Private ruling: Entitlement to refund of Goods and Services Tax (GST)
Published: June 2012

Ruling: Q1: Will the Commissioner exercise the discretion available under subsection 105-65(1) of Schedule 1 to the Taxation Administration Act 1953 (Cth) (TAA) to allow a refund of any overpaid GST in relation to your supplies to non-residents outside Australia? | A1: No. We do not consider that you have overpaid GST during the relevant period. | Q2: Will the Commissioner approve the apportionment methodology used to establish whether a supply is GST-free or taxable? | A2: No. You must determine whether any of your supplies are actually GST-free.

Relevant facts and circumstances: You are an Australian entity registered for GST. You make supplies that may be made to persons whilst they are overseas or whilst they are in Australia. You do not request this information before making supplies. You have received a previous private ruling that some of your supplies are GST-free in accordance with paragraph (b) of item 4 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). Only supplies made to customers who are outside Australia at the time of the supply are GST-free. In these circumstances the 'non-resident entity not in Australia' test in the legislation is satisfied, and the supply occurs whilst the non-resident is outside Australia. As the supply relates to GST-free services, subsection 38-190(2) of the GST Act does not preclude the supply to the non-residents from being GST-free. Those supplies are therefore GST-free. However, until the ruling was received you had been treating all your supplies as taxable and remitting GST on these supplies. You have now stopped paying GST on the outside Australia supplies. You have notified us of a possible entitlement to a GST refund for your past supplies to non-residents outside Australia. We advised that the notification of entitlement was valid and made within the appropriate time to cover the refund period commencing four years before the receipt of the notification. You have now quantified the amount of your claim and have requested a refund for an amount you have calculated as representing the GST overpaid during the relevant period. You have requested that the Commissioner to exercise the discretion in subsection 105-65 of the TAA to allow the refund amount. You have submitted that the GST component of your supplies has been absorbed by you and has consequently not been passed on to customers. You also advise that the overpayment of GST was a consequence of the inherited position on acquiring the business in 2001 and the subsequent pricing model adopted. You made supplies to both offshore overseas customers, and to customers who are in Australia at the time of the supply and you did not ask the customers whether they were outside Australia at the time the supply is made (as you did not consider this commercially significant), and you paid GST on both of these supplies. Therefore the amount overpaid in relation to GST-free supplies has to be established. To determine an amount of GST that may relate to the GST-free supplies you have provided a series of calculations, based on assumptions. As well as your request for refund, you have also requested that we provide validation for the apportionment methodology used to determine the GST overpaid on GST-free supplies. Your product offering was first established in 1999. You have advised that pricing was based on a market review and you had no internal pricing methodology. Adjustments to the price were due to market position. The price was determined largely by whatever the market could bear, rather than by determining the costs and then adding an appropriate profit margin. The price was first set in 1999 when the product was first offered, and remained the same for three years 1999-2002. You have marketed your price as GST inclusive. You have advised that GST was always remitted on the products from the inception of the GST. You have advised that there was a specific decision not to increase prices at the time of the introduction of the GST on 1 July 2000 and to 'absorb the GST as a cost'. Whilst there is no record of this decision being made, the prices were not increased at this time. You have advised that pricing was rarely considered at review meetings for the product. However, on the occasions it was raised, it was based on increasing the price by a percentage of the Consumer Price Index. You have provided a table of the historical pricing increases from 2001 to 2011. You have advised that the price still remains the same for the products whether they are taken up outside of Australia or within Australia. You have advised that you do not ask customers whether they are inside Australia or outside at the time of making the supply. As you do not know whether a particular product is GST-free or taxable at the time of making the supply (for past and ongoing supplies) you have therefore asked us to approve an apportionment methodology for your refund claim and for your future supplies. Your apportionment methodology is as follows: You identified all GST amounts in your Business Activity Statements (BAS) for the refund period. You trace each of the GST amounts identified above back to the individual supply made (by way of a unique identifier assigned to each supply in your database). You have then assumed that 70% of customers are outside Australia at the time the supply is made. You have provided reasons for making this assumption. For the refund amount claimed, you have reduced the GST amount requested to take into account refunds to customers (for cancelled transactions, overpayments and any other reason) and other adjustments.

Relevant legislative provisions: Taxation Administration Act (1953) Section 105-65 of Schedule 1 | A New Tax System (Goods and Services Tax) Act 1999 Section 38-190 | Subsection 78-10(2)(a) | Section 9-5

Reasons for decision: Summary: In your circumstances we do not consider that you have overpaid GST. Therefore you are not entitled to a refund, and it is not necessary to consider whether section 105-65 of Schedule 1 to the Taxation Administration Act (1953) (section 105-65) would apply to restrict a refund of overpaid GST. | Detailed Reasoning - No overpayment of GST: You received advice from us that we consider that your products are GST-free when your customer is outside of Australia at the time of the supply. Where you make a supply that is GST-free, any amount of GST that has been remitted for that supply is in excess of what was legally payable will be an overpayment of GST. However, we consider that during the refund period you have not made any GST-free supplies. In selling your products you either make a taxable supply or a GST-free supply. You do not make a single supply that is partly taxable and partly GST free. As your supplies are not mixed supplies it is not appropriate to use a proportion or calculation to determine your GST liability. The Electronic Commerce Industry Partnership - issues register (available on www.ato.gov.au) provides guidance on what will establish 'consumption outside Australia' for the purposes of determining whether any of your supplies are GST-free. This document states as follows: To work out whether the supplies provided are for consumption outside of Australia and therefore GST-free, a supplier needs to ascertain certain information at the time the thing supplied is done. The supplier must obtain the following information if the recipient of the supply is an individual: · the residential status of the individual and their physical location at the time of the supply · confirmation that the individual is not a member of the Australian Public Service or Australian Defence Forces · the use of the supply · if they are a non-resident and are in Australia, whether their presence is in relation to the supply, and · if they are a resident of Australia and are outside Australia, whether their presence is integral to (as distinct from being merely coincidental with) the provision of the supply. In your circumstances we consider that you do not have evidence to substantiate whether any supplies you made were GST-free. You do not capture information that establishes with certainty that a recipient is outside of Australia at the time of a supply. Without this information, you are unable to determine the GST-free supplies made under section 38-190 of the GST Act, therefore the supplies should be treated as being made in Australia and taxable. It is not possible to go back and establish that at the time of the supply you knew the location of the recipient and therefore were entitled to treat the supply as GST-free. Regardless of any subsequent reconstruction, the fact remains that you were not aware at the time of the supply the location of the recipient. As you were not aware that particular supplies were 'export supplies', for GST purposes you must treat the supplies as domestic supplies (taxable). This means that you have not overpaid GST in these circumstances, and therefore have no substantive entitlement to a refund. Section 105-65 only applies where you have overpaid an amount of GST. As you are not entitled to a refund, the section does not apply and it is not necessary to consider the application of section 105-65. We acknowledge that your request for refund is based on an assumption that section 105-65 would apply. We have considered your submissions, and agree that if you were substantively entitled to a refund section 105-65 would apply to restrict any such refund. We note for your reference that even if it were open to the Commissioner to exercise the discretion, in doing so there must not be a resulting windfall gain to the supplier. | Summary: You have advised that you continue to use a methodology to estimate a proportion of supplies that you consider to be GST-free. You reduce your GST payable to allow for these supplies. You have provided details and requested that we endorse this methodology. It is not appropriate to use an estimate to determine your GST payable in these circumstances. You must determine whether your actual supplies are taxable or GST-free, and your actual GST liability. If this cannot be determined accurately, all supplies must be treated as taxable. | Detailed Reasoning - Detailed reasoning: You make a supply of individual products that can either be taxable or GST-free depending on the location of the recipient. In selling your products you either make a taxable supply or a GST-free supply. You do not make a single supply that is partly taxable and partly GST free. As your supplies are not mixed supplies it is not appropriate to use a proportion or calculation to determine your GST liability. Since becoming aware that some of your supplies may be GST-free you have not implemented systems to determine which of your supplies are GST-free. Your information systems do not identify the location of the recipient at the time of making the supply. You are therefore using a methodology to estimate a proportion of supplies that you consider to be GST-free and reducing your GST payable to allow for this. It is for the supplier to determine whether a supply is taxable or otherwise. Your supplies are taxable to the extent that they are not GST-free (section 9-5). A supply is GST-free if it is GST-free under Division 38. Your supplies to recipients located outside Australia may be GST-free because of the specific exemptions in section 38-190 of the GST Act. However, if it is not possible to determine at the time of the supply whether the exemption applies (and keep the necessary records to substantiate that this exemption applies), then the supply must be treated as if it is not GST-free. That is, it will be taxable. We consider that your request is similar to a request to adopt a simplified accounting method. Examples of a situation where this may be allowed are small food retailers who buy and sell products that are taxable as well as products that are GST-free. Depending on the point-of-sale equipment they use, accurately identifying and recording GST-free sales separately from those that are taxable can be difficult. Simplified accounting methods are only available to these types of businesses with a turnover of $2 million or under, who meet all the eligibility requirements and elect to use a simplified accounting method. You are not eligible to use such methods. We consider that where you have already used this apportionment methodology (for example, since you ceased remitting a proportion of GST in relation to your supplies) you have underpaid GST.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.