Private ruling: GST and restriction on refund of overpaid GST
Published: January 2015

Ruling: Q2: Does section 142-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) apply to the overpaid GST for the tax periods starting on or after 31 May 2014? No

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You have provided the background fact in your correspondence. The following is the summary of facts outlined by you: • You are registered for goods and services tax (GST) • You operate an online Australian retail website, where goods are sold through sales campaigns. • You sell goods that are either located in Australia or sourced from and located outside Australia. • You charge GST on all sales of goods that are located in Australia. • You do not charge GST on sales of goods that are sourced from and located outside Australia on the basis that the customer is the importer and is responsible for any taxes on the importation of the goods. • You have previously set up warehouses overseas. GST was not remitted on sales from these warehouses. • You have provided a copy of advice you received from your tax agent in 2012 evidencing that you understood that where the goods were supplied from an overseas warehouse, you were not required to account for GST on the supply. • In 2013, you commenced sourcing products from overseas and engaged a third party to provide warehousing services overseas. • Around the same time, the 'location' of the overseas warehouse was entered into your sales system as an Australian warehouse. This coding error resulted in these sales being treated as taxable. • The coding error was identified in discussions between your staff. • The sales or products sourced from the warehouse overseas have been treated as taxable in a number of tax periods before and after 31 May 2014. • You consider that your customers are almost certainly private consumers and as such should not be registered for GST. • You have calculated the GST paid to the ATO on these sales to be $xxxxxx • The total number of orders where the sale has been incorrectly treated as taxable is approximately yyyyyy. The average value of the orders is approximately $zz. • In reviewing the customer orders, you have identified some customer orders exceeding the value of $1000; of these, a few appear to be registered for GST. In these instances you advise that the potential GST involved is minimal. • Based on your analysis you contend that the number of customers who may have claimed GST on these sales is immaterial. • The tax invoices that issued with GST included were for the same price that the customer agreed to when purchasing from your website. • Your customers in another country pay the same price (with exchange rates factored in) as customers in Australia but do not pay GST or other taxes. You have provided sample invoices to evidence this. • Your terms and conditions that customers agree to on your website state: • The amount payable for the goods is shown on the website in $AUD and exclusive of tax. • Ownership and risk passes to the customer when you place the goods at the customer's disposal at your premises (in this case, overseas). • The customer will be recorded as the importer and responsible for any taxes.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 | section 9-25 | Taxation Administration Act (1953) Section 105-65 of Schedule 1

Reasons for decision: Summary: In relation to products sourced from your warehouse overseas and sold to Australian customers via your Australian online retail website, for the quarterly tax periods commencing prior to 31 May 2014 the Commissioner will exercise the discretion under section 105-65 of Schedule 1 to the TAA to refund the overpaid GST remitted. | Detailed Reasoning - Detailed reasoning: Subsection 105-65 of Schedule 1 to the TAA applies to tax periods starting before 31 May 2014. The restriction on refunds of overpaid GST under subsection 105-65(1) will apply if all three of the following conditions are satisfied: • there was an overpayment of GST, • a supply was treated as a taxable supply when it was not a taxable supply or was taxable to a lesser extent, and • either the recipient has not been reimbursed a corresponding amount of the overpaid GST and/or the recipient of the supply is registered or required to be registered for GST. You advise that you have remitted GST to the ATO on the supply of goods that are not taxable. On that basis, you have remitted more than was legally payable and have overpaid GST. You also advised that the majority of the recipients of your supplies would not be registered for GST and that they have not been reimbursed for any amount corresponding to the GST overpaid. As the three conditions are satisfied, section 105-65 of Schedule 1 to the TAA applies and the Commissioner has no obligation to pay a refund that would otherwise be payable under section 8AAZLF of the TAA. However, the Commissioner may exercise his discretion and choose to pay a refund even though the conditions in paragraphs 105-65(1)(a), (b) and (c) of Schedule 1 to the TAA are satisfied. Miscellaneous Taxation Ruling MT 2010/1 Miscellaneous Tax: restriction on GST refunds under section 105-65 of Schedule 1 to the Taxation Administration Act 1953 (MT 2010/1), at paragraphs 127 and 128 provides some guiding principles to consider when exercising the discretion. In particular, MT 2010/1 at paragraph 128(c) notes that the Commissioner must have regard to the subject matter scope and purpose of section 105-65 of Schedule 1 to the TAA. As explained in paragraph 127 of the Ruling, section 105-65 is designed to prevent windfall gains to suppliers and to maintain an inherent symmetry in the GST system and is based on the underlying design feature and presumption that the cost of the GST is ultimately born by the non-registered end consumer. It follows that it is important when exercising the discretion to determine who has borne the burden of the GST. That is, whether a supplier has passed on the GST to the recipients. It was your understanding that for goods sourced from overseas warehouse GST need not be included in the price and you priced the goods for sale on the website accordingly. This is evidenced by the fact that the same supplies to the Australian and another country markets were priced the same (accepting the exchange rate differences) even though in the other country market the supplies had no taxes incurred. However due to a coding error the supplies from overseas warehouse to Australia were treated as taxable. Based on the information provided, it is reasonable to conclude that you set the price for the goods from the overseas warehouse on the basis that the price did not include a GST component. It is accepted that you made a coding error and it follows that the overpaid GST was not passed on to your customers and the burden of the GST was borne by you. In the circumstances that you have outlined, the Commissioner considers that it would be reasonable for him to exercise his discretion and pay you a refund of the overpaid GST in relation to supplies from your warehouse overseas in the tax period commenced before 31 May 2014. | Summary: In relation to products sourced from your warehouse overseas and sold to Australian customers via your Australian online retail website' for a number of tax periods commenced on or after 31 May 2014, we consider that based on the information available, you have not passed on the excess GST and section 142-10 does not apply. | Detailed Reasoning - Detailed reasoning: Division 142 of the GST Act applies to tax periods starting on or after 31 May 2014. It replaces existing section 105-65 of Schedule 1 to the TAA. The object of Division 142 is to ensure excess GST is not refunded if it would give an entity a windfall gain. Generally, the Division operates so that an entity is not entitled to a refund of an amount of excess GST where the entity has passed on the GST to another entity, and has not reimbursed that other entity for the passed on GST. Under Division 142 of the GST Act, a taxpayer can self-assess their entitlement to a refund of excess GST according to certain criteria. In the circumstances that you have outlined, it is accepted that you have paid an excess amount of GST in relation to the supplies made to your customers from your warehouse overseas for a number of tax periods commenced on or after 31 May 2014. Under section 142-10 of the GST Act, if the excess GST has been passed on to the recipient of your supply, then that GST is treated as always having been payable until the excess GST is reimbursed to the recipient. If the excess GST has not been passed on, section 142-10 does not apply and the entity may claim a refund of the excess GST. Whether the excess GST has been passed on is a question of fact and must be determined on a case by case basis taking into account the particular circumstances of each case. You advised that you have provided tax invoices to your customers and these tax invoices enable the amount of GST to be clearly ascertained. Further, you have paid that amount of GST to the Commissioner. Under subsection 142-25(2) of the GST Act, these tax invoices are 'prima facie evidence' of the GST being passed on to your recipients. However, Draft Goods and Services Tax Ruling GSTR 2014/D4 Goods and Services tax: the meaning of the terms 'passed on and 'reimburse' for the purposes of Division 142 of the GST Act (GSTR 2014/D4) states at paragraph 125 that 'there may be other documentary evidence showing that, despite the tax invoice, excess GST was not passed on in the price of a particular supply.' You have advised that your retail selling prices for goods sourced from the warehouse overseas were determined on the basis that GST was not included in the prices as you were aware when determining the price, that due to the transaction arrangements, the GST (and other indirect taxes) payable in relation to these transactions was the customer's responsibility upon importation into their country of residence (Australia). The terms and conditions on your website evidence that it was your intention that GST was not included in the sale price. We also acknowledge the sample invoices provided for the other country and Australian sales from the warehouse overseas demonstrating that the overall price of the same goods were comparative (accepting exchange rate differences) but for the Australian sales, the GST has been included. You state that the reason for the GST being stated on the tax invoice and being remitted to the Tax Office is due to a computer coding error. We consider that your circumstances are not unlike those outlined in GSTR 20014/D4 at paragraphs 132 to 134. These paragraphs provide an example of computer coding error where it was considered the GST was not passed on. In the circumstances that you have outlined, we consider that there is sufficient other evidence to indicate that you have not passed on the GST to your customers. As such, section 142-10 of the GST Act will not apply and you may amend your business activity statements for the relevant periods. | Detailed Reasoning - Note: You may claim refunds by undertaking revisions of your activity statements for the relevant tax periods. Alternatively, if the conditions set out in the Correcting GST Errors Determination GSTE 2013/1 are satisfied, you may choose to claim a refund by taking it into account in working out the net amount for a later tax period.

Question 1: Will the Commissioner exercise the discretion under section 105-65 of Schedule 1 to Taxation Administration Act 1953 (TAA) to refund overpaid GST for tax periods commencing prior to 31 May 2014?