Private ruling: Refund of GST
Published: April 2012
Ruling period: N/A
Date scheme commenced: N/A

Ruling: Q1: Will the Commissioner exercise his discretion under section 105-65 of Schedule 1 to the Taxation Administration Act 1953 (TAA) to allow you a refund of the goods and services tax (GST) when you incorrectly accounted for GST in your activity statements for GST-free supplies? | A1: Yes

Relevant facts and circumstances: · You are a company that provides services for both children and adults with intellectual and physical disabilities. · You are a non-profit/charitable organisation registered for GST. · As part of your services you operate a school which is an independent non-fee paying school for students with moderate to severe intellectual and physical disabilities. · The school is a major service provider for students with special needs. The school aims to offer specialised support to students with disabilities in order to enhance their educational experience. · The school receives government funding under a government scheme. (Scheme) · The Scheme was introduced as there was limited provision in government schools for students with intellectual disability and is paid to non-government special schools for students that meet certain criteria. · The scheme provides a subsidy paid towards the salary cost of supervisors or teachers of children with moderate to severe intellectual disabilities, including children with autism. · The subsidy was payable, based on the relevant State Awards. · The scheme is not a payment for salary expenditure as such, but a subsidy scheme based on award salary rates. · Your agent requested amendments to your Business Activity Statements as you had been reporting and paying GST on the amounts received under the Scheme where these payments were GST-free. · You have provided copies of Payment Advices from the government department showing the amounts of the subsidies. · You have also provided a copy of the government department's publication relevant to the Scheme, states that GST is not applicable to payments made under this scheme.

Relevant legislative provisions: Taxation Administration Act 1953 , Section 105-65 Schedule 1

Reasons for decision: Summary: 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 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. Subsection 105-65(1) of Schedule 1 to the TAA states: (1) The Commissioner need not give you a refund of an amount to which this section applies, or apply (under Division 3 or 3A of Part IIB) an amount to which this section applies, if: (a) you overpaid the amount, or the amount was not refunded to you, because a *supply was treated as a *taxable supply, or an *arrangement was treated as giving rise to a taxable supply to any extent; and (b) the supply is not a taxable supply, or the arrangement was treated as giving rise to a taxable supply, to that extent (for example, because it is *GST free); and (c) one of the following applies: (i) the Commissioner is not satisfied that you have reimbursed a corresponding amount to the recipient of the supply or (in the case of an arrangement treated as giving rise to a taxable supply) to an entity treated as the recipient; (ii) the recipient of the supply, or (in the case of an arrangement treated as giving rise to a taxable supply) the entity treated as the recipient, is *registered or *required to be registered. Note: * asterisk denotes a defined term in the Act 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 the Scheme 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 have advised that the recipients of your supply are unlikely to be registered for GST purposes 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, 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. Paragraphs 116 and 117 of MT 2010/1 state: · 116.The operation of section 105-65 to deny the requirement to pay refunds that would otherwise be payable is not discretionary.…The words of the provision say that where the section applies the Commissioner need not give you a refund of the amount or apply the amount under the relevant RBA provisions…. · 117. The Commissioner considers that the words "need not", in the context of section 105-65, do not prohibit the giving of a refund and accordingly the Commissioner has a discretion to pay a refund in appropriate circumstances…. This view is supported by the decision in Luxottica Retail Australia Pty Ltd v FC of CoT 2010 ATC 10-119 at 57 when the AAT referred to "residual discretion": 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. The circumstances in which the Commissioner considers it may be fair and reasonable to exercise the discretion include, but are not limited to, the following: (i) The overpayment of GST occurs as a result of an arithmetic or recording error made by the supplier. For instance, an entity correctly treated its supply as GST-free when making the supply to the customer. However, when filling out its activity statement the entity incorrectly included the supply as a taxable supply in the calculation of the net amount returned on the activity statement. In such circumstances it would not be necessary for the supplier to refund the recipient of the supply whether the recipient is registered or unregistered. ... Of relevance to your circumstances is the guiding principle (d)(i) which provides that the discretion should be exercised where it is fair and reasonable to do so and must not be exercised arbitrarily and provides an example which the Commissioner considers it may be fair and reasonable to exercise the discretion where the overpayment of GST occurs as a result of an arithmetic or recording error made by the supplier. For instance, an entity correctly treated its supply as GST-free when making the supply to the customer. However, when filling out its activity statement the entity incorrectly included the supply as a taxable supply in the calculation of the net amount returned on the activity statement. In such circumstances it would not be necessary for the supplier to refund the recipient of the supply whether the recipient is registered or unregistered. In this case you have advised that the supply of your services was made as a GST-free supply and you have provided copies of Payment Advices from the government department showing the amounts of the subsidies and also a copy of the government department's publication relevant to the Scheme which clearly provide that the supplies are GST-free. However due to an administrative error your BAS' for the periods incorrectly treated those supplies as taxable supplies and you had been remitting GST calculated in accordance to the GST Act to the ATO. In conclusion, the Commissioner is satisfied that you have overpaid an amount because you treated a supply as a taxable supply when the supply was not a taxable supply. The overpayment of GST occurred as a result of an arithmetic or recording error made by you. Consequently it is appropriate for the Commissioner to exercise his discretion under section 105-65 of Schedule 1 to the TAA to refund any incorrectly remitted GST by you for your supplies.

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