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 example
What 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 example
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.
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 example
- 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 example
- MT 2010/1 Miscellaneous tax: restrictions on GST refunds under section 105-65 of Schedule 1 to the Taxation Administration Act 1953