• Example – correcting GST errors on a later activity statement

    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 (being lodged on time), it discovers that it failed to claim a GST credit for a purchase it was entitled to claim for an earlier reporting period. Theo Pty Ltd was entitled to claim the GST credit 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. The debit error relates to under-reporting GST payable on a taxable sale of commercial residential premises that, based on advice Theo Pty Ltd received at the time, was considered to be an input taxed sale of residential premises. 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 taken the GST errors into account in working out its GST net amount for another reporting period.

    As the GST credit that Theo Pty Ltd failed to claim in the September 2013 reporting period is not 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 to correct the GST errors in its June 2015 quarterly reporting period as follows:

    Table 3: Theo Pty Ltd's GST errors

    Rules for correcting GST errors

    GST error made:$7,000 credit error June 2013 quarterly reporting period

    GST error made:$15,000 debit error March 2014 quarterly 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 a matter that is specified as being subject to compliance activity
    • is not made in working out the net amount for an earlier reporting period that is subject to 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

    Does the later reporting period start during the period of review for the assessment of the net amount for the earlier reporting period?

    Yes

    June 2015 quarterly reporting period starts within period of review for June 2013 reporting period (28 July 2013 to 29 July 2017).

    Yes

    June 2015 quarterly reporting period starts within period of review for March 2014 reporting period (28 April 2014 to 29 April 2018).

    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 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, within 18 months of 28 April 2014).

    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 less $7,000), which is below the applicable debit error value limit of $10,000.

    Theo Pty Ltd cannot offset the GST credit it failed to claim as it is not a credit error.

    Theo Pty Ltd can correct both GST errors on its activity statement for the June 2015 quarterly reporting period. Theo Pty Ltd can also claim in the June 2015 quarterly reporting period the GST credit that it failed to claim in the September 2013 reporting period.

    In completing its activity statement for the June 2015 quarterly reporting period, Theo Pty Ltd uses the accounts method. Theo Pty Ltd adds $8,000 at box 1A. It then reflects the correction in 1A by including $165,000 (if it chose to report the GST-inclusive amount) in G1 or including $150,000 (if it chose to report the GST-exclusive amount). As the credit error of $7,000 relates to a decreasing GST adjustment, Theo Pty Ltd does not need to reflect the amounts in the other labels.

    If Theo Pty Ltd uses the calculation sheet method, it must complete the calculation worksheet following the instructions in Making adjustments on your activity statements. Theo Pty Ltd must include $165,000 (the GST-inclusive value for the sale of the commercial premises) in G1 on the calculation worksheet. It must then include $77,000 (decreasing GST adjustment multiplied by 11) in G18 on the calculation worksheet. It will then transfer the amounts from the calculation sheet to the activity statement.

      Last modified: 27 Aug 2015QC 16233