Charging Goods and Services Tax (GST) correctly is critical for Australian businesses. However, even experienced business owners can make mistakes—especially when dealing with GST‑free, input‑taxed, or unusual transactions. If you’ve charged GST incorrectly, acting quickly and correctly can save you from cash‑flow problems, penalties, and ATO scrutiny.

In this article, we explain what to do if you’ve charged GST incorrectly, the ATO’s rules, and how Northcity Accountants can help you fix the issue with confidence.

What Does “Charged GST Incorrectly” Mean?

You have charged GST incorrectly when you treat a transaction as taxable and include GST when it should not have been charged. The Australian Taxation Office (ATO) refers to this as “excess GST”. [ato.gov.au]

This commonly happens when a business:

• Charges GST on a GST‑free sale (e.g. certain health, education, or food supplies)
• Charges GST on an input‑taxed sale (e.g. residential rent or financial supplies)
• Treats something that is not a sale as a taxable sale
• Miscalculates GST and reports too much on a Business Activity Statement (BAS) [ato.gov.au]

The Most Important Question: Did You Pass the GST on to the Customer?

The ATO’s response depends almost entirely on whether the GST was “passed on” to your customer.

When Is GST Considered “Passed On”?

In most cases, GST is considered passed on if:

• You charged a price that included GST, even if GST was not shown separately
• You issued a tax invoice showing GST [ato.gov.au]

If GST has been passed on and you have not reimbursed the customer, the ATO generally treats that GST as correctly payable by law—meaning it cannot automatically be refunded to you. [ato.gov.au]

What Are Your Options If You Charged GST Incorrectly?

✅ Option 1: Reimburse the Customer (Best Practice)

If you refund the excess GST to your customer, you can:

• Make a decreasing adjustment on your BAS
• Recover the excess GST you previously paid to the ATO
• Stay compliant and reduce audit risk [ato.gov.au]

If your customer is registered for GST and claimed an input tax credit, they must make a corresponding increasing adjustment on their BAS. [ato.gov.au]

✅ Option 2: Correct the Error on a Later BAS (Limited Cases)

If you can prove the GST was not passed on (which is rare), the excess GST may be treated as a GST error. In this case, you may:

• Correct the error on a later BAS, or
• Revise the original BAS where the mistake occurred [ato.gov.au]

For most small businesses (turnover under $20 million), debit errors up to $12,500 can be corrected within 18 months of the original BAS due date. [ato.gov.au]

✅ Option 3: Request an ATO Discretionary Refund

If you have not reimbursed the customer, you may apply for an ATO refund—but approval is not guaranteed.

The ATO will only allow a refund where:

• It does not result in a “windfall gain” for your business
• The circumstances are considered fair and reasonable [ato.gov.au]

This process is technical and often requires professional representation.

Why Getting This Wrong Can Cost You

Failing to handle incorrectly charged GST properly can lead to:

• Paying GST you’re not legally required to bear
• BAS amendments and interest charges
• ATO audits or compliance reviews
• Customer disputes and reputational damage

This is why expert advice matters.

How Northcity Accountants Can Help

At Northcity Accountants, we specialise in helping businesses identify, correct, and prevent GST errors—without unnecessary stress or risk.

✅ Our GST Support Services Include:

• Reviewing transactions to determine GST‑free vs taxable treatment
• Identifying whether GST was passed on
• Preparing BAS corrections and adjustments
• Managing customer reimbursements correctly
• Lodging ATO discretionary refund requests
• Communicating with the ATO on your behalf
• Setting up systems to prevent future GST mistakes

We don’t just fix the problem—we help you understand why it happened and how to avoid it again.

Why Choose Northcity Accountants?

✔ Australian GST specialists
✔ Proactive ATO compliance approach
✔ Clear, practical advice—no jargon
✔ Support for small and growing businesses
✔ Trusted guidance during ATO reviews

When GST mistakes happen, speed and accuracy matter. We ensure the correction is done right the first time.

Final Thoughts: Act Early, Stay Compliant

If you’ve charged GST incorrectly, don’t ignore it. The sooner the issue is identified and addressed, the more options you have—and the less it will cost your business.

📞 Need help fixing a GST mistake?
Contact Northcity Accountants today for professional advice and peace of mind.

www.northcityaccountants.com.au

Tel:1800123TAX