Most GST reviews do not start with a dramatic investigation. They start with a BAS that does not line up with other information the ATO holds, a run of credits that looks too high, or a business that keeps lodging late.
This guide explains what the ATO says attracts its attention on GST, how its data matching works, the BAS errors that cause problems, how to correct GST errors on a later BAS, and the penalties that can apply. It reflects the ATO position in October 2026 for the 2025-26 and 2026-27 years. We have removed the unsourced statistics from the earlier version of this article, and figures were checked against ATO pages.
It is for small business owners and bookkeepers who lodge BAS. If you have already been contacted, read our guide on what to do when the ATO is reviewing your return.
Key takeaways
- The ATO lists over-claiming expenses and GST credits as a small business focus area.
- You need a valid tax invoice for purchases over $82.50 (including GST) before claiming the credit.
- GST credits must be claimed within 4 years.
- Businesses under $20 million can fix net debit errors under $12,500 within 18 months on a later BAS.
- About 3,500 businesses were moved to monthly GST reporting from 1 April 2025.
- Shortfall penalties start at a base of 25% for failing to take reasonable care.
GST compliance at a glance
| Issue | What the ATO says |
|---|---|
| Focus area | Over-claiming expenses and GST credits |
| Tax invoice needed | Purchases over $82.50 including GST |
| Time limit for credits | 4 years |
| Debit error fix on later BAS (under $20m) | Net under $12,500, within 18 months |
| Credit errors | No value limit; within the 4-year period of review |
| Repeat non-compliance | Possible move to monthly GST reporting for at least 12 months |
Source: ATO small business focus areas, ATO claiming GST credits, ATO correcting GST errors and ATO quarterly to monthly GST reporting, checked 9 October 2026.
What does the ATO say attracts its attention?
The ATO page on what attracts our attention in small business lists these behaviours for businesses with turnover under $10 million:
- Knowingly working outside the tax system, such as leaving income undeclared or inflating expense claims
- Deliberately failing to report or register correctly, or paying and lodging late or incompletely
- Not understanding tax and super obligations, including employer obligations
- Paying staff in cash without declaring it
- Using business money or assets for private spending
- Poor record keeping or weak cash flow management
Its small business focus areas include over-claiming expenses and GST credits, omitted income, and GST registration for taxi, limousine and ride-sourcing providers. Cash wages also raise employment issues; the Fair Work Ombudsman sets out pay obligations.
In July 2026 the ATO said it was taking stronger action on over-claimed expenses and GST credits. It named private expenses claimed as business costs, GST credits claimed where the price did not include GST, and missing records. It described a bistro operator who overstated expenses by more than $141,900, including $12,900 in GST credits, and was penalised over $35,306.
How does ATO data matching affect GST?
The ATO says it matches external data with its own records to help people meet their obligations and to detect fraud. Each program has a published protocol. Current programs include online selling, ride sourcing, sharing economy accommodation, property management, real property transactions, motor vehicle registries and crypto assets.
In practice, if your BAS sales are lower than what platforms or other third parties report, expect questions. Our guides on how the ATO detects undeclared income and how the ATO uses data and analytics go further.
Which BAS errors cause the most trouble?
- Credits without a valid tax invoice for purchases over $82.50, as set out on the ATO GST credits page.
- Credits where no GST was charged, such as from suppliers not registered for GST.
- Private or mixed-use costs claimed in full.
- Sales coded GST-free when they are taxable.
- Income missing from BAS, such as platform or cash sales.
A valid tax invoice must show it is a tax invoice, the seller identity and ABN, the date, a description, the GST amount and which items are taxable. For sales of $1,000 or more it must also show the buyer identity or ABN, per the ATO tax invoice rules. Our article on GST mistakes small businesses make covers more examples, and our BAS and activity statement guide explains each label.
How do you correct a GST error?
The ATO lets you correct many errors on a later BAS instead of revising the original. Conditions include lodging within the period of review, the period not being under an ATO compliance activity (unless the ATO says in writing you can), and for debit errors, not being reckless or intentional.
| Current GST turnover | Net debit error limit | Time limit |
|---|---|---|
| Less than $20 million | Less than $12,500 | 18 months |
| $20m to less than $100m | Less than $25,000 | 12 months |
| $100m to less than $500m | Less than $50,000 | 12 months |
| $500m to less than $1bn | Less than $100,000 | 12 months |
| $1bn and over | Less than $560,000 | 12 months |
Time limits run from the due date of the BAS where the error occurred. Anything above the limit must be fixed by revising the earlier period, which can attract penalties and GIC. A credit you simply forgot to claim is not a GST error; you can generally claim it later within 4 years. Source: ATO how to correct GST errors.
Worked example: fixing a coding error on a later BAS
A café with $1.2 million GST turnover reviews its books in October 2026. It finds a $66,000 catering contract in the March 2026 quarter coded GST-free when it was taxable. GST included in the price is $66,000 / 11 = $6,000, so GST was under-reported by $6,000 (a debit error).
It also finds $500 of GST reported at 1A on a GST-free sale where no GST was charged (a credit error).
Net debit: $6,000 – $500 = $5,500. That is below the $12,500 limit for businesses under $20 million, and the March 2026 quarter BAS was due in April 2026, well within 18 months.
So the café adds $5,500 to label 1A on its next BAS. If the net debit had been $15,000, it could correct $12,500 on the later BAS and would have to revise the March quarter for the other $2,500.
Rule of thumb: Fix GST errors as soon as you find them and keep a note of what changed. A correction you make yourself is treated far better than one the ATO finds.
What penalties apply to GST errors?
| Situation | Penalty or charge |
|---|---|
| Failure to take reasonable care | Base penalty 25% of shortfall |
| Recklessness | 50% |
| Intentional disregard | 75% |
| Late BAS (small entity) | 1 penalty unit ($364 from 1 July 2026) per 28 days, max 5 units |
| Unpaid GST | General interest charge, 11.51% a year for Oct-Dec 2026 |
Sources: ATO false or misleading statement penalties, failure to lodge on time penalty, penalty units and GIC rates. Voluntary disclosure generally reduces penalties. GIC incurred from 1 July 2025 is not deductible; our ATO overdue interest guide explains the impact. The ATO also publishes general information on what to expect in an audit.
If you are close to the registration threshold, our GST registration guide explains when you must register, and our article on reducing GST payable legally covers legitimate ways to manage it.
Common mistakes with GST and BAS
- Claiming before you hold the invoice: wait until you have a valid tax invoice for purchases over $82.50.
- Claiming full credits on mixed-use items: apportion private use.
- Not reconciling BAS to the ledger: check 1A and 1B against reports each period.
- Ignoring platform income: the ATO runs online selling and ride-sourcing data matching.
- Revising when a later BAS would do: check the error limits first.
FAQ about GST audit triggers
What does the ATO focus on for small business GST?
The ATO lists over-claiming expenses and GST credits as a small business focus area, along with omitted income, GST registration for taxi and ride-sourcing drivers, and good lodgment habits. It also says that poor record keeping, late or incomplete lodging and paying, and using business money for private spending attract its attention.
Can I fix a GST mistake on my next BAS?
Often, yes. If the error is a GST error, you are not under a compliance activity for that period, and you are within the time and value limits, you can correct it on a later BAS. For businesses under $20 million GST turnover, net debit errors must be under $12,500 and corrected within 18 months of the original due date.
Do I need a tax invoice to claim a GST credit?
For purchases over $82.50 including GST, you need a valid tax invoice before you claim the credit. If you do not have it yet, wait and claim in a later period. For purchases of $82.50 or less, a receipt or docket is enough, or a record showing the supplier name and ABN, date, items and amount.
How long do I have to claim a missed GST credit?
The ATO applies a 4-year time limit to claiming GST credits. A credit you simply forgot to claim is not treated as a GST error; you can generally claim it on a later BAS as long as you are still within the 4-year period. After that, the credit is lost.
Can the ATO move me to monthly GST reporting?
Yes. In March 2025 the ATO notified about 3,500 businesses with poor compliance histories that they would move from quarterly to monthly GST reporting from 1 April 2025, for a minimum of 12 months. The ATO says it will keep doing this where businesses continue to lodge or pay late or report incorrectly.
Talk to specialist before it costs you
15-minute discovery call. No obligation, no jargon.
Talk to a registered tax agent
If the ATO has asked about your GST, or you want your BAS reviewed before you lodge, Nanak Accountants can check your coding, reconcile your figures and help you respond. Call 1300 626 258.
This article is general information only and is not personal tax or legal advice. Figures and rules were checked against the ATO small business focus areas, data matching, GST credits, tax invoice, correcting GST errors, penalties and GIC pages on 9 October 2026. Rates and thresholds change, so confirm the current position before acting.
