.
How to Avoid It
Monitor your GST turnover regularly. Set up alerts or thresholds in your accounting system to notify you when approaching the GST registration threshold. Register within 21 days of exceeding the threshold to stay compliant with ATO requirements.
6. Claiming GST Credits on Private Spending
When it comes to personal items like personal loans or director’s fees, businesses cannot claim input tax credits in their BAS statements. These purchases are for private use and are not eligible for GST credits.
How to Avoid It
Maintain strict separation between business and personal expenses. Implement clear policies for expense claims and regularly review transactions to ensure personal items aren’t incorrectly processed as business purchases.
To avoid missing out on GST credits or making common errors when claiming them, read our article on Claiming GST Credits: A Step-by-Step Guide.
7. Reporting Capital Asset Purchases with Incorrect Codes
When a business purchases an asset over $1,000, it should be listed as a capital purchase in the BAS at G10, not as a standard purchase under G11. This distinction is particularly important for items like hire purchases and vehicle leases, which affect both GST and income tax purposes.
How to Avoid It
Create a clear process for identifying and recording capital purchases. For assets over the threshold, ensure they’re properly coded and reported at G10 on your BAS. When in doubt, consult with a qualified accountant or BAS agent.
8. Omitting Asset Sales from Total Sales
When calculating total sales for a BAS, businesses often overlook including the sale of items like motor vehicles, trade-ins, or office equipment. This omission results in inaccurate reporting and could impact the business’s financial tracking effectiveness, including cash flow and GST payable.
How to Avoid It
Implement a comprehensive sales reporting system that captures all types of sales, including asset disposals and items sold. During BAS preparation, use a checklist that specifically prompts verification of asset sales to ensure nothing is missed.
9. Claiming GST Credits on Non-Registered Suppliers
To claim input tax credits, the supplier must be correctly registered for GST and have included GST on the tax invoice. Verifying this is crucial for accurate GST claims.
How to Avoid It
Use the ABN lookup service to confirm a supplier’s GST status. Develop a process for checking new supplier invoices to ensure they include a valid ABN and GST component before processing. Remember that suppliers without an ABN require you to withhold 46.5% of the payment unless exemptions apply.
10. Missing BAS Deadlines and Poor Record-Keeping
Late BAS submissions can result in penalties, while inadequate record-keeping makes accurate reporting nearly impossible and increases your risk during an ATO audit. Keeping accurate records is essential not only for GST but also for income tax purposes, land tax, and other federal government obligations.
How to Avoid It
Set up a calendar with reminders for BAS lodgment deadlines, whether you report on a quarterly basis or monthly. Implement a structured record-keeping system for all financial transactions, including tax invoices and receipts. Consider automating parts of your bookkeeping process to ensure consistency and timeliness. Keep all records for at least five years as required by the ATO.
To avoid missing important BAS deadlines and facing penalties, read our article on BAS Due Dates for a clear guide to all the key lodgment dates for 2025
Conclusion: Stay Compliant and Avoid ATO Scrutiny
GST compliance doesn’t need to be overwhelming. With proper systems, regular reviews, and attention to detail, your business can avoid these common mistakes and the penalties that come with them. The ATO continues to increase its focus on GST compliance, using sophisticated data-matching techniques to identify businesses with suspicious patterns.
