Common GST Mistakes: Avoid These 10 Costly Errors

The Error: Continuing to operate without GST registration after reaching the threshold ($75k AUS / $60k NZ).

Why It Happens: Not tracking turnover, forgetting the deadline, or hoping the ATO/IRD won't notice.

Consequences:

• Backdated registration with GST owed from when you should have registered
• Penalties up to $300+ for late registration
• Interest charges on unpaid GST
• Cannot claim GST credits on expenses during unregistered period

How to Avoid:

• Track monthly turnover in spreadsheet or accounting software
• Set alert when you hit 80% of threshold ($60k AUS / $48k NZ)
• Register within 21 days of crossing threshold
• If unsure, register voluntarily to be safe

The Error: Claiming GST credits without proper tax invoices (missing ABN/IRD, no GST amount shown, or lost receipts).

Why It Happens: Lost paperwork, not understanding tax invoice requirements, or assuming any receipt is valid.

Consequences:

• Cannot claim GST credits without valid tax invoice
• ATO/IRD may disallow thousands in claimed credits
• Increased tax liability when disallowed

How to Avoid:

• Use receipt scanning apps (Hubdoc, Dext, Expensify)
• Verify invoices have: supplier ABN/GST number, GST amount, description, date
• Store digital and physical copies (5-7 year requirement)
• Request tax invoices immediately if missing

The Error: Claiming input tax credits on residential rent, wages, bank fees, or other exempt supplies.

Common Examples:

• Home office rent (residential rent is exempt)
• Employee wages (no GST on wages)
• Most bank fees and loan interest
• Insurance premiums (many are exempt)
• Basic food items (AUS only—taxable in NZ!)

Consequences: Credits disallowed during audit, must repay with interest + penalties.

How to Avoid:

• Learn what's GST-free vs exempt vs taxable
• Check supplier invoices—if no GST shown, don't claim it
• Use accounting software that flags exempt categories
• When unsure, consult ATO/IRD guides or accountant

The Error: Forgetting to add GST to invoices or quotes, especially after just registering.

Why It Happens: New to GST, using old invoice templates, or absorbing GST to avoid price increases.

Consequences:

• You still owe GST to ATO/IRD even if you didn't charge customer
• Can't go back and re-invoice customers in most cases
• Effectively lose 10-15% on those sales

How to Avoid:

• Update all invoice templates immediately after registration
• Set accounting software to automatically add GST
• Include ABN/GST number on all invoices
• Review quotes before sending to ensure GST included

The Error: Lodging BAS (Australia) or GST returns (New Zealand) late or not at all.

Why It Happens: Forgetting due dates, waiting for all receipts, cash flow issues, or overwhelmed by paperwork.

Consequences:

• Failure to lodge penalty: $313 per missed return (AUS)
• Late payment interest: Compounding daily
• Audit trigger: Repeated late returns flag your business

How to Avoid:

• Set calendar reminders 2 weeks before due date
• Use registered tax agent (extends deadlines by 2-4 weeks)
• Lodge on time even if you can't pay—arrange payment plan
• Automate with accounting software linked to ATO/IRD

The Error: Claiming 100% of GST on items used for both business and personal (car, phone, home internet).

Why It Happens: Not understanding apportionment rules or hoping ATO/IRD won't check.

Consequences:

• Overclaimed credits must be repaid
• Penalties for recklessness (up to 50% of overclaim)
• Audit of all claims, not just the error

How to Avoid:

• Keep logbook for vehicles (12 weeks minimum)
• Calculate business-use percentage for mixed items
• Example: 70% business use → claim 70% of GST only
• Use separate bank accounts/credit cards for business

The Error: Using wrong formulas, such as multiplying by 0.10 to remove GST instead of dividing by 1.10.

Common Calculation Errors:

• $110 × 0.10 = $11 ❌ (Wrong! GST is $10)
• $110 - 10% = $99 ❌ (Wrong! Base is $100)
• Correct: $110 ÷ 1.10 = $100, GST = $10 ✅

How to Avoid:

• Use GST calculator or accounting software
• Learn correct formulas: Total ÷ 1.10 (AUS) or ÷ 1.15 (NZ)
• Verify: Base × 1.10 should equal total

The Error: Choosing wrong accounting method or reporting GST incorrectly for chosen method.

Key Differences:

• Cash: Report GST when money received/paid (better for most small businesses)
• Accrual: Report GST when invoice issued/received (must use if turnover >$10m AUS)

Common Mistake: Using cash method but reporting based on invoices issued (mixing methods).

How to Avoid:

• Choose cash method if eligible (simpler, better cash flow)
• Stick to your chosen method consistently
• Set accounting software to match your registered method

The Error: Claiming input tax credits for expenses incurred before your GST registration date.

Rule: Generally, you can only claim GST on purchases made after registration (with some exceptions for stock on hand).

Exception: Stock and capital assets purchased up to 6 months before registration may be claimable.

How to Avoid:

• Only claim GST from registration date forward
• For stock/assets: check ATO/IRD rules on pre-registration claims
• Keep clear records of what was purchased when

The Error: Charging GST on exports (should be 0%) or not paying GST on imports.

Correct Treatment:

• Exports: Zero-rated (0% GST), still claim input credits
• Imports: GST payable at border or via reverse charge

How to Avoid:

• Learn export/import GST rules
• Keep export documentation for zero-rating proof
• Factor import GST into pricing and cash flow