Private ruling: Refund of GST
Published: June 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 incorrectly accounted for GST in your activity statements for supplies that are out of scope? | A1: Yes


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. 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. Note: * asterisk denotes a defined term in the Act | 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. 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. 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.… 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 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 your supplies during the relevant periods were made as out of scope supplies as per your Private Binding Ruling. However due to an administrative error your Activity Statements for the periods incorrectly treated those supplies as taxable supplies and you have remitted GST calculated in accordance to the A New Tax System (Goods and Services) Act 1999 (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. It follows that the overpaid GST was not passed on to the recipient and the burden of the GST was borne by you. 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. | · You are a gift deductible non - profit entity registered for GST purposes. | · You are not a Government related entity and receive some funding from a related Government entity | · You advise that you have overpaid your GST payable on supplies made subject to a court order. | · You received a Private Binding Ruling from the ATO that stated that these supplies were out of scope for GST as they were not in connection with any supply you make. | · You have an informal arrangement with the Court whereby offenders are directed to attend programs run by you. | · The arrangement is operated by way of a program set up for fist time offenders so that they may avoid a criminal record by undertaking conditions that will benefit the offender, victim and the community. | · The conditions can include making donations, attending counselling or courses etc. | · Participation in the program is voluntary such that where the tasks are not completed the matter is referred back to the Courts as if it was its first listing. | · Under the program, the Court can sentence an offender by either directing him to either: | o attend your program and make a donation to you in lieu of a fine; or | o the offender will be directed to make a donation only. | · The amount of the donation is determined by the Court based on the offender's level of income. You do not determine the amount of the donation. | · If the offender either fails to attend the program, or fails to make the donation, the offender is required to return to Court and the sentencing procedure is reactivated. | · You issue the offender with a receipt for the donation received which the offender must then present to the Court as proof of payment. (No GST amount has been withheld or remitted in relation to the monies received). | · Offenders are generally charged with a summary offence under the Road Safety Act, and but for the diversion program, would be required to pay a court fine. | · Members of the public have occasionally, but rarely, attended your TOP. | · You do not charge a specified fee for attendance at the program. | · The donations received from offenders at the direction of the Court are applied by you to assist with on-going developments and costs. | · The recipients of your supply have not been reimbursed for any amount corresponding to the GST overpaid as the recipients were not charged GST. | · The error occurred as the book-keeper left suddenly without any hand-over a number of years ago. To alleviate a reoccurrence of the problem you we will include a copy of the ATO ruling in your manual for accounting procedures and have a proper hand-over should an accounting staff leave.