Private ruling: GST and refund of GST
Date of advice: 14 February 2017
Published: July 2017

Ruling: Q1: Are you entitled to claim a refund of the GST remitted to the Australian Taxation Office (ATO) in respect of the payments received from entity X and/or its related company? | A1: No

Relevant facts and circumstances: You are registered for GST on a cash basis with quarterly tax periods. You owned property which you leased to entity X. The lease was for an initial term with an option to renew for a further term. Under the lease, the annual basic rental (which was over $75,000) plus GST was payable by equal monthly instalments. The terms of the lease allowed for the yearly rental to be reviewed each year. In addition, entity X was required to pay the outgoings associated with the property. Each month, you issued a tax invoice to entity X for the rent and outgoings payable by them. The tax invoice also listed the amount of GST included in the payments. The GST received from entity X was remitted to the ATO as part of your quarterly Business activity statement (BAS). Later you entered into an agreement to sell the property to entity X under a vendor finance arrangement which was outlined in the executed Loan Agreement (Loan Agreement). There was no transfer of the property at the time as entity X could not provide any security for the loans. However, it was verbally agreed that the payments made under the loan (except for the interest) would go towards buying the property. Later you and entity X entered into a Variation of Lease under which the rent for the property was increased. No other provisions in the original lease were varied. Later, an unrelated third party made you an offer to buy the property. You discussed the offer with entity X and it was agreed that, for allowing you to sell the property, you would buy another property and that the money already paid on the loan (excluding the interest) would be put towards the purchase of that new property. The original property was sold prior to 31 May 2014. The new property was purchased and you were required to construct premises within two years. This was not done so entity X and its related company (the plaintiffs) instituted legal proceeding against you. At mediation, to avoid the costs, inconvenience and uncertainty of litigation, the parties agreed to settle the proceedings on certain terms. One of these terms was that it was agreed that the payments and GST made by entity X to you was part payment for the purchase of the new property. After mediation, the parties entered into a Deed outlining the terms of their agreement. The terms included that the new property would be transferred to the related company of entity X and that you would apply to the ATO for a refund of the GST paid. A clause of the Deed indicates that the GST refund you sought was in relation to the payments made by entity X pursuant to successive leases entered into by it in respect of the property. In view of the Deed entered into by the parties, the Court made a consent order that dismissed the proceedings with no order as to costs. After 30 June 2016, you lodged a private ruling application requesting a refund of the GST paid to the ATO for the relevant period. No previous notification of an entitlement to a GST refund was sent by you.

Relevant legislative provisions: Taxation Administration Act 1953 section 105-55 of Schedule 1 | Taxation Administration Act 1953 section 105-65 of Schedule 1

Reasons for decision: Summary: Based on the available information, you are not entitled to claim a refund of the GST remitted to the ATO in respect of the payments received from entity X and/or its related company because there has been no overpayment of GST. That is, the payments made by entity X under the terms of the lease were correctly treated as being rental payments which were subject to GST. Consequently, the GST applicable to these rental payments was correctly reported and remitted by you and as such, there is no entitlement to a GST refund. In addition, even if there was an overpayment of GST, the four-year time limit applied to deny any entitlement to a GST refund for the tax periods prior to 1 July 2012. | Detailed Reasoning - Detailed reasoning: For tax periods starting before 31 May 2014, any entitlement to a refund of GST is first subject to the restrictions on GST refunds which are outlined in section 105-65 of Schedule 1 to the Taxation Administration Act 1953 (TAA). In particular, section 105-65 of Schedule 1 to the TAA provides that the Commissioner need not give a refund or credit of overpaid GST 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 it was taxable to a lesser extent, and ● 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. These conditions seek to ensure that the supplier does not receive a windfall gain at the expense of the end consumer by retaining in full a GST-inclusive price for a supply on which GST is not payable. Miscellaneous Taxation Ruling MT 2010/1 sets out the Commissioners view on the application of section 105-65 of Schedule 1 to the TAA. As explained in paragraph 20 of MT 2010/1, for section 105-65 of Schedule 1 to the TAA to apply, there must first be an amount of GST taken into account in an entity's assessed net amount which is in excess of what was legally payable on the supplies made in the relevant tax period. In addition, paragraph 38 of MT 2010/1 provides that, the scheme of the GST legislation, on which the section 105-65 of Schedule 1 to the TAA policy is based, is premised on the principles that: ● it is the supplier that determines if the supply that it makes is taxable in the first instance ● double taxation is avoided by the registered recipient being entitled to claim an input tax credit for that taxable supply where it is acquired for a creditable purpose and the supplier provided a tax invoice, and ● it is the unregistered end consumer that bears the cost of the GST. You contend that you incorrectly remitted GST to the ATO in respect of payments made by entity X. That is, you advised that you entered into an agreement to sell the property to entity X and that the payments made were not rent but instead payments towards the purchase of this property. In view of this, you consider that the payments should not have been subject to GST and as such, you should be entitled to a GST refund. However, the documents that you and entity X entered into around this time do not support your view. That is, under an executed lease agreement, entity X leased the property. The terms of this lease agreement included the payment of monthly rental payments plus GST and the outgoings associated with the property. As well, each month you issued tax invoices to entity X which outlined the rental payments, GST and outgoings which was payable. In addition, you and entity X later entered into a variation to the lease. This variation increased the rent for the property but no other provisions in the original lease were varied nor was there any mention of the payments under the lease not being rental payments. Furthermore, clause of the Deed indicates that the GST refund you sought was in relation to the payments made by entity X pursuant to successive leases entered into by it in respect of the property. Therefore, based on the available information, it is clear that the payments made by entity X were for the lease of the property. Under the terms of the lease, the rental payments were subject to GST as you were carrying on a leasing enterprise and required to be registered for GST as your GST turnover was over $75,000. Consequently, as you accounted for GST on a cash basis, you attributed the GST payable on the rental payments to the quarterly tax periods in which the payments were received and also remitted the GST to the ATO. However, as part of the settlement for a legal dispute, it was agreed that the rental payments, or a portion of the rental payments, would be treated as a part payment for the purchase of the new property. This agreement does not change the fact that, at the time these payments were made, they were rental payments and subject to GST. Accordingly, as the GST on the rental payments made by entity X was correctly reported and remitted by you there is no overpayment of GST. As such, there is no entitlement to a refund of the GST remitted to the ATO in respect of the rental payments received from entity X. | Detailed Reasoning - Four-year Time limit: Notwithstanding the above decision, an entitlement to a GST refund is also subject to the four-year time limit imposed by section 105-55 of Schedule 1 to the TAA for tax periods prior to 1 July 2012 and the self-assessment provisions which apply from 1 July 2012. Under section 105-55 of Schedule 1 to the TAA, an entitlement to a GST refund or credit expires four years after the end of the tax period to which it relates unless the Commissioner is notified before that time that it is entitled to the GST refund or credit. A corresponding restriction is also imposed on the Commissioner in relation to the recovery of GST. This means that an unpaid GST amount or an overpaid GST refund ceases to be payable four years after it became payable unless a notice requiring payment is issued within that four-year period or it was the result of fraud of evasion. The Government's purpose in legislating equivalent time limits is to provide certainty to both taxpayers and the Commissioner in relation to transactions which occurred more than four years ago. In this case, your request for a GST refund for the tax periods prior to 1 July 2012, as outlined in your private ruling application, was not lodged with the ATO until after 30 June 2016 which is outside of the four-year time limit for these tax periods. To be a valid notification for the June 2012 quarterly BAS, the private ruling application would have needed to be lodged on or before 30 June 2016. In addition, we have been advised that no earlier notifications of an entitlement to a GST refund were lodged by you. Therefore, even if there had been an overpayment of GST, there would still be no entitlement to a GST refund for the tax periods prior to 1 July 2012 due to the four-year time limit. It should be noted that the Commissioner has no discretion to extend the four-year time limit. This was confirmed by the Administrative Appeals Tribunal (AAT) decision in Australian Leisure Marine Pty Ltd v FC of T , 2010 ATC 10-148. Paragraph 18 of the AAT decision states: The Commissioner (and this Tribunal) has, in my view, no discretion to extend the time which is provided for by s 105-55(1) of Sch 1 to the Act …. For tax periods starting on or after 1 July 2012, self-assessment will apply. This means that requests for a refund of GST must be made within a four year period of review. The period of review starts when a notice of assessment is given and ends four years and one day after that date. From 1 July 2012, the Commissioner is deemed to have made an assessment when a BAS is lodged. Once a period of review has expired an assessment can no longer be amended unless, among other things, one of the exceptions applies. One of the exceptions to the period of review is to give effect to a private ruling requested during the period of review. Your private ruling application was lodged after 30 June 2016 which is within the period of review for your September 2012 quarterly BAS and each subsequent quarterly BAS. This means that even though the period of review for some of these BAS has now expired, the ATO would still have been able to amend these BAS to allow a GST refund if it had been determined under the private ruling that you were entitled to a GST refund for the period from 1 July 2012.