There can be some confusion among businesses about correcting errors made on a business activity statement (BAS), with a good proportion of the lack of clarity centred on the distinction between errors that require an adjustment and errors that are straight-out mistakes. Whether or not there is then a requirement to amend a previous BAS can also be a perennial source of inquiry.
The distinction between adjustments and mistakes can be made clearer by remembering that adjustments will most likely be required due to a change of circumstances or facts. These can include:
• cancellation of a taxable sale or purchase
• change in price of either of the above
• GST-free export supplies that are not exported within the required time (and therefore become taxable)
• bad debts, and
• changes in creditable purpose.
Mistakes however are straight-out blunders, and include:
• clerical errors
• a mathematical inaccuracy or exclusion in calculations
• incorrect classification of GST status.
As adjustments relate to changed facts or circumstances, which will have an impact on the subsequent GST outcome of a transaction, the resulting error in need of an adjustment will generally have resulted in a business having either claimed too much GST, or not claimed enough.
Claiming too much GST
How does a business claim too much GST on a BAS? Whoever filled out the BAS could have:
• forgotten to include a sales invoice
• coded a sale as GST-free when in fact it included GST
• made an error in coding transactions
• included a purchase that is not actually tax deductible
• included 100% of a purchase that wasn’t totally for business-use.
Not claiming enough GST
Some situations in which this might be the case include where a business:
• found some purchase receipts or invoices from previous periods after a BAS was lodged
• made an error in coding the transactions
• subsequently received advice that a purchase was actually tax deductible but it was not included in a previous BAS
• coded a GST sale as taxable in the BAS but it was actually GST free.
For businesses that do not claim enough GST, the law now imposes a four year time limit for claiming refunds, which is counted down from when the error was made (specifically, from the due date of the BAS that covers the period when the error occurred).
An adjustment can be accounted for in the tax period in which the taxpayer becomes aware of the event — which is therefore generally the current BAS. This is in contrast to a mistake, where the correction needs to be made for the tax period when the error occurred by revising the BAS for that period. However, in certain instances the Tax Office allows for the correction of mistakes to occur in the current BAS.
GST credits can be claimed on any BAS when the requirements to make the claim are met. This means that credits not claimed, despite entitlements to do so, can be claimed on any future BAS (within the four year time limit).
Corrections that reduce GST payable
Corrections that reduce the GST payable may be made on the current BAS subject to correction amount limits defined with reference to the business’s annual turnover (more below). Note that the four year time limit also applies to such corrections, as the taxpayer is effectively claiming a refund of GST, albeit GST overpaid.
Making such corrections however has been given a deadline, with a business’s annual turnover determining the number of months it has to review for GST errors. The following table from the Tax Office sets out these restrictions:
|Annual turnover||Time limit|
|Less than $20m||Up to 18 months
(18 monthly activity statements, 6 quarterly activity statements
or one annual GST return)
|$20m or more||Up to 3 months
(3 monthly activity statements)
So basically, with turnover less than $20 million and transactions that occurred within 18 months of the end of the BAS period involved, a business can include an adjustment in the current BAS.
Another thing to remember is that the errors and omissions must not be more than the “net GST effect” set out by the Tax Office in the following table:
|Annual turnover||Correction limits|
|Less than $20m||Less than $5,000|
|$20m to $100m||Less than $10,000|
|$100m to $500m||Less than $25,000|
|$500m to $1 billion||Less than $50,000|
|$1 billion and over||Less than $300,000|
Note that “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. 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 the limits on the timing of the correction together with the amount limits detailed in the previous tables. Again, 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 correction of genuine and reasonable mistakes. The Tax Office has been known to disallow adjustments where the taxpayer is deliberately manipulating their calculations in order to reach a better tax outcome.