What could go wrong when claiming the wrong GST credits?
Well I will tell you what headaches a seemingly innocent $9 GST error could cause !
Lately I have had a few queries as to whether business owners can claim GST on certain expenses. The expense in question was Facebook Advertising. My answer to them was NO. They were not sure of my reasoning, so I told them if they do the bookkeeping themselves, it was their choice but to keep this in mind (and this applies to any kind of expense – not just facebook expenses):
- You can claim GST on expenses if you are registered for GST and you have a valid tax invoice
- The valid tax invoice must show the ABN of the supplier
- The valid tax invoice must say how much GST is included
- The valid tax invoice must be kept for a period of at least 4 years.
The business owners quickly realised that Facebook is not registered for GST in Australia, there was no valid tax invoice and there was no GST on the expense they had paid.
I want to give a practical example of what could happen if you incorrectly claim GST on Facebook advertising costs.
Lets just pretend you spend $33 per month on Facebook advertising. That could mean you are claiming $9 GST per quarter when you should be claiming nothing. In 2014 the ATO decide to Audit your Business Activity Statement for the quarter ended 30 September 2010. They realise you have ignored the tax law and impose two penalties – the first is for incorrect statement. This penalty can be up to 75% of the error. So a mere $6.75. They can also charge interest on late payment of this $6.75 – and they will charge this interest from 2010 until the date of the audit in 2014. So the interest on the $6.75 could be approx. $3 for the 4 years. So you will need to pay back the $9 incorrectly claimed plus the fee of $6.75 and interest of $3 = so the tiny $9 error will cost you $18.75.
And this is only one incorrect item….imagine if you are incorrectly claiming lots of GST when you are not entitled?
Now – these numbers might still seem small. But imagine the delight on the tax office auditors face when they find you have done something wrong. Do you think they won’t go on to audit other quarters, and potentially audit your end of year tax return? That $18.75 small fee you thought nothing of will soon add up. Not just in monetary value, but you have to factor in your time to fix the error, time taken to lodge amended activity statements, time taken to lodge amended income tax returns, and to ensure any future periods are calculating correctly. Headache or what?
What is your time worth? More than $18.75? If it is, I urge you to review your GST and what you are claiming.
If you are unsure – that is fine. That is what I am here for.
If your software is based on the cloud (Xero, Quickbooks Online, MYOB, Saasu) I can review your data file without you losing any downtime. I can provide a monthly review – or a quarterly review to give you peace of mind – and provide a written report of recommendations.
Don’t let the ATO be the person to find any errors in your data.