ATO releases GST health check, warns SMEs to watch GST liabilities

Businesses are warned to constantly keep track of their GST affairs or risk being audited, with the tax office releasing a checklist to remind SMEs that compliance is still one of the ATO’s top priorities.

The warning comes after the ATO was provided an extra $445 million earlier this year, in order to crackdown on the cash economy and GST compliance. It expects to gather $3.2 billion in lost revenue as a result.

The tax office said yesterday it identified $21 million in unreported GST liabilities from 503 SMEs in 2009.

Institute of Chartered Accountants tax counsel Yasser El-Ansary says the GST checklist published by the tax office yesterday provides SMEs with some reminders of tasks they should already be completing anyway.

“I think among the SME market there is a real need to ensure that businesses closely monitor their GST compliance. It’s easy to set up your processes and then forget about them, but it’s important to keep an eye on them to make sure all your accounts are correct.”

“You need to continually assess your GST labialise and credits against income and expenditure. If you are constantly watching what you are doing, the chances of finding a problem quicker will be much higher.”

The task list includes the following:

• correctly classify all sales and purchases.
• 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.
• accurately track the GST paid and charged for both electronic and paper-based transactions.

ATO deputy commissioner Shane Reardon says the Tax Office wants all businesses to start paying attention to their GST liabilities, and added that “we don’t want to see businesses in a situation where they incur extra liabilities for making genuine mistakes”.

“We want to help them to make sure their systems are up-to-date, and prevent them making costly mistakes down the track,” he said.

The ATO says businesses experiencing rapid change, which includes sudden growth, a restructure, or turnover of staff, are actually at risk of making several mistakes including having their accounting systems fail, incorrectly completing activity statements, incorrectly interpreting GST legislation, and classifying taxable supplies as GST-free or non-taxable.

As a result, Reardon says businesses should complete the following tasks and make sure all systems are operating correctly.

He also warns these systems can often be ignored when making one-off transactions, and says keeping this checklist for reference will reduce the probability of error.

“Knowing you have control over your systems can also help you manage your internal reporting and help you track where your money is going. It also reduces the likelihood of errors which means it’s less likely your tax affairs will be reviewed.”

Yasser says these are the types of checks businesses should be doing anyway – but they often fall by the wayside when SMEs come on hard times. He says discussing these tasks with an accountant or tax advisor will help keep the business on track.

“It looks to be a pretty sensible document insofar as it provides some good practical advice for businesses, and their obligations. From an operational perspective, in order to make sure GST liabilities are captured, businesses should follow this advice.”