It’s common for businesses to make mistakes around goods and services tax (GST), even when they’re trying to do everything right. The rules can be nuanced, tax exemptions can get misapplied, and small errors compound fast. Over time, those mistakes can cause a business to overpay the Australian Taxation Office (ATO) or underpay and get hit with penalties.

The good news is that most GST errors are avoidable once you know where they happen and how to catch them early. Below, we’ll discuss the common GST reporting mistakes that businesses make, how these lead to overpayments or underpayments, and what you can do to stay compliant.

What’s in this article?

• What are common GST errors?
  
• How do businesses overpay or underpay GST?
  
• What happens if you don’t report GST correctly?
  
• How can businesses improve GST compliance?
  

What are common GST errors?

GST mistakes usually fall into two categories: reporting GST when it’s not necessary and failing to report it when you should. As a result, businesses either claim credits they’re not entitled to or underpay what they owe, both of which can cause problems with the ATO.

Here are the common mistakes that businesses make.

Claiming GST on expenses that don’t include it

Not every business expense includes GST. The following purchases won’t have GST attached:

• Bank fees and loan interest payments

• Most basic food items and medical supplies

• Water, sewerage, and drainage

• International transport and post

If you claim GST credits on these, you’re trying to recover tax that was never paid. An overclaim can trigger ATO corrections or penalties. Always check whether a supplier invoice includes GST before you claim a credit.

Forgetting to charge GST on taxable sales

Some businesses misclassify taxable sales as GST-free, often without realising it. Common examples include:

• Restaurants that incorrectly treat takeaway meals as GST-free

• Service providers that mistakenly assume some invoices don’t require GST

• Online sellers that misunderstand GST requirements for digital goods

If you miss GST on a sale, the ATO will still expect you to pay it.

Double-counting GST

Reporting the same income or expense twice is a common mistake. Here are some scenarios in which this might occur:

• Financed purchases: A business buys an asset (e.g., a vehicle), claims the full GST credit up front, then also claims a portion of the GST on each finance payment.

• Duplicated sales entries: A business accidentally records the same sale twice and pays double the GST it collected.

These errors overstate your GST and create unnecessary problems by either sending more to the ATO than you owe or claiming a bigger refund than you’re owed.

Using the wrong tax codes or accounting method

Many GST mistakes are the result of using incorrect tax codes or the wrong accounting method:

• Tax codes: If a GST-free sale is coded as taxable in your accounting system, you’ll pay GST unnecessarily. If a taxable sale is coded GST-free, you’ll underpay.

• Accounting methods: Businesses that use the cash accounting method report GST when they get paid, while those that use the non-cash accounting method report GST when invoices are issued. Only businesses with turnover under 10 million Australian dollars (AUD) can use the cash method. Using the wrong method means your figures will be wrong when you lodge your business activity statement (BAS).

Mixing business and personal expenses

Blurring the lines between personal and business spending increases the risk of over- or underclaiming. Smaller businesses are especially vulnerable to these mistakes. Here are some common issues:

• Claiming GST on personal purchases: GST credits apply only to business expenses.

• Not splitting business and personal use: If you buy a laptop and use it 50% for work and 50% personally, you can claim only half the GST.

Ignoring cash transactions or small sales

Every sale counts, even if it’s in cash. Some businesses underreport cash sales, either intentionally or by oversight. The ATO has sophisticated data-matching tools that detect undeclared income. Failing to record even small cash transactions means underpaying GST, and if the ATO catches the mistake, it will charge you penalties.

Misreporting asset sales or capital purchases

If you’re selling a business asset, that transaction usually includes GST. Missing it means an underpayment. Here are some common mistakes:

• Forgetting to report GST on asset sales: If you sell a company car but don’t report the GST portion in your BAS, you’ll underpay the ATO.

• Misclassifying capital purchases: Purchases of assets such as machinery and property should be reported as capital purchases, while regular business expenses should be classified as non-capital purchases. Getting this wrong can throw off your GST reporting.

How do businesses overpay or underpay GST?

GST mistakes generally lead to one of two outcomes: paying too much or too little. Here’s a closer look at each outcome.

Credit errors

Credit errors occur when you overpay because you overreported GST. This means sending the ATO money it is not entitled to.

This can happen when:

• You record sales twice or incorrectly charge GST on GST-free items

• You overstate GST because of errors in your accounting system

• You fail to claim GST credits on legitimate business expenses due to misclassified transactions

Debit errors

Debit errors occur when you underpay because you underreported GST, often due to missing sales or overclaiming credits.

This can happen when:

• You forget to include taxable sales in your BAS

• You claim GST credits on GST-free or personal purchases that aren’t eligible

• You incorrectly treat taxable revenue as GST-free

If the ATO catches discrepancies that cause debit errors, you could be subject to back payments, interest, and penalties.

What happens if you don’t report GST correctly?

GST mistakes won’t immediately cause you trouble, but you do need to fix them. The ATO has clear processes for correcting errors, and the consequences depend on how serious the mistake is and how quickly you address it.

If you find a mistake in a lodged BAS, the ATO often lets you correct the error in a future BAS. Mistakes that can’t be fixed in your next BAS require you to lodge a revision. In these cases, you might need to contact the ATO directly. Whether the error is big or small, keep a record of what went wrong and how you fixed it, in case of future questions.

If you overpaid GST, you can claim the excess back as a credit in a later BAS or request a refund. If you underpaid GST, you’ll need to pay the shortfall – usually with interest calculated from the original due date.

Many businesses can pay what they owe and move on, but repeated mistakes can lead to ATO audits. Deliberate underreporting (e.g., knowingly omitting sales, inflating GST credits) can result in substantial penalties and additional scrutiny.

If you make a mistake, fix it as soon as possible, pay any outstanding GST (including interest), and notify the ATO, if needed. Generally, the ATO is more lenient when businesses voluntarily disclose errors rather than wait for an audit to uncover them.

How can businesses improve GST compliance?

No one wants to overpay the ATO or receive a surprise tax bill. Here’s how businesses can improve their GST compliance.

Use a reliable accounting system and set it up correctly

Your accounting software should be properly configured for GST from Day 1. Set up accurate tax codes for all products, services, and expense categories, ensure the software reflects the correct GST reporting method that you registered with the ATO, and use automation to minimise manual entry mistakes.

Software alone won’t prevent errors, but a well-configured system can catch many before they become costly.

Keep thorough records (and tax invoices)

To claim GST credits, you need a valid tax invoice for every business purchase. Make it a habit to collect all invoices and keep them organised. Without proper documentation, you risk claiming incorrect amounts, missing credits entirely, and running into trouble if the ATO audits your BAS.

Separate business and personal finances

One source of GST mistakes is mixing business and personal expenses. A few simple practices can eliminate this risk:

• Use a separate bank account and credit card for business transactions.

• Keep personal purchases completely out of business records.

• With shared expenses (e.g., a car, a mobile phone), claim only the GST portion related to business use.

This small adjustment saves time, minimises errors, and makes reconciliation easier.

Reconcile GST accounts regularly

Compare your GST collected and GST paid in your accounting system against what you’re reporting to the ATO. If the numbers don’t match, check for missed invoices, duplicate entries, and incorrect tax codes. Regular reconciliations help you catch errors before they become bigger (and more expensive) problems later on.

Stay up-to-date on GST rules

GST regulations change, so staying informed can prevent compliance mistakes. Watch for updates to avoid unintentional non-compliance. Subscribe to ATO updates, attend free ATO webinars, and periodically review industry-specific GST guidelines – especially if your business has complex tax obligations.

Get expert help when needed

If you feel overwhelmed by GST compliance or have additional questions, consider working with a registered BAS or tax agent. They can review your BAS before lodgement to catch mistakes, provide guidance on difficult GST scenarios, such as international sales and asset disposals, and ensure you’re applying the right GST adjustments when needed.