Australian Taxation Office Identifies Common BAS Preparation Mistakes
Tax matters are mostly too complex to be handled by non-accountants. Being aware of the common BAS preparation mistakes can spare your business from the penalties and from the government’s prying eyes.
What is a Business Activity Statement (BAS)
Business Activity Statement (BAS) is defined by the Australian Taxation Office as a monthly or quarterly tax reporting requirement for businesses.
Aside from reporting, it is also used for paying Goods and Services Tax (GST), Pay As You Go (PAYG) installments, PAYG withholding tax and other tax obligations. BAS is submitted to the Australian Taxation Office (ATO), who is in-charge of reviewing the contents and accuracy of the documents.
Instalment Activity Statement Vs. Business Activity Statement
Activity statements are pre-printed documents released by the ATO to gather information in preparation and lodging of tax liabilities of businesses, which are filed as Instalment Activity Statements (IAS) or BAS.
The IAS is a quarterly lodged document summarizing the amounts of PAYG instalments, PAYG withholding and ABN withholding. This is only applicable to businesses that are not registered for the GST but are required to settle their PAYG withholding tax monthly since they are a medium withholder.
On the other hand, the BAS are used by businesses to report their tax obligations and entitlements which are settled on a monthly or quarterly basis.
Common BAS Preparation Mistakes
During the reviews, the ATO notices mistakes committed in BAS preparation and lodging. These include wrong GST credits, incorrectly claiming GST credits on super or salary payments, and claiming a credit without a valid tax license.
Here’s a list of the common mistakes noticed by the Australian Taxation Office:
- Claiming a credit without a valid tax invoice.
- Wrongly claiming GST credits on super or salary payments.
- Erroneous claims for GST-free purchases.
- Claiming the total credits for a car bought for more than the luxury car limit.
- Incorrectly claiming GST credits on bank fees.
- Mistakenly putting in a claim for credits from government charges such as land tax, council rates.
- Not reporting the GST on some government grants and incentive schemes that are received inclusive of GST.
- Incorrectly claiming full credits on entertainment expenses when the business has elected for FBT purposes to use the 50/50 split method (which allows only 50% of input credits to be claimed).
- Wrongly claiming a credit on the full cost of an insurance policy.
- Sole traders and partnerships not apportioning input tax credits on expenditure that is for partly business and partly private use, such as vehicle expenses.
Though they seem minimal, these tax miscalculations can translate to hefty fees.. For example, the ATO was able to raise an extra AUD 363 Million in GST liabilities only. Just imagine how much more it would cost to make bigger mistakes than these!
Mistakes committed in the BAS preparation can be avoided especially when you accurately keep your books up-to-date and by regularly keeping tabs on your numbers. Working smart can be a useful trick in these situations so make sure to have the right cloud accounting software and the right experts to get you through these taxing seasons.
This post was first published 24 April 2015 and edited 11 November 2020. Edited by: Maria Katrina dela Cruz