The Tax Office is aware that when the systems businesses use for capturing and recording goods and services tax (GST) information fail, often these businesses will end up reporting incorrect amounts of GST, and make what can be potentially costly errors.

Over many taxation cycles, the Tax Office says it has come to realise that businesses can end up with inadequate GST data systems simply from not having these set up properly to start with, or because the business owner leaves such processes unchecked for too long. To help control this inherent risk for small businesses, the Tax Office recently issued a “business systems health checklist” to enable businesses to review their systems, processes and controls.

The Tax Office has found that businesses going through change are most at risk of incorrectly reporting their GST. This can include businesses that are:

• growing rapidly
• restructuring
• going through a merger or de-merger
• installing new accounting software
• experiencing a change in accounting staff.
• It says a business with out-of-date systems or inadequate control points is more likely to:
• report incorrectly, resulting in the need to review and amend activity statements
• have debt and lodgement difficulties
• have an increased chance of review by the Tax Office.

In a recent financial year, the Tax Office identified $21 million in unreported GST liabilities after contacting 503 small and medium enterprise (SME) taxpayers who were at risk of incorrectly reporting GST.

The table below shows the common errors the Tax Office found in its review, the extent to which these mistakes were shown to occur with small businesses, and the amount of GST found to be owed.

The Tax Office has therefore developed its “business systems health checklist” to help small businesses avoid extra liabilities as a result of genuine mistakes.

The checklist prompts business owners to check that their systems:

• correctly classify all sales and purchases
• can correctly classify mixed supplies
• do not leave incomplete information on activity statements
• track the flow of invoices to make sure GST credits are claimed on time
• adjust prices to include GST
• manage cash flow and reflect the correct financial position, and
• accurately track the GST paid and charged for both electronic and paper-based transactions.

Doing a business systems health check can streamline businesses reporting and reduce the possibility of errors, the Tax Office says. If a business owner discovers a discrepancy or error in reported GST after reviewing their business systems and controls, the Tax Office encourages the making of a voluntary disclosure. It says reduced penalties will likely apply if all the cards are on the table before an audit is commenced.