Private ruling: GST and the refund of overpaid GST
Date of advice: 24 October 2016
Published: February 2017

Ruling: Q1: Are you entitled to a refund of the overpaid/excess GST paid, when you treated your supply of consultancy services to a non-resident entity as a taxable supply for the relevant tax periods? | A1: Yes, you are entitled to a refund of the overpaid/excess GST paid when you treated your supply of consultancy services to the non-resident entity as a taxable supply for the relevant tax periods.

Relevant facts and circumstances: You are an Australian company registered for GST. You provide consultancy services to a non-resident entity. You have charged and remitted GST in respect to the consultancy services provided to the non-resident entity for the relevant tax periods. You have provided a copy of tax invoices issued by you for the consultancy services to the non-resident entity. The ATO issued a GST private ruling notifying you that your supply of your consultancy services to the non-resident entity is GST-free under of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). You reimbursed the non-resident an amount of overpaid GST remitted to the ATO in respect of your supply of consultancy services to the non-resident entity. You have provided a copy of the following documents: ● your bank details prior to the reimbursement of GST to the non-resident entity which shows bank balance; ● Details of the transfer of funds from your bank account to the bank account of the non-resident entity; ● Details of the receipt of the funds into bank account of the non-resident entity ● A copy of the bank balance of your account subsequent to the GST reimbursement. You have provided details of the amendments to your activity statements.

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

Reasons for decision: Detailed Reasoning - Refund for tax periods up to 31 May 2014: Section 105-65 of Schedule 1 of the Taxation Administration Act 1953 (TAA) applies to the tax periods that start before 31 May 2014. Section 105-65 of TAA states that the Commissioner need not give you a refund if all of the following conditions are satisfied: ● there was an overpayment of GST; ● a supply or arrangement was treated as a taxable supply when it was not a taxable supply or was taxable to a lesser extent; and ● either the recipient or the entity that is treated as a 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. The supply of your consultancy services to the non-resident entity is GST-free and therefore not subject to GST. Therefore, for the purposes of section 105-65, you have overpaid an amount of GST because a supply was treated as taxable when it is not a taxable supply. Specifically, you remitted GST in relation to the supply of consultancy services to the non-resident entity which represents an overpayment of GST. Paragraph 115A of MT 2010/1 states that taxpayers can consider that the Commissioner will be satisfied that the recipient has been appropriately reimbursed where: ● the recipient can be specifically identified; ● the amount of the reimbursement corresponds exactly to the amount of the GST overcharged to the recipient and the method of reimbursement ensures this is achieved; ● the reimbursement is in money, or if made through a journal entry, to the extent that the journal entry offsets the recipient's pre-existing liability to the taxpayer; and ● the reimbursement or journal entry has actually been made, and is not merely planned to be made. Based on the facts provided, the non-resident entity, the recipient of the consultancy services, is not registered or required to be registered for GST and you have reimbursed the overpaid GST to the non-resident entity. Therefore, we consider that section 105-65 of TAA will not apply in this situation. Accordingly you will be entitled to claim a refund of the overpaid GST for the tax periods up to 31 May 2014 by revising the relevant activity statements in which the overpaid GST was incorrectly accounted for. Alternatively you can use the Correcting GST Errors Determination (GSTE 2013/1) to claim your refund of the overpaid GST, by including the overpaid GST amount in the next activity statement that you lodge. | Detailed Reasoning - Refund for tax periods on or after 31 May 2014: Division 142 of the GST Act applies to tax periods that start on or after 31 May 2014. The object of Division 142 of the GST Act is to ensure that excess GST is not refunded if this would give an entity a windfall gain. Generally, Division 142 of the GST Act operates so that a supplier is not entitled to a refund of an amount of excess GST where the supplier has passed on the GST to another entity (the recipient), and has not reimbursed that other entity for the passed-on GST. In your case it is clear from the information provided that the excess GST has been passed on, by you, to the non-resident entity. This is evidenced by the issuing of tax invoices, inclusive of GST, by you to the non-resident entity for the supply of consultancy services. We need to determine whether section 142-10 of the GST applies to your case . | Detailed Reasoning - Section 142-10 of the GST Act: Paragraph 17 of GSTR 2015/1 describes when section 142-10 of the GST applies: 17. If the excess GST has been passed on to the recipient, section 142-10 applies to treat the excess GST as always having been payable, and payable on a taxable supply, until the excess GST has been reimbursed to the recipient. Once section 142-10 ceases to apply, the supplier can claim a refund of the excess GST. As there is excess GST and it has been passed on by you, under section 142-10 of the GST Act the excess GST is treated as having always been payable on a taxable supply until you reimburse the excess GST to your recipients. Paragraph 69 to 71 of GSTR 2015/1 provides guidance on what the Commissioner considers to be reimbursement for the purposes of division 142 of the GST Act. Paragraph 70 of GSTR 2015/1 states: 70. For the purposes of section 142-10, a supplier has reimbursed the recipient for the passed-on excess GST where: ● reimbursement takes the form of a payment in money, the setting off of mutual liabilities, or the issuing of a voucher, the recipient must be able to choose the form in which reimbursement is made ● the amount of the reimbursement corresponds to the amount of excess GST passed on to the recipient and the method of reimbursement ensures this is achieved, and ● the reimbursement or journal entry under an agreement to set-off the liabilities between the parties has actually been made, and is not merely planned to be made. You have provided the following documents which show that you have paid the outstanding GST amount: ● your bank details prior to the reimbursement of GST to the non-resident entity; ● Details of the transfer of funds from your bank account to the bank account of the non-resident entity. ● Details of the receipt of the funds into bank account of the non-resident entity. ● A copy of the bank balance of your account subsequent to the GST reimbursement. Based on the facts provided, you have reimbursed the excess GST to the non-resident entity for the passed-on excess of GST to the non-resident entity. Therefore, section 142-10 of the GST Act ceases to apply. Accordingly you will be entitled to claim the refund of the excess GST by making a decreasing adjustment which is attributable to the tax period in which the reimbursement is made.