Private ruling: GST and refund of overpaid GST
Published: November 2014

Ruling: Q1: Are you entitled to a refund of goods and services tax (GST) overpaid on recharges of health insurance premiums to your overseas students that are not subject to GST for the Refund Period? | A1: Yes. | Q2: Will the Commissioner processes the adjustments on your behalf, based on the monthly breakdown of the GST overpaid as per your attachment? | A2: No. Refer to Reasons for decision below.

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 are a company registered for GST. • You provide higher education and vocational education qualifications to students, including overseas students. • You have entered into a number of Overseas Student Healthcare (OSHC) Preferred Provider Agreements (Agreements), with Australian health insurance providers (Insurers), whereby: • Insurers are appointed as exclusive providers of OSHC to your overseas students (Overseas Students). • You are required to allow Insurers access to Overseas Students for the purposes of Insurers being able to promote and sell their OSHC directly to those students, in exchange for a commission which is subject to GST. • You are not a party to the OSHC insurance policies issued by Insurers to Overseas Students. • Health insurance premiums payable for the OSHC provided by Insurers to Overseas Students (Premiums) are paid to Insurers by you on behalf of the Overseas Students. • You are not acting as agent for the Insurer or the Overseas Students. • You seek reimbursement of the exact value of Premiums, paid to the Insurers, from the Overseas Students (Recharges). • During the Refund Period, you have mistakenly treated the Recharges to Overseas Students as a taxable supply made by you to the Overseas Students which is subject to GST and have: • issued invoices entitled 'tax invoices' to Overseas Students for all Recharges received from Overseas Students; • in issuing the 'tax invoices', you have recharged the value of the Premium, but have inadvertently calculated GST on the tax invoice as 1/11th of the Premium value; • you have subsequently remitted those GST amounts to the Australian Taxation Office (ATO) in your Business Activity Statements (BAS). • You have not claimed, any corresponding input tax credits (ITC) in respect of any payments to Insurers during the Refund Period, and therefore have suffered a financial loss in respect of the Recharges. • You have not refunded, and do not propose to refund, amounts to the Overseas Students because the students have not borne the overpaid amounts of GST. The amount of the Recharges paid by the Overseas Students to you equal the price agreed to be paid in the contract between the Overseas Students and the Insurer. • The Overseas Students are not registered for GST and, therefore, have not been entitled to claim an input tax credit for the payment of the Recharges to you. • You have provided the following example of your treatment of the Recharge. Example • the price agreed under a contract between the Insurer and an Overseas Student for each premium payable for a GST-free supply of an OSHC insurance policy is $100; • You make a premium payment of $100 to the Insurer on behalf of the Overseas Student; • You mistakenly treats the reimbursement of the above premium to the Overseas Student as subject to GST by issuing a tax invoice to the Overseas Student for $100 (GST inclusive); • You remit $9.09 GST payable to the ATO on the above premium; and • the Overseas Student pays $100 to you and does not claim an input tax credit for the payment. • In the example above, you contend that the Overseas Student has paid to you the amount agreed upon under the contact between the Overseas Student and the Insurer. However, you have mistakenly treated the reimbursed amount of $100 as GST inclusive. Therefore, in the example above, you suffered a financial loss of $9.09.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 : Section 38-55 | Division 142 | Taxation Administration Act 1953 Section 105-65 of Schedule 1

Reasons for decision: Summary: The Recharges recovered from the Overseas Students are not consideration for a supply made by you to the Overseas Student and therefore should not be subject to GST. We accept that you have mistakenly treated the Recharges recovered from Overseas Students as subject to GST; and have inadvertently accounted for GST at 1/11th of the value of the Recharge made. As a result you have borne the cost of your GST mistake and would not receive a windfall gain if this amount was refunded to you. Therefore, even though section 105-65 of Schedule 1 to the Taxation Administration Act 1953 (TAA) applies to restrict this refund for the tax periods prior to 1 June 2014, we consider it appropriate that the Commissioner exercises his discretion under this section to allow a refund to you of the overpaid GST amounts for these periods. Additionally even though Division 142 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) applies to restrict this refund for the tax periods from 1 June 2014 - 30 June 2014, section 142-10 of the GST Act provides that an amount of excess GST will be refundable if: • it has not been passed on to the recipient, or • it has been passed on to the recipient, and the recipient has been reimbursed. As you meet these conditions we consider it appropriate that the Commissioner allow a refund to you of the overpaid GST amounts for these periods. | Detailed Reasoning - Detailed reasoning: Under the general rules the Commissioner is required to give a refund or apply that amount in accordance with the running balance account provisions in Divisions 3 and 3A of Part IIB of the TAA. However, the requirement to give a refund of overpaid GST is subject to section 105-65 of Schedule 1 to the TAA (for tax periods prior to 1 June 2014) and Division 142 of the GST Act (for tax periods post 1 June 2014) which modifies the general rules so that the Commissioner need not give a refund or apply that amount if an entity overpaid its net amount or an amount of GST where the requirements of the section are satisfied. Whether subsection 105-65(1) of Schedule 1 to the TAA applies to your circumstances The restriction on refunds of overpaid GST under section 105-65 of Schedule 1 to the TAA 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. Miscellaneous Tax Ruling MT 2010/1 provides the view of the Commissioner on section 105-65 of Schedule 1 to the TAA. Paragraph 20 of MT 2010/1 explains the meaning of 'overpaid'. In the context of section 105-65 of Schedule 1 to the TAA, 'overpaid' means the amount that has been remitted must be in excess of what was legally payable on the particular supply in the relevant tax period prior to taking into account or applying section 105-65. In this case you remitted GST of 1/11 of the price of your supplies when these supplies were in fact not taxable. It follows that you remitted more than was legally payable and that there has been an overpayment of GST. Paragraph 21 of MT 2010/1 explains the meaning of 'treated' as taxable supply. You treated your supplies as taxable supplies and remitted GST to the Commissioner when the supplies were not taxable supplies. You have advised that the recipients of your supply are not registered for GST purposes and that they have not been reimbursed for any amount corresponding to the GST overpaid as they were not charged GST. 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, it is the view of the ATO in paragraph 27 of MT 2010/1 that the Commissioner may 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. The question then becomes whether, in these circumstances, the discretion to pay the refund to the applicant should be exercised. Paragraph 128 of MT 2010/1 provides some guiding principles to consider when exercising the discretion. It states: 128. Section 105-65 does not specify what factors are relevant to the exercise of this discretion. In exercising the discretion, the Commissioner will have regard to the following guiding principles: (a) The Commissioner must consider each case based on all the relevant facts and circumstances. (b) The Commissioner needs to follow administrative law principles such as not fettering the discretion or taking into account irrelevant considerations. (c) The Commissioner must have regard to the subject matter, scope and purpose of section 105-65. As explained in paragraph 127 of this Ruling, it clear from the scope and purpose that section 105-65 is designed to prevent windfall gains to suppliers and to maintain the inherent symmetry in the GST system and is based on the underlying design feature and presumption of the GST system that the cost of the GST is ultimately borne by the non registered end consumer. (d) The discretion should be exercised where it is fair and reasonable to do so and must not be exercised arbitrarily.… Of relevance to your circumstances is the guiding principle which provides that the discretion should be exercised where it is fair and reasonable to do so and must not be exercised arbitrarily In this case you have mistakenly treated the Recharges to Overseas Students as a taxable supply made by you to the Overseas Students which is subject to GST and have issued invoices entitled 'tax invoices' to Overseas Students for all Recharges received from Overseas Students. In issuing the 'tax invoices', you have recharged the value of the Premium, but have inadvertently calculated GST on the tax invoice as 1/11th of the Premium value and have subsequently remitted those GST amounts to the ATO in your BAS. You have not refunded, and do not propose to refund, amounts to the Overseas Students because the students have not borne the overpaid amounts of GST. The amount of the Recharges paid by the Overseas Students to you equal the price agreed to be paid in the contract between the Overseas Students and the Insurer. Therefore, in this situation, the Overseas Students are not out of pocket and have not been unfairly burdened with an additional GST charge. You, in incorrectly treating Recharges as taxable, have ultimately borne the GST accounted for on the Recharges. You have not claimed, any corresponding ITC in respect of any payments to Insurers during the Refund Period, and therefore have suffered a financial loss in respect of the Recharges. The overpayment of GST occurred as a result of an administrative error in your BAS' for the Refund Period whereby you incorrectly treated those supplies as taxable supplies and you have remitted GST calculated in accordance to the GST Act to the ATO. For these reasons, we consider that in relation to Recharges for the tax periods prior to 1 June 2014, the Commissioner will exercise his discretion to allow the refund of the overpaid GST. Whether Division 142 of the GST Act applies to your circumstances Division 142 GST Act applies to refund any 'Excess GST' which is an amount of GST that has been taken into account in an entity's assessed net amount and is in excess of what was payable by the entity in the relevant tax period prior to taking into account or applying the provisions of Division 142 GST Act. Under section 142-10 of the GST Act an amount of excess GST will only be refundable if: • it has not been passed on to the recipient, or • it has been passed on to the recipient, and the recipient has been reimbursed. 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 A New Tax System (Goods and Services Tax) Act 1999 provides the ATO's view on the operation of Division 142 of the GST Act. Of relevance to your circumstances is the example provided at paragraphs 65 to 67. Example tax invoice accidentally issued 65. Taylor Co and David Co enter into an agreement for David Co to purchase Taylor Co's business as a GST-free supply of a going concern. All the requirements of section 38-325 are met and the contract of sale is clear that the supply is a GST-free supply. 66. As Taylor Co regularly makes taxable supplies, Taylor Co's new accounts manager does not realise that the supply of the business is a GST-free supply. The accounts manager issues a tax invoice to David Co showing an amount of GST payable, and includes the GST on the GST return. 67. Even though Taylor Co has issued a tax invoice for the supply showing an amount of GST payable, it has other documentary evidence including the contract of sale and other written correspondence with David Co which indicate that the excess GST has not been passed on. The above example is very similar to the circumstances in your case. The overpayment of GST occurred as a result of an administrative error in your BAS' for the Refund Period whereby you incorrectly treated those supplies as taxable supplies and you have remitted GST calculated in accordance to the GST Act to the ATO. In this case you have mistakenly treated the Recharges to Overseas Students as a taxable supply made by you to the Overseas Students which is subject to GST and have issued invoices entitled 'tax invoices' to Overseas Students for all Recharges received from Overseas Students. In issuing the 'tax invoices', you have recharged the value of the Premium, but have inadvertently calculated GST on the tax invoice as 1/11th of the Premium value and have subsequently remitted those GST amounts to the ATO in your BAS. For these reasons, we consider that in relation to Recharges for the tax periods 1 June 2014 - 30 June 2014, the Commissioner will allow the amendments to your BAS for the Refund Period and refund any excess GST greater than your assessed net amounts for the Refund Periods. | Summary: If you made a GST error on an earlier activity statement, you can choose to correct that error on a later activity statement. You do not need to amend each individual BAS. | Detailed Reasoning - Detailed reasoning: An alternative and more efficient manner of amending your BAS is for you to self-amend. If you made a GST error on an earlier activity statement, you can choose to correct that error on a later activity statement. You do not need to amend each individual BAS. The benefits of correcting GST errors on a later activity statement are: • you are not liable to any penalties or general interest charge (GIC) for any GST error you correct on a later activity statement provided you meet the conditions to correct a GST error on a later activity statement You can correct a credit error on a later activity statement if all of the following conditions apply for each credit error: • the credit error is within the credit error time limit • you are not subject to a compliance activity • you have not corrected the GST error in another reporting period. Generally, it is easier to correct a GST error on a later activity statement rather than revising the earlier activity statement.