• 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 example

    See 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 limit

    Current 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 example

    Chart 1: Debit error is within the debit error time limit

     Chart depicting the debit error time limit for X Pty Ltd, as described in the example above.

    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 example

    Chart 2: Debit error is outside the debit error time limit

     Chart  depicting the debit error time limit for Jiesi, as described in the example above.

    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 limit

    Current 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 example
    Multiple 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 example
    Multiple 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 errors

    Reporting 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.

    End of example

    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 example

    GST 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 example

    Recklessness 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 example

    See also:

    • MT 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard
      Last modified: 06 Jun 2017QC 16233