Most Common GST Mistakes Small Businesses Make (And How to Fix Them Before ATO Audits)
If you run a small business in Australia, dealing with GST can sometimes be confusing. Even simple mistakes can lead to ATO penalties, interest charges, or an audit. The ATO has pointed out that small businesses account for a large portion of the “tax gap,” which is the difference between what should be paid and what is actually paid.
According to the ATO’s latest Small Business Tax Gap Report, the small business tax gap is about 10 to 12%. GST errors are one of the most common causes. This means the ATO is now checking GST claims more closely than ever before.
This blog explains the most common GST mistakes small businesses make, why they occur, and how you can fix them before the ATO notices.
This guide is for all small businesses in Adelaide, Melbourne, Sydney, Perth, Brisbane, Canberra, Darwin, and Tasmania.
1. Claiming GST Credits on Non-GST Items
This is the most common mistake small business owners make. Some business expenses do not include GST, but many people still claim credits for them by accident. Common non-GST items include:
- Bank charges
- Interest
- ASIC fees
- Government fees
- Some insurance products
- Overseas purchases with no GST
The ATO states that a GST credit can only be claimed if GST is included in the price and the supplier is GST-registered.
How to fix it:
Check every invoice for the words “GST” or “Tax Invoice.” If GST is not shown, do not claim the credit.
2. Claiming GST on Private or Personal Expenses
Many small business owners mistakenly claim GST credits on expenses like:
- Meals
- Personal fuel
- Household goods
- Holidays
- Family expenses
The ATO has stated that GST credits can only be claimed on purchases related to the business.
How to fix it: Use separate bank accounts for business and personal spending. This reduces mistakes and protects you during an audit.
3. Forgetting to Charge GST When You Should
If your business makes $75,000 or more per year, you must register for GST. However, many new business owners often forget to register on time, charge GST on their invoices, or submit BAS statements. The ATO can impose penalties and may even backdate GST obligations.
Important ATO Data: Every year, thousands of businesses are fined for late GST registration after their income exceeds the $75,000 mark.
How to fix it: Track your monthly income. If you get close to a $75,000 turnover, register early or consult with a BAS agent.
4. Incorrect GST on Mixed-Use Items (Business + Personal)
Some items are used for both business and personal purposes. Example: phone bill, car expenses, home internet. ATO rules say you can only claim the business-use portion. But many people claim 100%, guess the percentage, or forget to adjust the amount.
ATO Fact: One of the most common GST issues found in reviews is claiming the full GST on mixed-use expenses without supporting records.
How to fix it: Use a simple percentage method. Example: If you use your phone 60% for business and 40% personal, claim only 60% of the GST.
5. Claiming GST Without a Valid Tax Invoice
The ATO requires a proper Tax Invoice for any purchase over $82.50, including GST, before you can claim the credit. A valid tax invoice must show:
– Supplier’s ABN
– GST amount
– Total price
– Description of goods/services
– Supplier name
– Date
Many small businesses lose money by:
– not collecting invoices
– using receipts without GST
– claiming credits without correct records
How to fix it: Always request a Tax Invoice. Without it, the ATO can deny your claim.
6. Wrong GST Coding in Xero, MYOB, QuickBooks
This is very common.
Small errors in bookkeeping software lead to:
- overclaiming GST,
- underclaiming GST,
- incorrect BAS amounts,
- ATO reviews.
The ATO has reported that software coding errors are a major cause of GST mistakes for small business owners.
How to fix it:
Have a registered BAS agent or tax accountant prepare or check your BAS.
7. Charging GST When You Don’t Need To
Some businesses do not need to charge GST at all. These include:
– businesses earning less than $75,000
– GST-free industries, such as health, education, and some food
Some people charge GST by mistake. This can:
– raise prices
– lead to compliance problems
– require the business to lodge BAS without need
How to fix it:
– Learn if your products or services are GST-free.
– Ask your accountant if you are unsure.
8. Not Lodging BAS on Time
Late BAS lodgement leads to:
- Failure To Lodge (FTL) penalties,
- general interest charges,
- ATO warnings,
- and the risk of a BAS audit review.
One penalty unit is currently $330 (2024-25 rate).
Even small businesses can be charged if their BAS is late.
How to fix it:
Use a BAS agent; they receive extended deadlines through ATO systems.
9. Not Keeping Records for 5 Years
ATO law requires businesses to keep GST and BAS records for five years. Records include invoices, receipts, bank statements, payroll documents, GST calculations, and BAS paperwork.
How to fix it: Store everything digitally or in cloud accounting software.
10. Not Reconciling Before Lodging BAS
Many businesses submit BAS without checking their bank accounts, invoices, payroll, and expense receipts. This leads to mistakes that can prompt ATO reviews.
How to fix it:
Do a monthly reconciliation. It keeps BAS clear and simple.
11. The Hidden Risk: ATO Audit Triggers
The ATO checks GST accuracy through data matching. The risk of an audit increases if:
– GST credits seem too high
– Income and GST amounts do not match industry standards
– Late BAS lodgement happens often
– Personal expenses show up in GST claims
– Business turnover suddenly increases
Most audits begin with a basic ATO review letter requesting invoices.
12. How AMA Accountants Helps You Avoid GST Mistakes
We help small businesses in Adelaide, Melbourne, Sydney, Perth, Brisbane, Canberra, Darwin, and Tasmania stay compliant and avoid issues with the ATO. Our team supports you with:
– GST reviews
– BAS lodgement
– Correct GST coding
– GST registration advice
– Record-keeping support
– ATO correspondence and assistance
Fix GST Mistakes Before the ATO Calls
Most GST mistakes occur because business owners are busy. The ATO is increasing its checks every year, especially for small businesses. Fixing mistakes early can help you:
– avoid penalties
– avoid interest charges
– stay compliant
– reduce audit risk
– protect your business
If you want peace of mind, working with a registered BAS agent or tax accountant is the safest choice.
📞 Phone: +61 (0)420 529 890
📧 Email: finance@amaaccountant.com.au
Authored By Amit Chugh
Partner, CPA & Registered Tax Agent
Your Trusted Accountant for Adelaide, Melbourne, Sydney, Brisbane & Across Australia
Amit Chugh is a Partner at The AMA Accountant and a highly respected CPA & Registered Tax Agent with a proven track record of delivering exceptional accounting and taxation services to individuals, businesses, and corporations across Australia.
Amit Chugh is a Partner at The AMA Accountant and a highly respected CPA & Registered Tax Agent with a proven track record of delivering exceptional accounting and taxation services to individuals, businesses, and corporations across Australia.
With over 25+ of professional experience, Amit has helped thousands of clients streamline their finances, optimise tax returns, and ensure full compliance with Australian Taxation Office (ATO) requirements. His client base spans Melbourne, Brisbane, Sydney, Tasmania, Perth, Adelaide, Darwin, Canberra, and regional hubs including Prospect, Modbury, Mawson Lakes, Woodville, Mount Gambier, Victor Harbor, Whyalla, Port Lincoln, Murray Bridge, Port Augusta, Gawler, and Port Pirie.
