The ATO has refreshed its small business guidance on over-claiming expenses and GST credits, and its newsroom talks about stronger action in this area. With the September quarter BAS due at the end of this month, it is a good moment to check your claims before you lodge.

What the ATO says

Based on the ATO guidance, a business expense must directly relate to earning your business income, must not be private in nature, and needs valid records. If an expense is part private and part business, you can claim only the business share. The ATO also says it uses data analytics to find incorrect claims, and businesses that do not comply may face audits, adjusted liabilities and penalties.

The ATO's example is a bistro operator whose overstated expenses, including GST credits of $12,900, together with omitted income of $194,000, led to penalties of more than $35,306. A second lesson from the case: income went missing partly because sales through more than one payment provider were not all captured in the books.

Common traps

  • No tax invoice. You need one for purchases over $82.50 including GST before you claim the credit.
  • Credits on the wrong items. Do not claim GST credits on private costs, bank fees, stamp duty or GST-free items.
  • Double dipping. You cannot claim the GST as a credit and also deduct the same amount in your income tax return.
  • Set and forget estimators. If you use an input tax credit estimator, the ATO warns that it raises the risk of over-claiming and that a set and forget approach is not appropriate.
  • Old claims. GST credits must be claimed within the four year time limit.

What to do before you lodge

  • Reconcile every income source. Match every card machine, online platform and bank account to your accounting software, so no sales are missing.
  • Review GST coding. Scan for private spending, bank fees and anything coded as taxable that should not be.
  • Check invoices. Make sure each large claim has a valid tax invoice on file.
  • Apportion mixed spending. Use a sensible method and keep your working.
  • Keep personal and business money apart. It is the easiest way to avoid mixed claims.
  • Fix mistakes early. The ATO encourages you to amend rather than wait for it to find the error.

If something looks odd and you are unsure how to correct it, ask your registered tax agent before lodging.

This article is general information only and does not take your circumstances into account. Check the ATO website or speak to a registered tax professional about your situation.