If the debit error time limit has expired, you need to revise the activity statement that contains the error if the period of review (four years and one day) for that statement has not yet expired.

You cannot correct a credit or debit error on a later activity statement if any of the following apply:

• the GST error relates to a matter that is subject to a compliance activity as advised by the ATO or if the GST error was made in a reporting period that is subject to compliance activity
• you have corrected the GST error in another reporting period
• if the debit error was as a result of recklessness or intentional disregard of a GST law.

How to make corrections on a later activity statement

To correct a GST error, you include the correction amount at boxes 1A or 1B. If the net result of the error(s) is that you have paid too little GST include the amount at 1A, alternately if the net result is that you have overpaid GST include the amount at 1B. You may also reflect the correction at boxes G1, G2, G3, G10 or G11 as appropriate. You must keep records and other relevant information to explain the correction.

Definition of a GST adjustment

You make a GST adjustment on your activity statement if a later event changes the amount of GST payable for a sale or the GST credit you are entitled to for a purchase. For example:

• an event occurs that changes the price of a sale or a purchase (for example, you provide a discount to a customer or receive a rebate from a seller)

• a taxable sale or creditable purchase you made is cancelled (for example, where goods are returned)
• you write off a bad debt or you recover a previously written-off bad debt
• your actual use of a purchase or importation for business purposes differs from your intended use
• you make or receive a third party payment
• you cancel your GST registration
• you sell something that you used to make financial supplies.

Making GST adjustments is different from correcting GST errors made on an earlier activity statement. A GST adjustment relates to a reported sale or purchase that was correct at the time of lodgment, whereas a GST error relates to an amount that was incorrect at the time of lodgment.

GST restricted refunds

A GST restricted refund occurs where you make an overpayment of GST but you are not entitled to a refund if it would result in a windfall gain.

This can occur when you incorrectly treat a GST-free or input taxed sale as taxable or when you miscalculate the GST payable (for example, miscalculating the GST for the sale of a property under the margin scheme) or for any other reason. The refund of the excess GST is restricted if you included the incorrectly charged GST in the sale price and did not reimburse it to your customers. This is to ensure that businesses do not get a windfall gain.

However, if you would not receive a windfall gain you may be entitled to a refund:

• If you have not included the GST in the sale price – for example, you did not charge GST on the sale but incorrectly reported the sale as taxable on your activity statement. In such a case, you are entitled to a refund of excess GST. You can claim the refund by following the steps for correcting a GST error if you meet all the other conditions.
• If you reimburse the amount of excess GST to your customers, you can claim a refund. In these circumstances you do not treat the refund as a correction of a GST error. In most cases, you claim a refund by making a decreasing adjustment in the reporting period in which you make the reimbursement.

Example: GST restricted refund on overpaid GST

Denise paid $3000 in GST on 21 July 2021 for her June 2021 monthly reporting period. In August, Denise discovered that some of the sales included on her June activity statement were actually GST-free sales and that she had consequently overpaid GST and incorrectly charged her customers. Her assessed GST net amount should have been $2,500.

In September 2021, Denise reimbursed the excess GST to her customers and as a result, she became entitled to a refund of $500. To claim the refund, Denise made a decreasing adjustment of $500 in her September 2021 activity statement.

How to correct GST errors on a later activity statement

XYZ Pty Ltd has a current GST turnover of less than $20 million. While preparing its activity statement for the June 2022 quarterly reporting period (being lodged on time), it discovers that it failed to claim a GST credit for a purchase it was entitled to claim for an earlier reporting period. XYZ Pty Ltd was entitled to claim the GST credit in the September 2020 reporting period.

XYZ Pty Ltd also discovers that it made two GST errors in working out its GST net amount for earlier reporting periods.

The first GST error is a $15,000 debit error made in working out the net amount for the March 2021 reporting period. XYZ Pty Ltd lodged its March 2021 activity statement on 28 April 2021.

The second GST error is a $7,000 credit error relating to a decreasing GST adjustment. XYZ Pty Ltd forgot to take into account the GST adjustment in working out its net amount for the June 2020 reporting period.

XYZ Pty Ltd lodged its June 2020 activity statement on 28 July 2020.

XYZ Pty Ltd is not subject to any compliance activity at the time of preparing its activity statement for the June 2022 reporting period and has not taken the GST errors into account in working out its GST net amount for another reporting period.

As the GST credit that XYZ Pty Ltd failed to claim in the September 2020 reporting period is not a GST error, it does not need to work out whether conditions for correcting a credit error are satisfied. XYZ Pty Ltd can claim the GST credit in the June 2022 reporting period.

XYZ Pty Ltd works out whether it can correct the GST errors in its June 2022 quarterly reporting period as follows: