Correcting GST errors
Explains when businesses can correct GST errors in a later activity statement.
If you make a mistake (that fits the definition of a GST error) when reporting GST on an activity statement, you can correct that error on a later activity statement if you meet certain conditions.
The benefit of correcting a GST error on a later activity statement is that you will not be liable for any penalties or general interest charge (GIC) for that error.
Generally, it is easier to correct a GST error on a later activity statement than to revise an earlier activity statement. Revising an earlier activity statement that contains an error can incur penalties or GIC.
See also:
Definition of a GST error
A GST error is a mistake you made in working out your GST net amount on your activity statement that would, if it was the only mistake that you made, result in you reporting or paying too much GST (credit error) or reporting or paying too little GST (debit error).
To be included in the definition of a GST error, the mistake must relate to an amount of GST, GST credit or GST adjustment. The GST error is the amount of GST, GST credit or GST adjustment and not the gross or GST-inclusive price of the transaction.
A GST error does not include an error that relates to an amount of fuel tax credit, wine equalisation tax or luxury car tax.
Example: GST error only relates to the GST, GST credit or GST adjustment
In working out the GST net amount for the monthly reporting period ending 30 June, Bronlynn inadvertently reported GST payable of $1,000 instead of $100 on a taxable sale. That is, the price of the taxable sale was $1,100 (GST-inclusive). The GST error is the overpaid GST (that is, $900), not the price of the taxable sale (that is, $1,100).
End of example
Example: GST error must be quantified
On 15 April 2016, Noodle Developments discovers it has not reported the GST on sales it made for the December 2015 quarterly activity statement lodged on 21 January 2016. However, it is unable to work out the amount and decides to engage an accounting firm to review its accounts.
On 18 July 2016, the accounting firm finalises the review for Noodle Developments and works out the amount of the unreported GST for the December 2015 quarter was $5,000. As the mistake has now been worked out, it fits the definition of a GST error.
End of exampleWhat is not a GST error
The following are not included in the definition of a GST error:
Claiming a GST credit on a later activity statement
Claiming a GST credit on a later activity statement because you failed to claim it in an earlier activity statement is not a GST error. If you did not claim a GST credit for a purchase at the time when you were entitled to claim it (for example, you were not aware that you had a tax invoice) you are entitled to claim it on a later activity statement.
A four year time limit generally applies to GST credit claims.
Example: Difference between a credit error and postponing a GST credit claim
Before lodging her activity statement for the September 2016 reporting period, Tess discovers that she only reported a GST credit of $10,000 instead of $15,000 for a creditable purchase she claimed on her August 2016 activity statement.
The $5,000 under-claim of the GST credit is a GST error because it resulted in her assessed net amount for the August 2016 reporting period being overstated. Tess can correct this GST error by including the $5,000 on her activity statement for the September 2016 reporting period.
If Tess met all the conditions to claim the $15,000 GST credit in the August 2016 reporting period, but did not claim any of it until the September 2016 reporting period, her failure to report it in August is not a GST error. Rather, as Tess failed to claim the GST credit when she was eligible, she is entitled to claim it in a subsequent reporting period.
End of exampleSee also:
GST adjustments
You make a GST adjustment on your activity statement if a change occurs that affects the amount of GST payable for a sale or the GST credit you are entitled to for a purchase.
Making GST adjustments is different from correcting GST errors. A GST adjustment relates to a reported sale or purchase that was correct at the time of lodgment, whereas a GST error relates to an amount that was incorrect at the time of lodgment.
See also:
GST restricted refunds
We use the term 'GST restricted refund' when you make a payment of excess GST but you are not entitled to a refund if it would result in a windfall gain.
This can occur when you incorrectly treat a GST-free or input taxed sale as taxable or when you miscalculate the GST payable (for example, miscalculating the GST for the sale of a property under the margin scheme) or for any other reason. The refund of the excess GST is restricted if you included the incorrectly charged GST in the sale price and did not reimburse it to your customers. This is to ensure that businesses do not get a windfall gain.
However, if you would not receive a windfall gain you may be entitled to a refund:
- If you have not included the GST in the sale price - for example, you did not charge GST on the sale but incorrectly reported the sale as taxable on your activity statement - you are entitled to a refund of excess GST. You can claim the refund by following the steps for correcting a GST error if you meet all the other conditions.
- If you reimburse the amount of excess GST to your customers you can claim a refund. In these circumstances you do not treat the refund as a correction of a GST error. In most cases, you claim a refund by making a decreasing adjustment in the reporting period in which you make the reimbursement.
Example: Decreasing adjustment for excess GST
Abigail paid $3000 in GST to us on 21 July 2016 for her June 2016 monthly reporting period. In August, Abigail discovered that some of the sales included on her June activity statement were actually GST-free sales and that she had consequently overpaid GST and incorrectly charged her customers. Her assessed GST net amount should have been $2,500.
In September 2016, Abigail reimbursed the excess GST to her customers and as a result, she became entitled to a refund of $500. To claim the refund, Abigail made a decreasing adjustment of $500 in her September 2016 activity statement.
End of exampleSee also:
- In limited circumstances, you can ask the Commissioner to exercise his discretion to refund you the excess GST without reimbursing your customer you incorrectly charged. See Refunds of excess GST
- Making adjustments on your activity statements
- GSTR 2015/1 Goods and Services Tax: the meaning of the terms ‘passed on’ and ‘reimburse’ for the purposes of Division 142 of A New Tax System (Goods and Services Tax) Act 1999
Prior to 31 May 2014
For reporting periods that commenced before 31 May 2014 there were different rules for GST restricted refunds. Under these rules, a GST restricted refund only arises if a supply or arrangement that is not taxable is incorrectly treated as taxable. It does not apply to miscalculations of GST.
For these reporting periods, you can claim a refund of the excess GST if you reimbursed your customer the excess GST and your customer was not registered, or required to be registered, for GST. You can claim a refund by following the steps for correcting a GST error if you meet all the other conditions.
Example: GST restricted refund before 31 May 2014
Edgar incorrectly paid GST of $10,000 on sales on his activity statement for August 2013. He subsequently realised that none of the sales were taxable and applied for a refund of the $10,000. We declined the refund for the overpaid GST because Edgar did not reimburse his customers.
If Edgar reimbursed his customers (who were not registered for GST) in December 2013 and satisfied us that he had done so, he could have corrected the GST error in his December 2013 activity statement if he satisfied all other conditions.
End of exampleSee also:
- MT 2010/1 Miscellaneous tax: restrictions on GST refunds under section 105-65 of Schedule 1 to the Taxation Administration Act 1953
Correcting GST errors
There are two types of GST errors you can make – a credit error or a debit error.
You cannot correct a credit or debit error on a later activity statement if any of the following apply:
- The GST error relates to a matter we have advised is subject to a compliance activity or the GST error was made in a reporting period that is subject to compliance activity.
- You have corrected the GST error in another reporting period.
- You are revising a lodged activity statement to correct an error from an earlier reporting period.
If you correct a GST error on a later activity statement, keep a note to record the reporting period when the error was made and the activity statement it was corrected on. You must also keep records and other relevant information to explain the correction.
Find out about:
See also:
Credit error
You make a credit error if you make an error in working out your net GST amount that results in you reporting or paying too much GST for the reporting period. Examples of credit errors include:
- reporting a GST sale twice
- overstating the GST on sales (for example, reporting a larger figure for GST on sales than the correct amount)
- under-claiming a GST credit for your purchases
- omitting or understating a decreasing GST adjustment or overstating an increasing GST adjustment.
You can correct a credit error on a later activity statement if it is within the credit error time limit. Credit errors are not subject to value limits.
Credit error time limit
You can correct a credit error on a later activity statement that is lodged within the period of review of the earlier reporting period.
The period of review starts on the day you lodge your activity statement and ends four years and one day later.
Example: Four year period of review
ABC Ltd, a business that lodges monthly activity statements, made a GST error in the September 2013 reporting period that resulted in an overstatement of its assessed net GST amount for that period. As that activity statement was lodged and the net amount assessed on 1 October 2013, ABC Ltd can correct that GST error on a later activity statement if it lodges that later activity statement on or before 2 October 2017.
End of exampleSee also:
Debit error
You make a debit error if you make an error in working out your net amount that results in you reporting or paying too little GST for the reporting period. Examples of debit errors include:
- failing to include GST on a taxable sale
- understating the GST on sales (for example, reporting a lesser amount for GST on sales, rather than the correct amount)
- overstating GST credits (for example, claiming GST credits for a purchase twice)
- omitting or understating an increasing GST adjustment or overstating a decreasing GST adjustment.
You can correct a debit error on a later activity statement if:
Debit error time limit
You can only correct a debit error on a later activity statement if it is within the debit error time limit that corresponds with your current GST turnover as shown in the table below.
Table 1: Debit error time limitCurrent GST turnover | Debit error time limit |
|---|
Less than $20 million | The debit error must be corrected on an activity statement that is lodged within 18 months of the due date of the activity statement in which the error was made. |
$20 million or more | The debit error must be corrected on an activity statement that is lodged within 12 months of the due date of the activity statement in which the error was made. |
If the debit error time limit has expired, you need to revise the activity statement that contains the error if the period of review (four years and one day) for that statement has not yet expired.
See also:
Example: Debit error is within the debit error time limit
While preparing its July 2013 GST return, X Pty Ltd (a monthly lodger with current GST turnover below $20 million) discovers a debit error of $5,000 on its activity statement lodged for the June 2012 reporting period.
The debit error can only be corrected on an activity statement that is lodged within 18 months of the due date for lodging the activity statement for the reporting period in which the error was made. The due date for lodging the activity statement in which the debit error was made was 21 July 2012. Eighteen months from that date is 21 January 2014.
If the debit error meets all other conditions, X Pty Ltd can correct the $5,000 error on its July 2013 activity statement, which it lodges on 21 August 2013, as this is within 18 months of the due date for lodgment of the activity statement for the reporting period in which the error was made.
The chart below summarises this scenario.
End of exampleChart 1: Debit error is within the debit error time limit
Example: Debit error is outside the debit error time limit
Jiesi has a current GST turnover of less than $20 million and lodges her activity statements quarterly. She lodges her activity statement for the September 2013 reporting period late, lodging it in December 2013 instead of by 28 October 2013. In preparing the activity statement she discovers a debit error made on her activity statement for the March 2012 reporting period.
The debit error can only be corrected on an activity statement that is lodged within 18 months of the due date for lodging the activity statement for the reporting period in which the error was made, which was 28 April 2012. Eighteen months from that date is 28 October 2013.
If Jiesi had lodged her September 2013 activity statement on time (by 28 October 2013) she could have corrected the debit error. However, as she lodged it after that date, she is outside the debit error time limit.
The chart below summarises this scenario.
End of exampleChart 2: Debit error is outside the debit error time limit
Debit error value limit
You can correct a debit error to the extent that the net sum of the debit errors is within the debit error value limit that corresponds with your current GST turnover, as shown in the table below.
The net sum of the debit errors is the sum of one or more debit errors less the sum of any credit errors that you include on the same activity statement.
Table 2: Debit error value limitCurrent GST turnover | Debit error value limit |
|---|
Less than $20 million | Less than $10,000 |
$20 million to less than $100 million | Less than $20,000 |
$100 million to less than $500 million | Less than $40,000 |
$500 million to less than $1 billion | Less than $80,000 |
$1 billion and over | Less than $450,000 |
If the net sum of the debit errors exceeds your debit error value limit, you can correct the debit error or errors up to the value limit and revise the balance in the earlier activity statement in which the error(s) was made. You cannot correct the amount that exceeds the debit error value limit on a subsequent activity statement.
Find out about:
Single debit error
If you have a single debit error to correct, you can correct that error on a later activity statement up to the relevant debit error value limit. You will need to revise the earlier activity statement in which the debit error was made for the amount that exceeded the debit error value limit.
Example: A debit error that exceeds the debit error value limit
Greg's Garage has a current GST turnover of less than $20 million. When preparing its December 2014 quarterly activity statement, Greg's Garage discovered that it made a debit error of $12,500 on an earlier activity statement. Greg's Garage corrects the debit error up to the debit error value limit amount of $10,000 on its December 2014 quarterly activity statement. It cannot correct the excess amount of $2,500 on its next activity statement (the quarter ending 31 March 2015). Greg's Garage must correct the debit error relating to the excess amount of $2,500 by revising the earlier activity statement.
End of exampleMultiple debit errors
If you have multiple debit errors to correct, you can correct the total amount of the debit errors on a later activity statement up to the relevant debit error value limit. You will need to revise the earlier activity statements in which the debit errors were made for any amounts that exceed the debit error value limit.
Example: Net sum of the debit errors exceeds the debit error value limit
Serge's Auto Pty Ltd has a current GST turnover of $5 million and lodges its activity statements quarterly. As part of its year-end review for the 2016 income year (conducted at the end of August 2016), it identifies two debit errors both made in the September 2015 reporting period, one for $7,000 and one for $5,000.
The net sum of the debit errors ($7,000 + $5,000 = $12,000) exceeds the relevant debit error value limit of $10,000. Serge's Auto Pty Ltd can only correct the debit errors up to $10,000 in a later reporting period. Serge's Auto Pty Ltd decides to correct the first debit error of $7,000 and $3,000 out of the $5,000 of the second debit error (assuming all other conditions for correcting a debit error are satisfied).
The balance of $2,000 from the second debit error must then be corrected in the earlier reporting period in which the error was made. That is, Serge's Auto Pty Ltd must revise its activity statement for the September 2015 reporting period to increase its assessed net amount by $2,000.
Alternatively, Serge's Auto Pty Ltd may choose not to correct one or both of the debit errors in a later activity statement and revise its activity statement for the September 2015 reporting period to increase its assessed net amount by the relevant amount.
End of exampleMultiple debit and credit errors
If you have multiple debit and credit errors to correct on a later activity statement, you offset the sum of the debit errors by the sum of the credit errors to work out the net sum of the debit errors. You can correct the net sum of the debit errors up to the relevant value limit. You will need to revise the earlier activity statements in which the debit errors were made for any amounts exceeding the debit error value limit.
Example: Net sum of the debit errors is within the debit error value limit
Mikaela's Tea House has a current GST turnover of $10 million and lodges quarterly activity statements. On 11 October 2015, while preparing the activity statement for the September 2015 quarter, Mikaela discovers the following GST errors:
Summary of Mikaela's Tea House's GST errorsReporting period | GST error | Debit error | Credit error |
|---|
December 2012 | Double counted taxable sales | | $10,000 |
September 2014 | Over-claimed GST credits | $13,000 | |
December 2014 | Clerical error, transcribing error | | $5,000 |
March 2015 | Didn't claim increasing GST adjustment | $6,000 | |
| Total | $19,000 | $15,000 |
Provided the debit errors meet all the other conditions, Mikaela needs to work out whether the net sum of the debit errors is within the debit error value limit of $10,000.
As she is correcting the two credit errors on the same activity statement as the debit errors, she calculates that the net sum of the debit errors is $4,000 (that is, $19,000 – $15,000). This is below the relevant debit error value limit ($10,000), so Mikaela's Tea House can correct both of the debit errors (that is, the over-claimed GST credits of $13,000 and the increasing GST adjustment of $6,000) on the September 2015 activity statement.
Example: Net sum of the debit errors is within the debit error value limit
While preparing its monthly activity statement for the August 2016 reporting period Ozco Ltd, which has a current GST turnover above $1 billion, discovers two GST errors made in working out its net amount for earlier reporting periods. One is a credit error for $1.5 million and the other a debit error for $1 million.
Assuming both GST errors meet the other conditions to include them on the August 2016 activity statement, Ozco Ltd needs to work out whether the net sum of the debit errors is within its debit error value limit of $450,000.
Ozco Ltd includes both the credit error and the debit error in this activity statement, so the net sum of the debit errors is minus $500,000 ($1 million debit errors less $1.5 million credit errors). This is within Ozco Ltd's debit error value limit of $450,000 so it can correct the debit error of $1 million on its activity statement for the August 2016 reporting period.
End of exampleGST groups
The debit error value limit applies to the entity that lodges the activity statement and is liable to pay the GST or is entitled to the GST refund. For example, it applies to the representative member of the GST group (rather than each individual member) and the GST joint operator of a GST joint venture.
Example: GST groups
Danielle Pty Ltd, Joe Pty Ltd and JC Pty Ltd form part of a GST group that has a current GST turnover of less than $20 million. Danielle Pty Ltd is the group representative and lodges the group's activity statement on a monthly basis. On October 2016, the tax agent for the group undertook the yearly reconciliation for the group's activity statements and income tax returns for the 2016 financial year. The tax agent noted that all the group members failed to charge GST on one of the products they sell, resulting in a net sum of the debit errors of $12,000. The relevant debit error value limit for the group is $10,000 (not $10,000 for each entity). Danielle Pty Ltd can correct debit errors up to $10,000 and will need to revise the activity statement(s) for the relevant reporting periods that contain the debit errors relating to the $2,000 excess amount over the debit error value limit.
End of exampleRecklessness or intentional disregard of a GST law
You cannot correct a debit error if the error is a result of recklessness or intentional disregard of a GST law.
Recklessness is behaviour that falls significantly short of the standard of care expected of a reasonable person in the same circumstances. It is gross carelessness.
Intentional disregard of the law is something more than reckless disregard of, or indifference to, a tax law. The intention is a critical element. That is, a person must have understood the effect of the law and how it operates and made a deliberate choice to ignore the law.
Example: Intentional disregard of a GST law
DD Co is facing a cash flow problem and deliberately under-reports the GST on its sales by $10,000 when lodging its activity statement for the current reporting period.
As the debit errors (the under-reporting of GST payable) result from DD Co intentionally disregarding the GST law, the errors cannot be corrected on a later activity statement.
End of exampleSee also:
- MT 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard
Completing your activity statement to correct GST errors
To correct a GST error, you include the correction amount at boxes 1A or 1B. If the net result of the error(s) is that you have paid too little GST include the amount at 1A, alternately if the net result is that you have overpaid GST include the amount at 1B. You may also reflect the correction at boxes G1, G2, G3, G10 or G11 as appropriate.
You must keep records and other relevant information to explain the correction.
See also:
- GST - completing your activity statement
Example
Theo Pty Ltd has a current GST turnover of less than $20 million. While preparing its activity statement for the June 2015 quarterly reporting period (which is yet to be lodged), it discovers that it failed to claim a GST credit for a purchase it was entitled to claim in the September 2013 reporting period.
Theo Pty Ltd also discovers that it made two GST errors in working out its GST net amount for earlier reporting periods.
The first GST error is a $15,000 debit error made in working out the net amount for the March 2014 reporting period. Theo Pty Ltd lodged its March 2014 activity statement on 28 April 2014.
The second GST error is a $7,000 credit error relating to a decreasing GST adjustment. Theo Pty Ltd forgot to take into account the GST adjustment in working out its net amount for the June 2013 reporting period. Theo Pty Ltd lodged its June 2013 activity statement on 28 July 2013.
Theo Pty Ltd is not subject to any compliance activity at the time of preparing its activity statement for the June 2015 reporting period and has not previously taken the GST errors into account.
As the GST credit that Theo Pty Ltd failed to claim in the September 2013 reporting period does not fall within the definition of a GST error, it does not need to work out whether conditions for correcting a credit error are satisfied. Theo Pty Ltd can claim the GST credit in the June 2015 reporting period.
Theo Pty Ltd works out whether it can correct the GST errors in its June 2015 quarterly reporting period that will be lodged before its due date on 28 July 2015, as follows:
Table 3: Theo Pty Ltd's GST errorsRules for correcting GST errors | GST error made: $7,000 credit error June 2013 reporting period | GST error made: $15,000 debit error March 2014 reporting period |
|---|
Does the error relate to an amount of GST, GST credit or GST adjustment? | Yes GST adjustment error | Yes Amount of GST |
At time of lodging the later activity statement to correct the GST error, do both of the following apply? The GST error: - does not relate to subject matter of a compliance activity
- is not made in a reporting period that is subject to a compliance activity
| Yes | Yes |
The GST error was not taken into account in working out the net amount for another reporting period? | Yes – not taken into account | Yes – not taken into account |
Will the activity statement for the later reporting period be lodged during the period of review of the earlier reporting period? | Yes The period of review for the June 2013 quarterly activity statement ends on 29 July 2017. The later activity statement which corrects the error will be lodged on or before 28 July 2015. | Yes The period of review for the March 2014 quarterly activity statement ends on 29 April 2018. The later activity statement which corrects the error will be lodged on or before 28 July 2015. |
Will the error be corrected in an activity statement that is yet to be lodged? | Yes | Yes |
If the GST error was a debit error, was the error caused by recklessness or intentional disregard? | Not applicable – credit error | No |
Are the debit errors corrected within the applicable debit error time limit? | Not applicable – credit error | Yes Lodgment date for June 2015 activity statement is within 18 months of the due date for lodgment of the March 2014 activity statement (that is, 28 October 2015). |
Is the net sum of the debit errors within the applicable debit error value limit? | Not applicable – credit error | Yes Net sum of the debit errors is $8,000 ($15,000 debit less $7,000 credit), which is below the applicable debit error value limit of $10,000. Theo Pty Ltd cannot offset the GST credit it failed to claim in September 2013 as it is not a credit error. |
Therefore, in its activity statement for the June 2015 quarterly reporting period Theo Pty Ltd can correct both GST errors (the credit error and the debit error) and claim the GST credit that it failed to include in the September 2013 reporting period.
To correct the errors in the June 2015 quarterly reporting period, Theo Pty Ltd adds $8,000 at box 1A. It then reflects the correction in 1A by adding $88,000 (if it chose to report the GST-inclusive amount) in G1 or $80,000 (if it chose to report the GST-exclusive amount).
End of exampleSee also:
GST errors that cannot be corrected on a later activity statement
You cannot correct a credit or debit error on a later activity statement if:
- the GST error relates to a subject matter of a compliance activity or was made in a reporting period that is subject to a compliance activity,
- you have corrected the GST error in another reporting period
- you have already lodged the later activity statement and would need to revise it to correct an error from an earlier reporting period.
Find out about:
If you are subject to compliance activity
A compliance activity is an examination of your GST affairs undertaken by us and includes reviews, audits, verification checks, record-keeping reviews/audits and similar activities.
Once you receive advice (by phone or in writing) from us about our intention to conduct a compliance activity, you cannot correct a GST error that is the subject matter of a compliance activity or errors arising in a reporting period that is subject to the compliance activity. If you find such GST errors, it is in your best interest to voluntarily disclose them. If you tell us about your GST error, it will be taken into account when we consider the application of a penalty.
Example: GST errors cannot be corrected due to compliance activity
In June 2014, we notify Mike's Trading that we are conducting a review of his past property transactions. As a result, Mike undertakes his own review of his property transactions and discovers that he made a GST error treating a particular sale of property as taxable instead of input taxed. He also made GST errors claiming GST credits for purchases in relation to this sale. As these GST errors relate to a matter that is specified as being subject to compliance activity, Mike's Trading cannot correct these errors in a later activity statement.
Example: GST error can be corrected despite compliance activity
In March 2016 we notified Big Co that we are conducting a general review of its GST affairs for each of the monthly reporting periods ending 31 January 2015 to 28 February 2016. Big Co also conducts its own review and discovers a GST error made in working out its net amount for the December 2014 reporting period. As the GST error is made for a reporting period that is not subject to compliance activity, Big Co can correct the error in a later activity statement, if all other conditions are met.
End of exampleA compliance activity is completed when you receive a notice of assessment or notice of amended assessment, or when we tell you that the examination has been finalised.
See also:
If you have corrected the GST error in another reporting period
You cannot correct a GST error more than once. For example, if you revise the earlier activity statement in which the GST error was made, or if you have already corrected the GST error in another reporting period, you cannot then correct the error on a later activity statement.
This includes the circumstance where you only partially correct a debit error because the relevant debit error value limit was exceeded. You cannot correct the amount that exceeded the debit error value limit on a subsequent activity statement.
See also:
Revising a lodged activity statement
You cannot revise an activity statement you've already lodged to correct a GST error from an earlier reporting period. You can only correct a GST error in an activity statement that you haven’t yet lodged.
For example, if you made an error in your October activity statement and have already lodged your February activity statement, you cannot revise the February activity statement to include the correcting information. You'll have to wait until you lodge your April activity statement to correct the error (if it meets the conditions of correcting a GST error).
Explains when businesses can correct GST errors in a later activity statement.