If your business is registered for GST, it’s crucial to make sure you record all GST amounts correctly. If not, you could miss out on credits you are entitled to, claim for credits you are not entitled to, or fail to remit GST where you should. You could also end up with penalties from the tax office!
It can be quite easy to be a bit baffled by the GST. While it can seem straightforward at face value (e.g. 10% on sales and purchases) in reality it often isn’t.
There are GST exempt items as well as unusual situations that might not fit the ‘norm’.
Understanding GST-free items
Some items should not include GST. These include:
- Basic foods (e.g. fresh food).
- Council and water rates (unless invoiced via your landlord/agent in some cases).
- Some educational courses, medicines, menstrual products, childcare services, religious and charitable activities.
- Residential rents and property sales.
- Some bank charges.
- Some government charges – e.g. ASIC fees.
- Entertainment expenses.
- Gift cards – the GST kicks in when the card is used for purchases.
- Car registration fees – however, GST may be charged on part of your bill (usually stamp duty) so it’s important to check the paperwork.
- Insurance – certain items on an insurance bill may not be subject to GST, such as stamp duty.
- Items from a supplier that isn’t registered for GST.
- Any business costs relating to wages – such as salaries, PAYG and superannuation.
Note that the above list is not exhaustive!
Common GST mishaps
With GST being more complex than it might first appear, it can be easy to make mistakes in your accounts. Here are some possible examples:
- Recording 10% GST on all purchases without checking the invoice properly.
- Charging GST on sales items not subject to GST.
- Claiming GST credits on private purchases. These should not be included in the BAS at all.
- Not claiming GST credits your business may be entitled to. Some examples include imports, and second-hand goods over a certain value providing they are for resale.
- Claiming GST credits where you don’t have a copy of the tax invoice from the supplier (although there are some exceptions).
- Claiming GST on a purchase from a supplier not registered for it.
How to avoid errors
Fortunately, there are steps you can take to avoid GST errors, such as:
- When recording supplier invoices, always check them for the actual amount of the GST – especially for mixed items such as food dockets, vehicle registration and insurance invoices.
- Make sure to set GST codes up correctly on your accounting software from the start. This is especially important if you use automation features in order to avoid compounding errors.
- For all items you are claiming make sure to keep a copy of the tax invoice, especially where it is $82.50 (including GST) or more in value.
- For small purchases under $82.50, you should ideally have a tax invoice or cash register docket or receipt. If not, you should at least keep a detailed diary entry of the purchase.
Call in the professionals!
One way to save yourself the time (and potential headaches!) associated with GST is to partner with a professional accounts management firm that offers end-to-end bookkeeping services to do these tasks on your behalf. Contact the team at Bookit to find out about our professional tailored solutions.