Do you own a commercial business and find GST (Goods and Services Tax) regulations confusing?
Are you unsure about the common mistakes that business owners often make when it comes to GST?
Well, being a reliable accounting company in Australia, KPG Taxation knows that businesses of all sizes have made costly mistakes when it comes to GST complaints.
Even seemingly small errors can lead to interest charges, penalties from the ATO, and a tarnished reputation.
Therefore, to avoid them, we are sharing this blog that contains some of the most common GST mistakes that commercial business owners should be aware of and avoid.
Table Summarising The GST Treatment Of Some Common Transactions
Transaction | GST Treatment |
---|---|
Residential Rent | No GST |
Commercial Rent | GST Applicable |
Council Rates | No GST |
Body Corporate Fees | GST Applicable |
ASIC Filing Fees | No GST |
Professional Association Fees | GST Applicable |
Bank Account Fees | No GST |
Merchant Fees | GST Applicable |
Fines and Penalties | Generally No GST |
Donations to DGRs | No GST |
Gift Vouchers (Sale) | No GST |
Entertainment Expenses | Generally No GST |
Accredited Training Courses | No GST |
Non-Accredited Training Courses | GST Applicable |
Insurance Premiums | GST Applicable |
Insurance Stamp Duty | No GST |
Insurance Recoveries | No GST |
Understanding The Difference - Residential vs. Commercial Rent
Many business owners get confused when it comes to rent and GST.
Here’s the key difference:
- Residential Rent: If you’re renting a space for your home office, the rent you pay is not subject to GST. This means you don’t need a tax invoice to claim it as a deduction on your income tax return (but always double-check with your accountant first!).
- Commercial Rent: On the other hand, if you’re leasing a commercial property for your business, the rent does include GST. In this case, you’ll need a tax invoice from your landlord to claim the GST component on your Business Activity Statement (BAS).
Rates And Stamp Duty
For commercial property owners, the GST implications for building costs and rates can be confusing.
Here’s a table to help you understand better:
Note: If you charge these rates to your tenants, remember to add GST on them in your tax invoice.
Service | GST Applicable? |
---|---|
Council Rates | No |
Body Corporate Fees | Yes |
Water Rates | No |
Stamp Duty | No |
Land Tax | No |
Real Estate Management Fees | Yes |
Business Registration Fees
There are various business registration fees, and each has its own GST story:
- ASIC Filing Fees: These fees, which cover company registration and business names, are not subject to GST.
- Professional Association Annual Registrations: If your business belongs to guilds or professional associations their annual registration fees you will have to include in GST.
Bank Fees, Merchant Fees, and Credit Card Charges
These fees from financial institutions have different GST implications. Bank account fees like overdraft charges are GST-free, but merchant fees for credit card payment facilities include GST. Credit card charges may or may not attract GST depending on whether the underlying purchase is subject to GST.
Interests, Fines, And Penalties
Most fines and penalties from government bodies like the ATO and city councils do not include GST and are not tax-deductible. However, late payment interest or fees charged by suppliers may or may not include GST based on the nature of the underlying supply.
Donations And Gift Vouchers
Donations to registered Deductible Gift Recipients (DGRs) are GST-free and tax-deductible, but payments to non-DGR charities should be treated differently for GST and tax purposes.
The sale of gift vouchers should be recorded as a liability, not revenue, and does not attract GST until the voucher is redeemed for goods or services.
Entertainment And Meals
If you pay for a meal outside the office for clients or staff, it’s considered entertainment. Entertainment expenses are generally not tax-deductible business expenses. While the meal receipt may include GST, you cannot claim it on your BAS. Therefore, record these transactions as not subject to GST.
Training Courses - Accredited vs Non-Accredited
Training Courses Accredited vocational education courses delivered by Registered Training Organisations (RTOs) are GST-free, but non-accredited commercial training courses attract GST.
Insurance
Different components of insurance policies have varying GST treatments. Premiums, levies, admin charges, and broker fees include GST, but stamp duty is GST-free. Insurance recoveries are also GST-free.
Motor Vehicle
Purchases, Loans, and Leases The GST implications of motor vehicle acquisitions depend on factors like whether it is a commercial or non-commercial vehicle, new or second-hand, the purchase price versus the ATO’s luxury car limit, and the financing method (e.g., loan, lease, or cash purchase).
Other Common GST Mistakes
- Setting up incorrect tax codes in accounting software
- Claiming input tax credits without a valid tax invoice
- Using the wrong accounting method (cash or accruals)
- Failing to report GST on government payments or asset sales
- Not apportioning input tax credits for private use (for sole traders and partnerships)
- Incorrectly calculating PAYG instalment income
- Reporting capital asset purchases on the wrong BAS label
Handling your business GST matters can be tough! But to avoid these mistakes, in particular, you can rely on GST experts at KPG Taxation. Our accountants will ensure that you stay clear of costly mistakes and ensure your business remains GST-compliant.