Upholding integrity of GST refunds

Revenue collected from the goods and services tax (GST) helps fund services for the Australian community, which is why safeguarding the GST revenue base and ensuring the integrity of refunds is so important.

In some cases, incorrect claims for refunds are the result of an honest mistake or a misunderstanding of the law. In other cases, they are a deliberate attempt to defraud the Australian Government.

In 2012–13, 17 people were prosecuted for business activity statement (BAS) refund fraud, with the offenders receiving custodial sentences, ranging from six months to 10 years.

Preventing fraudulent BAS claims

In 2011–12, there were 2.2 million activity statement refund claims, including GST, totalling around $53.7 billion. We identified 45,000 refund claims as being potentially overclaimed or fraudulent, and adjusted, on average, one out of every three of these. This resulted in around $775 million of incorrect refunds being corrected.

By comparison, in 2012–13 we reviewed around 36,000 activity statement refund claims, adjusting, on average, one out of three of these. This resulted in around $423 million of incorrect refunds being corrected.

Deregistration proves a deterrent

Despite our vigilance, some organised and sophisticated groups continue to misuse ABN registrations – for companies, partnerships and trusts – to facilitate GST registrations to make fraudulent activity statement refund claims. When we detect such cases, we apply the full force of the law.

In 2012–13, we conducted around 20,000 checks for incorrect or fraudulent registrations and cancelled 4,500 high-risk GST registrations from the system. Another 1,100 registrations were cancelled as a result of further checks which showed that the entity in question was not carrying on an enterprise.

To help us evaluate the flow-on effectiveness of our refund assessment work, we examined the activity statements of taxpayers who had their refunds amended in 2012–13, to check whether their compliance had subsequently improved. We found that taxpayers who had previously had their GST claims audited showed an improvement in their tax compliance in contrast to the benchmark population.

As shown in Figure 1, we also found that 35% of taxpayers who had a refund amended by us in 2012–13 subsequently deregistered for GST. This compares to around 9% to 10% against benchmark groups of clients who did not have a refund amended. Of the GST deregistrations, 49% were directly linked to refund amendments; we believe around $14 million in potential future incorrect refund claims did not proceed because the entities were deregistered for GST purposes.

 Figure 1: Effects of compliance activity on GST deregistrations

Figure 1: Effects of compliance activity on GST deregistrations

Last modified: 07 Mar 2016QC 37654