What if I forgot to charge someone GST?
It is not common but, unfortunately, all too frequent that someone will not factor GST into a sale price and misunderstanding of the GST legislation is the overwhelming cause of that happening.
One recent example for us was where an item was hired to a medical practitioner. The supplier of the item incorrectly assumed that because the medical practitioner would use it to provide GST-free services to a patient, then the hiring fee would also be GST-free. However, a technicality common to most GST-free medical supplies is that the recipient needs to be the patient. In this case it was a medical practitioner, so the hire was just an ordinary taxable supply with GST properly applicable.
So what happens now? Is there a problem for not charging GST when the supplier should have done so or is it a mistake which can be rectified?
The former Sales Tax system which operated prior to the introduction of GST on 1 July 2000 required that sales tax which was consciously imposed had to be remitted to the Commissioner of Taxation. There were classes of recipient who were exempt from being liable to pay sales tax so it was not consciously imposed on all sales. Consequently, there were penalties for failing to impose sales tax when it should have been included.
The GST legislation makes things much simpler. It defines a “taxable supply”, which is where someone who is GST registered (or should be) makes a supply for consideration in the course of conducting a business or other profit making activity where there is a connection with Australia. Section 9-70 of the GST law then specifies that GST is 10% of the value of the taxable supply.
Expressed another way, if you divide the consideration received for a taxable supply by eleven, then you have worked out the amount of GST you owe the Commissioner of Taxation. Very easy, isn’t it? No need to think about whether you consciously charged it or what either party was thinking about – just take the sales proceeds and divide by eleven. The legislation takes away the angst which you could have for failing to charge GST when you should have done by just making you pay one eleventh of your sale proceeds.
The same process provides a GST credit to the recipient equal to one eleventh of what they paid for the goods or services. Again, this is regardless of whether or not they thought they were charged GST.
That can create anomalous situations where someone is provided goods or services without GST being added to the sale price but the supplier is legally required to remit GST it did not actually recoup. Equally, a recipient can claim a GST credit even though they paid an amount equal to the sale value without GST included.
Unfortunately, there is only one way to correct this situation. The supplier needs to invoice the recipient a further amount equal to the GST which should have been added to the original sale price. Any supplier who provides goods or services which are sometimes GST-free needs to have a provision in their sales documentation to cover situations where GST is mistakenly not included. That way, they can ensure they are not left out of pocket if an error occurs.
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