• Why we retain refunds

    Why did the law change?

    The Commissioner can retain a refund amount for the purpose of verification if it would be reasonable to do so. The legislation was primarily introduced to address the outcome of FC of T v Multiflex Pty Ltd [2011] FCAFC 142 (Multiflex).

    Before the Court's decision in Multiflex, it was our administrative practice for refunds under section 35-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) to retain them pending verification checks. We did this on the basis that our ability to do so was implied by the TAA and the GST Act and within our general powers of administration.

    The practice was also considered to be consistent with our obligations under the Financial Management and Accountability Act 1997 and our legislative obligation to pay interest to an entity under the Taxation (Interest on Overpayments and Early Payments) Act 1983 on refunds paid or credited following the expiry of a period set out in that Act.

    In Multiflex, contrary to our administrative practice, the Full Federal Court found that we are required to pay a GST refund within the time it takes to undertake the necessary administrative steps to process the entity's return and make the payment. The Court found that the law provides no additional time for checking the validity of the claim, even if we suspect it might be incorrect.Although section 8AAZLGA was introduced primarily to address the outcome in Multiflex (which is about a GST refund), section 8AAZLGA allows us to retain refunds relating to other taxes if there is an entitlement to be paid a refund on lodgment.

    The discretion is intended to allow us to consider the correctness of the information you provide before refunding an amount we would otherwise have to refund.

    We will not use the discretion to withhold a refund merely because we disagree with you about how the law applies to the facts. If that occurs, we issue an assessment or amended assessment to reflect our view of the law.

    How does the current law compare with the previous law?

    Current law

    (Section 8AAZLGA and related provisions)

    Previous law

    The Commissioner is required to pay a refund that a taxpayer is entitled to under a tax law within the time it takes to undertake the necessary administrative steps to process the taxpayer's return and make the payment.

    However, the Commissioner may retain an amount if it would be reasonable to require verification of information relating to a refund amount provided by the taxpayer.

    The Commissioner is required to pay a refund that a taxpayer is entitled to under a tax law within the time it takes to undertake the necessary administrative steps to process the taxpayer's return and make the payment.

    There is no legislative provision that allows the Commissioner to retain a refund to check the validity of the claim, even if the Commissioner suspects it might be incorrect

    The Commissioner is required to notify the taxpayer when we retain an amount under the provision.

    No equivalent.

    Taxpayers may object under Part IVC of the TAA against a decision of the Commissioner to retain a refund if, within a set period of time, the Commissioner has not either:

    • refunded the amount
    • amended the taxpayer's assessment
    • made or amended an assessment relating to the amount under Division 105 in Schedule 1 to the TAA.

    A decision by the Commissioner to retain an amount is not exempt from judicial review.

    No equivalent.

    Does this only apply to GST, luxury car tax and wine equalisation tax refunds?

    No. The discretion to retain a refund is not limited to a refund of a net amount calculated under the GST Act. The discretion will also apply to other taxes we administer if you may be entitled to a refund because of a lodgment.

    What happens to an activity statement or other return that was due for lodgment before 27 June 2012 but was lodged after?

    This discretion applies from 27 June 2012 - the date of royal assent.

    The discretion applies to a running balance account (RBA) surplus or credit in your favour that exists at the date of Royal Assent, even though the activity statement or other return was for a period that was due for lodgment before the date of Royal Assent.

    What is a RBA surplus or credit?

    Section 8AAZLGA applies to a running balance account (RBA) surplus or credit.

    A RBA surplus means a balance in your favour based on primary tax debts that have been allocated to your RBA and payments made for your current or anticipated primary tax debts and credits to which you are entitled to under a tax law that have been allocated to your RBA. A RBA surplus occurs when you are entitled to the credit, not when the credit is actually posted to your account.

    A credit includes an amount that we must pay you under a tax law. For example, in relation to GST, if the net amount disclosed in your activity statement is a negative net amount (that is, the sum of the input tax credits claimed exceeds the sum of the GST payable on taxable supplies attributed to a tax period), you are entitled to be paid a refund of that amount.

    When can we retain a refund?

    We may retain an amount under section 8AAZLGA only if you have lodged an activity statement or other return and either:

    • it would be reasonable to require verification of the information contained in the activity statement or other return and the verification relates to the amount that we would have to refund
    • you have asked us to retain the amount for verification and you have not withdrawn that request.

    The test of reasonableness is an objective test and there are particular factors that the Commissioner must consider for the purposes of this test.

    What factors do we need to take into account in deciding whether to retain an amount?

    As far as the information available to us at the time of making the decision reasonably allows, we must consider the following:

    • the likely accuracy of the information in the activity statement or other return (the notified information)
    • the likelihood that the notified information was affected by either
      • fraud or evasion
      • intentional disregard of a tax law
      • recklessness as to the operation of a tax law
       
    • the impact of retaining the amount on your financial position
    • whether retaining the amount is necessary for the protection of the revenue, including the likelihood that we can recover any of the amount if the notified information is found to be incorrect after we have refunded the amount
    • any complexity involved in verifying the notified information
    • the length of time we have already retained the amount
    • what we have already done to verify the notified information
    • whether we have enough information to make an assessment (including information obtained from making further requests for information)
    • the extent to which the notified information is consistent with information that you previously provided
    • any other relevant matter.

    For more details about the above factors, see PS LA 2012/6: Exercise of the Commissioner's discretion under section 8AAZLGA of the Taxation Administration Act 1953 to retain an amount that would otherwise have to be refunded

    If you have an outstanding activity statement at the time you lodged an activity statement or other return that entitles you to a refund amount, what law can we retain the refund under?

    Under section 8AAZLG, if you have an outstanding activity statement that you are required to lodge, we can retain your refund amount until you lodge that outstanding statement. If we retain your refund amount under section 8AAZLG, a decision to retain the amount under section 8AAZLGA cannot be made and our notification obligations under section 8AAZLGA do not apply.

    After you lodge any outstanding activity statements, we may decide to retain your refund amount under section 8AAZLGA. In such cases, the time by which we must inform you of our decision to retain your refund will start from the time you lodge all your outstanding statements that were due to be lodged.

    If your activity statement shows a negative net amount and when allocated to your RBA the account does not go into a surplus, can we retain an amount?

    No. In this case, section 8AAZLGA does not apply because there is no RBA surplus to retain. A RBA surplus can only arise after a credit has been applied to an existing debt and there is a remaining balance in your favour.

    If we cannot refund an amount because you have not provided your bank account details, what law do we retain the refund under?

    We retain it under subsection 8AAZLH(4), so our notification obligations under section 8AAZLGA do not apply.

    After you provide your bank account details, we may decide to retain your refund under section 8AAZLGA. In such cases, the time by which we must inform you of our decision to retain will start from the time you have provided us with your bank account details.

      Last modified: 29 Jan 2013QC 28291