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  • Issue 23 Running balance account (RBA)

    23.1 Refund issues for GST groups

    There is a GST group of A, B & C. A is the nominated member:

    a. A lodges a group BAS for January 2001 showing a liability of $30,000. The liability is not paid. A has an entitlement to an income tax refund of $20,000. Will the ATO offset A's refund entitlement against the tax due on the January 2001 group BAS or will the income tax refund be paid to A?

    b. A lodges a group BAS for January 2001 showing a liability of $30,000. The liability is not paid. C has an entitlement to an income tax refund of $20,000. Will the ATO offset C's refund entitlement against the tax due on the January 2001 group BAS or will the income tax refund be paid to C?

    c. X & Y are related but have not registered as a GST Group. X lodges a January 2001 BAS that results in a refund of $20,000. Y lodges a January 2001 BAS that results in tax payable of $5,000. Both returns are lodged by the due date.

    Can X direct that $5,000 of the refund entitlement be used to meet the GST liability of Y?

    If so, what are the direction requirements?

    If a direction is made, does Y have any exposure for late payment penalties?

    ATO response

    Previously, under section 8AAZL of the Taxation Administration Act 1953 (TAA 1953) the Commissioner had to offset any RBA surplus or credit, for example, a Business Activity Statement (BAS) refund, against any outstanding liability including an amount that was disputed, or due but not yet payable.

    However, circumstances were identified where refunds resulting from a BAS were offset against Income Tax amounts that were due but not payable for a considerable period of time, or were due and payable but subject to a payment arrangement.

    To address these concerns sub-section 8AAZL(3) TAA 1953 was inserted by Taxation Laws Amendment Act (No8) 2000. This amendment enables the Commissioner to exercise a discretion not to offset refunds or credits against a:

    "tax debt:

    (a) that is :

    (i) not a BAS amount (as defined in subsection 995-1(1) of the Income Tax Assessment Act 1997); and

    (ii) due but not yet payable; or

    (b) in respect of which the taxpayer has complied with an arrangement under section 255-15 to pay the debt by instalments; or

    (c) in respect of which the Commissioner has agreed to defer recovery under section 255-5."

    For the purposes of Section 8AAZL of Taxation Administration Act 1953, the Commissioner will exercise his discretion not to offset refunds or other credits against any amount that is due but not payable within 21 days of the date that the refund or credit becomes available, unless, on an evaluation of the related compliance risk, such an offset should occur.

    Therefore, in the situation described at (a), if the income tax refund becomes available within 21 days of the BAS liability becoming due and payable, the refund will be offset against the BAS liability. Otherwise, the offset will not occur unless a compliance risk was evident.

    In the situations described at (b) and (c), offsets will not take place. This is because the tax refunds and liabilities are applicable to separate entities. Further, entities cannot direct the Commissioner to offset their refunds against the taxation liabilities of other entities. However, an entity can direct the Commissioner to pay its refund into a joint account with another entity.

      Last modified: 22 May 2014QC 28063