Correcting GST Errors

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On 26 September 2023 the latest legislative determination for correcting GST errors came into effect. The full name of the determination is: A New Tax System (Goods and Services Tax) (Correcting GST Errors) Determination 2023. This replaces the previously issued determination from 2013, and after receiving submissions during the brief consultation period the only change is a minor tweak to the dollar limits (see below) that apply to ‘reflect the impact of inflation over the last 10 years’.

[Editor’s note: Also released at the same time as the above GST determination is a legislative determination for correct fuel tax errors: Fuel Tax (Correcting Fuel tax Errors) Determination 2023. Other than the reference to Fuel Tax (instead of GST) this determination is essentially the same and the comments below will also apply in relation to fuel tax errors.]

Context and History

Soon after the introduction of the GST regime the ATO issued a GST Fact Sheet (titled ‘Correcting GST Mistakes’). It provided an administrative process for taxpayers to correct GST mistakes on their next Business Activity Statement (BAS) provided certain conditions were met. This was a pragmatic approach welcomed by taxpayers and their tax agents. In the absence of such an approach, technically, any errors identified would require the taxpayer to amend the original BAS to correct the mistake.

The conditions to be met were based on the annual turnover of the taxpayer and time and value limits. The annual turnover determined the time limits, and there was also a dollar value correction limit. Broadly:

  • where the mistake gave rise to an overstatement of GST (i.e., overpaid GST), the taxpayer could correct this mistake in a later BAS subject only to the time limit; and
  • where the mistake gave rise to an understatement of GST (i.e., underpaid GST), the taxpayer could only correct this mistake in a later BAS provided the mistakes identified fell within both the time limit and the value limit.

In 2013 both the terminology changed from ‘mistake’ to ‘error’ and the process changed from the Fact Sheet (a ruling) to a legislative determination (titled ‘Goods and Services Tax: Correcting GST Errors Determination 2013’).

Terminology and Scope

The determination refers to an error as ‘a mistake you made in working out your net amount for an earlier tax period’ and distinguishes between:

  • a ‘credit error’ – an error that results in an overstatement or overpayment of GST; and
  • a ‘debit error’ – an error that results in an understatement or underpayment of GST.

Excluded Errors

Certain types of errors are expressly excluded, namely errors that relate to:

  • input tax credits where entitlement has been extinguished under Division 93 (essentially where the 4-year limit has passed); and
  • an amount where the ATO need not refund the amount under s.105-65 in Schedule 1 to the TAA (which has been repealed but continues to apply to amounts of overpaid GST in relation to tax periods starting on or before 30 May 2014).

Non-Errors

There will also not be an error where the assessed net amount would not be incorrect. An example of this is where s. 29-10(4) applies – which allows an entity to include an input tax credit in a later BAS if they did not attribute that credit in an earlier BAS (provided the credit is still within the general 4-year limit).

GST Adjustments

GST adjustments are not errors; they are a specific feature of the GST regime. Where a GST adjustment occurs these are attributed to particular tax periods, but are not considered errors in the context of this determination. For example, where there has been a change in the extent of creditable purpose (‘change-in-use’ under Division 129), this would result in a GST adjustment which is generally dealt with and attributed each year in the June tax period.

However, if an adjustment has been overlooked or incorrectly worked out, the difference would be considered an error to which the determination applies.

General Limitations

An errors can only be corrected if:

  • the error relates to an amount of GST, and input tax credit or a GST adjustment;
  • the earlier tax period which contained the mistake started on or after 1 July 2012 and the correction is included in a BAS (the ‘correcting BAS’) for a tax period that is lodged within the general 4-year review period;
  • at the time of lodging the correcting BAS, the error does not relate to any current compliance activity (e.g., an ATO audit review);
    • however, errors can be corrected under this determination if the ATO has given written notification to make the correction;
  • all or part of the error has not already been included in another tax period;
  • for a debit error, the additional conditions are met.

We also note that an entity is not obliged to apply these correction rules. If an entity chooses to correct the error by amending the original BAS then the rules in the determination do not apply to that error. Also, an entity can only apply the rules once to correct each error.

Time Limits and Value Limits

Credits Errors

If the taxpayer has made a GST credit error (i.e., overstated GST net amount) this can be corrected on a later BAS provided the error occurred:

  1. in an earlier BAS that is within the general 4-year review period; and
  2. the taxpayer has not previously corrected the error in another BAS.

The ATO provides the following example on its website:

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.

[Note: We note the dates above dates are now outside the general 4-year limit (it’s an old example), but the timings remain illustrative of the process to be followed.]

Debit Errors

If the taxpayer has made a debit errors (i.e., understated GST net amount) this can be corrected on a later BAS provided the following conditions are met:

  1. the error occurred in an earlier BAS that is within the general 4-year review period;
  2. the taxpayer has not previously corrected the error in another BAS;
  3. the error is corrected within the ‘debit error time limit’ – see table below;
  4. the net sum of the error is within the ‘debit error value limit’ – see table below; and
  5. the error was not the result of recklessness or intentional disregard of a GST law.

The time and value limit components are set out in the table below (along with the previous value limits):

Current GST Turnover Debit error time limit Debit error value limit

NEW

 Debit error value limit

OLD
Less than $20m 18 months after the due date of the GST return for the tax period in which the error was made (‘the error BAS’) $12,500 $10,000
$20m to less than $100m 12 months after the due date of the error BAS $25,000 $20,000
$100m to less than $500m 12 months after the due date of the error BAS $50,000 $40,000
$500m to less than $1bn 12 months after the due date of the error BAS $100,000 $80,000
$1bn and over 12 months after the due date of the error BAS $560,000 $450,000

General Comments and Conclusion

The ATO has also published information on Correcting GST Errors on its website, and this is worth reviewing as it provides some commentary and examples.

As noted above, there are other mechanisms in the GST law to deal with matters such as GST adjustment events or GST change-in-use adjustments. So, care must be taken to ensure that this process is only used to correct GST errors.

Where the conditions of the determination are met it could provide savings in terms of general interest charge and/or penalties, as well as saving administrative time and cost (by not having to request amendments to prior BASs).

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