Claims for GST refunds beyond four years arising from the reclassification of a previously taxable supply as GST free.
||The ATO view on this arrangement is set out in Miscellaneous Taxation Ruling MT 2010/1
FOI status: may be released
| Taxpayer Alerts are intended to be an "early warning" of significant new and emerging higher risk tax planning issues or arrangements that the Tax Office has under risk assessment.
Taxpayer Alerts will provide information that is in the interests of an open tax administration to taxpayers. Taxpayer Alerts are written principally for taxpayers and their advisers and they also serve to inform Tax officers of new and emerging higher risk tax planning issues. Not all potential tax planning issues that the Tax Office has under risk assessment will be subject of a Taxpayer Alert, and some arrangements that are the subject of a Taxpayer Alert may on further examination be found not to be of concern to the Tax Office.
Taxpayer Alerts will give the title of the issue (which may be a scheme, arrangement or particular transaction), briefly describe the issue and will highlight the features which the Tax Office considers give rise to taxation issues. These issues will generally require more detailed analysis to provide a Tax Office view to taxpayers.
Taxpayers who have entered into or are contemplating entering into an arrangement similar to that described in this Taxpayer Alert can seek a formal determination of the Tax Office's position through a Private Ruling. (It should be noted that Goods and Service Tax Ruling GSTR 1999/1 sets out circumstances where the Commissioner may decline to issue such a ruling ). Such taxpayers might also contact the Tax officer named in the Alert and/or obtain their own advice.
This Taxpayer Alert is issued under the authority of the Commissioner .
This Taxpayer Alert describes a situation where a taxpayer seeks to claim a refund four years or more after the end of a tax period on the basis that they incorrectly classified a supply as a taxable supply and they now contend it is GST free. In this situation the Commissioner may not be able to recover the input tax credits previously claimed on what are contended to be incorrectly classified supplies. This could lead to a situation where either the supplier or the recipient of the supply obtains a windfall gain.
This alert applies to situations that exhibit some or all of the following features:
- A taxpayer has paid GST on a supply that they considered at the time was a taxable supply but they now contend that the supply is in fact not a taxable supply.
- The taxpayer at the time of making the supply issued tax invoices to the recipient who was registered for GST or required to be registered.
- The taxpayer's notification is now seeking a refund of the GST purportedly overpaid in an earlier tax period where more than four years has elapsed since the end of that tax period.
- Depending on whether or not the taxpayer reimburses the refund of the overpaid GST to the registered entity who was the recipient of the supply, there may be an unintended windfall gain to either the taxpayer who made the supply or to the recipient of the supply.
- In some cases there are arrangements in place for the supplier and recipient of the supply to share a percentage of the refund sought from the Commissioner.
FEATURES WHICH CONCERN US
The Tax Office considers that the situations outlined above gives rise to taxation issues that include whether in the particular circumstances:
- the supply has in fact incorrectly been treated as a taxable supply.
- the Commissioner in the particular circumstances is required under section 105-65 of Schedule 1 to the Tax Administration Act 1953 (TAA) to pay the refund.
- it is appropriate in any particular case for the Commissioner to exercise his discretion contained in section 105-65 of Schedule 1 to the TAA where a supply, as between two registered entities or entities that are required to be registered, has been incorrectly treated as a taxable supply.
- the time limits on refunds or credits contained in section 105-55 of schedule 1 to the TAA should apply to any of the tax periods in which a refund has been sought or are to be sought.
- the Commissioner is precluded by the time limits contained in section 105-50 of Schedule 1 to the TAA from recovering from the recipient of the supply input tax credits previously claimed on the transactions that it is now contended gave rise to GST free supplies..
- A windfall gain not intended by the law will arise because of
- the retention of the refund by the supplier, or
- the reimbursement by the supplier of the GST to the recipient.
The Tax Office is examining these arrangements and would not exercise the discretion in such circumstances where the taxpayer did not bear the economic burden of the GST.
Note 1 : Section 105-65 of Schedule 1 to the Taxation Administration Act 1953 provides that the Commissioner need not give a refund to a taxpayer in certain situations. Under this section the Commissioner may deny you a refund where one of the following applies
- the Commissioner is not satisfied that the taxpayer seeking the refund has reimbursed a corresponding amount to the recipient of the supply;
- the recipient is registered or required to be registered.
In any circumstances where either of the conditions outlined above apply the Commissioner need not pay a refund. The Commissioner has a discretion to release the refund but may only consider it appropriate to do so in the situation outlined in this alert where he is satisfied that the refund does not create a windfall gain for either the supplier or recipient.
Note 2 : In the recent Federal Court decision KAP Motors Pty Ltd v Commissioner of Taxation  FCA 159, the Court found that section 105-65 did not apply where there was no supply. Because the arrangements dealt with in this alert are cases where there is a supply, the KAP Motors decision has no application to them. Details of the Commissioner's response to the KAP Motors decision are at:
Date of Issue: 27 August 2008
Date of Effect: 27 August 2008
Goods and Services Tax
GST tax periods
Taxation Administration Act 1953
Related Practice Statements:
PS LA 2002/12 - Refunds of GST
PS LA 2005/13 - Taxpayer Alerts
|| Paul Tregillis
|| GST Refund Project
|| 03 92754739