ATO’s primary focus is on businesses that over-claim expenses and GST credits. They see small businesses claiming GST credits and expenses that they are not entitled to and that don’t meet the deductibility rules. To claim a business deduction, an expense should:
- Directly relate to making business income
- Not be private
- Be supported by valid records.
If there’s a mix of personal and business use, you are only allowed to claim the business portion. If you are a GST-registered business, you are allowed to claim GST credits for the GST included in the price of goods and services you purchase for your business. If you claim a GST credit, you are not allowed to claim the GST amount as a deduction in your income tax return. To ensure you are claiming the right expenses and GST credits, you can get help from the best accountant in Melbourne.
What are the most common errors encountered by the ATO?
- Overclaiming deductions and GST credits
It may include unsupported claims and mistakes in tax returns and Business Activity Statements, such as overclaimed expenses and GST credits.
- Incorrect claims
It includes claiming GST credits where GST is not included in the cost.
- Claiming personal expenses
This is where personal expenses are claimed in the wrong way as business deductions or not accurately apportioned.
- Improper record-keeping
It can lead to wrong claims or wrong categorisation of expenses.
To avoid these types of errors, businesses need professional guidance. They can also opt for an accounting firm Port Melbourne, where they will get help from professionals who will be experienced to reduce the chance of making these types of mistakes.
Ways to avoid overclaiming expenses and GST credits
- You are liable to claim tax deductions for most business expenses, especially if they are associated with your business income.
- You must categorise expenses incurred for business purposes rather than mixing business and personal expenses.
- You need to report your business expenses and deductions accurately in your tax return and BAS.
- You can use digital tools and maintain accurate financial records to manage daily activities and cash flow.
When you are not allowed to claim GST credits
You won’t be able to claim a goods and services tax credit:
- If your business is not GST-registered.
- For purchases that don’t include GST in the cost, including:
- Where the sale to you is GST-free.
- Where the sale to you is considered input-taxed
- Purchases from a supplier that is not registered or needs to be registered for GST.
- For wages you pay to workers or staff.
- If you don’t have a valid tax invoice for purchases that cost over $82.50 when you file BAS, however, there are some situations where GST credits can be claimed without a tax invoice.
You also won’t be able to claim GST credits for some purchases, including:
- If the purchases are for personal or domestic purposes.
- If a purchase is for making an input-taxed supply.
- For real property purchased which comes in the margin scheme.
- For some purchases that you won’t claim as an income tax deduction.
- For the part of the purchase price of a car that is above the car limit amount for the relevant financial year.
- Where the 4-year credit time limit for claiming a GST credit for the purchase has ended.
Expenses that you can’t claim
Some expenses are not deductible, including:
- Entertainment expenses
- Traffic charges or fines
- Domestic or personal expenses, such as clothes for your family or children’s fees
- Expenses associated with earning income that is not assessable
- Payments for which you don’t meet your PAYG withholding or reporting obligations.
- The GST component of a purchase if you are eligible to claim it as a GST credit on your business activity statement
- General interest charge or shortfall interest charge incurred on or after 1 July 2025 – if you have a substituted accounting period, these changes apply from your next accounting period starting after 1 July 2025.
Conclusion
Keep your business on track by staying up to date with the new tax and compliance information. You can also reach out to Reliable Melbourne Accountant to ensure you are claiming expenses and GST credits that you are eligible for.