Private ruling: Refund of GST
Published: August 2012

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 have incorrectly overpaid GST? | A1: Yes.

Relevant facts and circumstances: You are a company registered for goods and services tax (GST). You lodged a Notification of e ntitlement to a GST refund . The requested net GST refund arose from Business Activity Statements ( AS) lodged for specific periods. (refund period) The entitlement to a refund has arisen as a consequence of GST incorrectly remitted on certain credit card surcharge fees due to an oversight with current accounting policies and procedures. You introduced credit card surcharge fees on your supplies and have inadvertently remitted and overpaid GST for the refund period. At all relevant times, you have advised your customers that there is no GST payable on the credit card surcharge for the supplies. You have provided a series of Tax invoice samples that show that GST has not been charged to your clients in these circumstances. You submit that section 105-65 in Schedule 1 to the Taxation Administration Act 1953 has no application.

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

Reasons for decision: Summary: 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 credit card surcharge is a component of the consideration paid for the supply of goods or services by the entity and it will have the same GST treatment as the underlying supply. Section 105-65 of Schedule 1 to the Taxation Administration Act 1953 (TAA) contains a discretion which the Commissioner may exercise in certain limited circumstances to allow the refund. Your circumstances warrant the exercise of the discretion. | 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 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. | Detailed Reasoning - 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. | Detailed Reasoning - Credit Card Surcharge: Issue 15 of the Tax Office publication 'Financial Services - Questions and Answers' sets out the Tax Office's view in relation to whether a credit card surcharge is part of the consideration for a supply made by a merchant. Note: This section is currently under review following the recent amendments to the financial supply provisions of the goods and services tax law from 1 July 2012 however it is considered that this will not have any impact on the credit card surcharge advice. At 15.1 it stated that: · Yes. The surcharge is considered to form part of the price for the merchant's supply of goods and services to the cardholder. It is a component of the consideration payable in respect of the supply. Therefore, for GST purposes, the Tax Office considers that the surcharge is a component of the consideration paid for the supply of goods or services by the merchant. Accordingly, the surcharge will have the same GST treatment as the underlying supply. Issue 15.1 of 'Financial Services - Questions and Answers' provides examples of the GST consequences of charging a credit card surcharge on various types of supplies, of relevance to your circumstances is Example 2 which states: : | Detailed Reasoning - Example 2: Purchase of fruits and vegetables - GST-free supply: Ming Ho, a fruit and vegetable retailer, purchases his stock from a wholesaler. In one particular purchase, the price of the fruits and vegetables comes to $1,100. The wholesaler imposes a surcharge of 2% on the price if payment is made by credit card. Ming Ho pays by credit card and incurs a surcharge of $22. The price paid in respect of the fruits and vegetables will be $1,122. The supply of the fruits and vegetables is a GST-free supply and GST is not payable in respect of the sale. As example 2 notes, the supply is a GST-free supply. In this case, where a customer pays the entity for a supply with a credit card and a surcharge is added the surcharge also forms part of the price of the supply being made. In this case you remitted GST of 1/11 of the price of the supplies of the surcharge fee when these payments were part of the consideration for a GST-free supply. 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 recorded the supplies of the surcharge fee include in the price of international airline travel as a taxable supply and remitted GST to the Commissioner when the supplies were not taxable supplies. 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:.… [Emphasis added]. .… Paragraphs 126 and 127 explain further: 126. The discretion contained in section 105-65 must be exercised within a framework that the GST Act is structured on a basis that GST is passed on when a supply is treated as a taxable supply. As such, factors outlined in Avon at paragraphs 9 to 12, albeit in a sales tax context, would equally apply in a GST context: … 127. It is clear from the scope and purpose of section 105-65 that the provision is designed to prevent windfall gains to suppliers and to require the supplier to ensure that any refund ultimately compensates the person or entity who ultimately bore the cost. In relation to a refund of overpaid GST, the potential or otherwise for a windfall gain, the requirement to ensure the refund compensates the person or entity that ultimately bore the cost and the potential to disturb the symmetry envisaged by the GST system, are factors that must be taken into account in relation to the exercise of the discretion. In this case you have advised that you have overpaid GST as a result of remitting GST on the credit card surcharge fees on GST-free supplies. The recipients have not paid any GST on the GST-free supplies. Because of the error, you are the entity who ultimately has borne the GST. You have not passed on the GST to the clients and would not receive any windfall gain following the refund. The refund of the overpaid GST is fair and reasonable in the circumstances. Consequently the Commissioner will exercise his discretion under section 105-65 of Schedule 1 to the TAA to refund any incorrectly remitted GST by you.

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.