Incorrectly charged GST
Excess GST is when you incorrectly treat something as taxable and include GST for it in your business activity statement (BAS).
This may occur where you incorrectly:
- treat something which is not a sale as a taxable sale
- treat a GST-free or input taxed sale as a taxable sale
- report a higher amount of GST on a BAS due to miscalculating your GST liability.
The excess GST is treated as correctly payable on a taxable sale under the law (and we cannot refund it to you) where you have passed on the excess GST to your customer in the price they paid for the sale and you have not reimbursed them.
Passed on GST
We consider GST is passed on to the customer for a taxable sale even if you may not have separately recorded adding an additional GST of 10% to the price you charged your customer. Generally, where you have treated a sale as a taxable sale you will have passed on GST.
If you have issued a tax invoice that includes an amount of GST, this is relevant evidence that you have passed on the GST.
While there is a general expectation that excess GST has been passed on to the customer, the particular facts and circumstances of an individual case may be outside the ordinary and demonstrate that excess GST has not been passed on.
If you have not passed on the excess GST to your customer, and you have clear evidence to support this, the excess GST you reported to us will be a GST error. You can correct the GST error on a later BAS, or by revising the earlier BAS where the error was made.
Reimbursing customers
If you have passed on excess GST and you reimburse the customer, you will have a decreasing adjustment that you make to recover the excess GST you included in your earlier BAS. The adjustment is made in the BAS for the reporting period in which you reimbursed the customer. Making GST adjustments is different from correcting GST errors made on an earlier BAS.
If you don’t reimburse excess GST, you cannot make adjustments to recover the excess GST reported to us. However, you can request us to allow a refund.
If the customer is registered for GST and has claimed a GST credit for their purchase, they will have an increasing adjustment equal to the amount of the reimbursement. The increasing adjustment is made on their BAS in the reporting period in which they received the reimbursement.
There is no requirement in the law for you to reimburse excess GST to your customers. It will be a matter for you and your customers to consider the circumstances and the terms of any sale agreements.
For more information, see:
- Goods and Services Tax Ruling GSTR 2015/1 Goods and services tax: the meaning of the terms ‘passed on’ and ‘reimburse’ for the purposes of Division 142 of the A New Tax System (Goods and Services Tax) Act 1999
- Making adjustments on your activity statements
Administration fee for reimbursing customers excess GST
You may choose to charge your customer an administration fee for the cost of processing a reimbursement of excess GST, and offset this against the amount you reimburse to your customer. However, you will only be entitled to a full refund of the excess GST from us if both:
- the administration fee you charge your customer is based on reasonable administration costs incurred in processing the reimbursement of the excess GST
- the customer agrees to the administration fee.
If the customer does not agree to the administration fee, or the fee is not based on a reasonable administration cost incurred for processing the reimbursement, you will not be entitled to a full refund of the excess GST. In these circumstances, you will only be entitled to a refund of the amount of GST actually reimbursed to the customer.
Discretion to refund excess GST not reimbursed to customer
We have a discretion to provide a refund of excess GST not reimbursed to the customer. This discretion applies only in very limited circumstances.
We cannot allow a refund of excess GST if we consider refunding the excess GST would give you a windfall gain.
A windfall gain is an unearned or unexpected gain. Where you have passed on the excess GST to your customer in the price you charged, any refund of that excess GST to you will usually result in you receiving a windfall gain.
Requesting the discretion
Your application to request we exercise our discretion to refund the excess GST you have passed on and not reimbursed to the customer must be in an approved form.
To be in an approved form, your application must include your:
- Australian business number (ABN)
- name or business name
- postal address
- phone number
- explanation of why a refund of excess GST that you did not reimburse your customer would not result in you receiving a windfall gain
- copies of any documents supporting your application
- agent’s full name and registered agent number – if the document is lodged by a registered tax or BAS agent, a signed and dated declaration must be present to show that the
- document has been prepared in accordance with the information supplied by the entity
- agent has received a declaration from the entity stating that the information provided to the agent is true and correct
- agent is authorised by the entity to give us the document
- signed and dated declaration as follows
- I declare that all the information I have given in this letter, including any attachments, is true and correct
- your signature
- the date.
Additional information required
To decide whether the discretion should be exercised, we need to establish whether:
- there is an amount of excess GST
- the excess GST has been passed on.
As part of the application, you will also need to address the following factors:
- how the excess GST arose
- your pricing policy and practice
- the documentary evidence surrounding the transaction
- any other relevant circumstances.
You should also include:
- information to help us determine the correct GST treatment of the transaction
- any other relevant supporting documentation such as tax invoices, sale contracts, internal pricing policy documents and relevant correspondence between parties.
How to apply
You can apply for the discretion using Online services for business or Online services for agents, and selecting:
- Communications tab
- Secure mail or Practice mail
- New message
- in the Topic field, select View more topics from the drop-down menu
- in the Other topics list, select GST
- subject Other sales, Purchases or Tax invoice enquiry from the drop-down menu
- attach your application, complete the declaration, and click Submit.
Your registered agent can also apply on your behalf using Online services for agents.
Source: ato.gov.au November 2024
Reproduced with the permission of the Australian Tax Office. This article was originally published on https://www.ato.gov.au/businesses-and-organisations/gst-excise-and-indirect-taxes/gst/in-detail/managing-gst-in-your-business/reporting-paying-and-activity-statements/correcting-gst-errors/incorrectly-charged-gst
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