In an update on its website, the Tax Office revealed that businesses that import or export in Australia — whether that be goods or services — have a few particular GST obligations.
And, the ATO said, “our compliance activities tell us that most errors are made by small to medium businesses”. It follows last month’s revelation of the common errors made when using the Small Business Superannuation Clearing House.
At least one of these may involve businesses charging more GST than is actually required.
These mistakes, it said, include:
- not correctly accounting for the on-sale of imports
- the application of GST on assembling and installing imported products
- incorrect classifications of exports
- non-deductible expenses related to non-residents of Australia
- not voluntarily reporting identified mistakes
On-selling imported goods
According to the ATO, some businesses are failing to account for the on-sale of imported goods on the regular BAS lodgements.
“When goods are on-sold, you are required to report the sale and account for the GST, even if you have paid GST on the importation,” it said.
“The on-sale is to be reported on your BAS and GST is payable, unless the supply is GST-free or [is] input taxed.”
Businesses that are registered for GST and that import for a legitimate business purpose are eligible to claim an input tax credit, the ATO noted.
Installation and assembly of imports
This is where some businesses may be charging GST needlessly.
The ATO said that “there may be instances where an overseas business will incorrectly charge GST on importations where they install or assemble goods”.
“A supply of goods to an Australian business where the supplier installs or assembles the goods in Australia, but does not import the goods into Australia, is not connected with Australia for non-resident suppliers,” it said.
“Therefore, the non-resident supplier will not be subject to GST on these transactions.”
The ATO has a dedicated information page on its website for the GST treatment of cross-border transactions between businesses.
Incorrect classification of exports
A tricky technicality can apply to whether the business is considered to be an exporter, and hence impact the application of GST.
“It is important to understand how goods are exported out of Australia and the international commercial (Inco) delivery terms that apply,” the ATO said.
Changes to the Inco delivery terms, it said, can actually change the classification status of the business. It cited the example of delivered duty being paid to ex-works, which may mean the business is no longer considered to be the exporter, and hence making GST applicable.
Non-residents of Australia and non-deductible expenses
There are certain purchases for non-resident businesses for which they are not entitled to claim GST credits, even when they are registered for GST in Australia, the ATO said.
“Under the GST law, you cannot claim a GST credit for expenses that are non-deductible for income tax purposes,” it warned.
This includes claims for entertainment expenses — including entertainment provided to employees — as well as purchases that are deemed to be private and not business-related.
However, the ATO said that this may be different if the business is also registered for fringe benefits tax (FBT).
Correct mistakes before the ATO discovers them
Perhaps the most costly, and avoidable, mistake businesses make is not reporting errors when they are first discovered.
The ATO urged businesses to voluntarily disclose any mistakes they identify, and that doing so can result in reduced penalties than if the mistake is picked up by the ATO.
Voluntary disclosures cover a range of tax-related inputs, including income and deductions, tax credits and the provision of other information that may be considered false or misleading.
Information on how to lodge a voluntary disclosure is available on a dedicated page of the ATO’s website.