Businesses that make a GST mistake that doesn’t result in less tax revenue flowing to the taxman will be less likely to face a penalty under new guidelines issued this week.
The tax office has the power to waive or lower the penalty charges it applies to businesses that make tax errors in limited circumstances, but some business owners and tax practitioners believed the power was not being applied consistently in relation to GST errors.
The tax office has moved to assuage those concerns by issuing an internal practice statement to staff making it clear that where a business makes a genuine GST mistake that is revenue neutral it should receive at least partial remission of penalty charges.
Examples of where a business can apply for a remission of penalty charges under the statement include:
- Where the wrong entity accounts for GST within a corporate group.
- Where a business fails to include GST in the sale of a product, but the party receiving the supply would have been entitled to claim a full input tax credit for that GST anyway.
- Where companies mistakenly deal with each other as though they are members of a corporate group for GST purposes.
Sharon Burke, a partner with PKF Enterprise Advisers, says the complexity of GST laws means genuine errors by small and medium sized business owners are common.
“GST may have been around for eight years but many business owners are still quite unaware of their obligations, especially in relation to property transactions, and the ATO does a lot of audit activity in that area,” Burke says.
The new practice statement is a welcome formalisation of tax office practices in the area, Burke says.
“In practice, we have generally being successful when we have applied for remissions, but this just confirms that where genuine mistakes are made that don’t have revenue consequences, a partial or full remission should be available,” she says.