Common GST Mistakes and How to Avoid Them

Goods and Services Tax (GST) is a vital part of running a business in Australia, but it can also be a source of confusion. Even experienced business owners can make errors when handling GST, leading to compliance issues, penalties, and cash flow problems. To help you stay on top of your GST obligations, here are some of the most common mistakes and how to avoid them.

1. Incorrectly Claiming GST Credits

Not all expenses include GST, and not all purchases are eligible for GST credits. A common mistake is assuming GST applies to everything. Some expenses, such as motor vehicle registration, bank fees, interest, and wages, do not have GST included.  

Tip: Keep proper records and ensure your suppliers provide valid tax invoices with an ABN and the correct GST amount.

2. Failing to Register for GST on Time

Businesses must register for GST once their turnover exceeds $75,000 per year ($150,000 for non-profits). Some businesses delay registering, which can lead to unexpected tax debts and penalties.

Tip: Regularly monitor your income, and if you're approaching the threshold, register for GST promptly to avoid any compliance issues.

3. Mixing Up GST-Free and Input-Taxed Sales

Certain goods and services are GST-free (e.g., basic food, medical services), while others are input-taxed (e.g., residential rent, financial services). Mistaking these categories can result in incorrect GST reporting.

Tip: Familiarise yourself with the different classifications and seek professional advice if you're unsure about the GST status of your sales.

4. Errors in BAS Lodgement

Business Activity Statements (BAS) can be complex, and mistakes in GST reporting are common. These include misreporting income, forgetting to include adjustments, or claiming the wrong amounts.

Tip: Double-check all figures before lodging your BAS. Using accounting software or a bookkeeper can help ensure accuracy and save time.

5. Not Keeping Adequate Records

The ATO requires businesses to keep tax records for at least five years. Poor record-keeping can make GST audits stressful and increase the risk of errors.

Tip: Maintain well-organised records of all tax invoices, receipts, and BAS lodgements. Cloud-based accounting software can help streamline this process.

6. Forgetting to Charge GST on Sales

If your business is registered for GST, you must charge GST on taxable sales. Forgetting to include GST means you'll have to pay it out of pocket when lodging your BAS.

Tip: Set up your invoicing system to automatically include GST where applicable, and always review your invoices before sending them to clients.

7. Ignoring GST Obligations for Cash Transactions

Some businesses mistakenly believe that cash transactions don’t need to be reported. However, all income, whether received via cash, card, or bank transfer, must be declared.

Tip: Keep a proper record of all transactions, including cash sales, and ensure they are reported in your BAS.

Final Thoughts

GST compliance can be tricky, but with the right knowledge and practices, you can avoid costly mistakes. If you’re feeling overwhelmed by your GST obligations, working with a professional bookkeeper can help you stay compliant and keep your business finances in order.