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.

    Last modified: 29 Jan 2013QC 28291