ATO Interpretative Decision

ATO ID 2013/56

Goods and Services Tax

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Issue

Will the Commissioner be satisfied that an amount of overpaid GST has been reimbursed to a recipient pursuant to subparagraph 105-65(1)(c)(i) of Schedule 1 to the Taxation Administration Act 1953 when a supplier makes a journal entry in its accounts, acknowledging a debt owed to the recipient for an amount corresponding to the overpaid GST?

Decision

No. The Commissioner will not be satisfied that an amount of overpaid GST has been reimbursed to a recipient when a supplier merely makes a journal entry in its accounts, unless the journal entry offsets a pre-existing liability owed by the recipient to the supplier.

Facts

The entity (supplier) is registered for goods and services tax (GST).

The entity has treated a supply to an unregistered recipient as a taxable supply.

The supply is in fact not a taxable supply.

The entity has overpaid the GST on the supply.

The entity makes a journal entry in its accounts, acknowledging a debt owed to its unregistered recipient for an amount corresponding to the overpaid GST.

Reasons for Decision

Under section 105-65, the Commissioner need not give an entity a refund where, for example, a supply was treated as a taxable supply but is not a taxable supply, and the Commissioner is not satisfied that the entity has reimbursed to the recipient of the supply an amount corresponding to the overpaid GST.

By contrast, once the entity has reimbursed its unregistered recipient an amount corresponding to the overpaid GST, section 105-65 no longer applies to restrict the refund.

Miscellaneous Taxation Ruling MT 2010/1 restrictions on GST refunds under section 105-65 of Schedule 1 to the Taxation Administration Act 1953, at paragraph 115A states:

In cases where the recipient is not registered or required to be registered, taxpayers can consider (that is self-assess) that the Commissioner will be satisfied that the recipient has been appropriately reimbursed (and that therefore section 105-65 will not apply) where:

•

the recipient can be specifically identified;

•

the amount of the reimbursement corresponds exactly to the amount of the GST overcharged to the recipient and the method of reimbursement ensures this is achieved;

•

the reimbursement is in money; and

•

the reimbursement has actually been made, and is not merely planned to be made.

In considering whether the reimbursement has actually been made we need to consider what is meant by reimbursement. The term 'reimburse' is not defined in the Taxation Administration Act 1953. Therefore it takes on its ordinary meaning. The Macquarie dictionary defines 'reimburse' as:

1.

to make repayment to for expense or loss incurred.

2.

to pay back; refund; repay.^[1]

A journal entry in the supplier's accounts which acknowledges a debt owed to the recipient is, at best, a promise to pay. However, it does not mean that the supplier has actually repaid, paid back or refunded an overpaid amount of GST to the recipient.

Accordingly, in these circumstances, the Commissioner is not satisfied that the reimbursement has actually been made pursuant to subparagraph 105-65(1)(c)(i) of Schedule 1 to the Taxation Administration Act 1953 and therefore need not give the entity a refund of the overpaid GST.

However, where the recipient has a pre-existing liability owed to the supplier, the Commissioner will be satisfied that an overpaid amount of GST is reimbursed to the extent that the journal entry in the supplier's accounts offsets the recipient's pre-existing liability.

Legislative References:
Taxation Administration Act 1953
   schedule 1 section 105-65
   subparagraph 105-65(1)(c)(i)

Related Public Rulings (including Determinations)
MT 2010/1

Other References:
The Macquarie Dictionary Online

Keywords
goods and services tax
GST returns, payments and refunds

Business Line:  Interpretative Assistance, Indirect Tax

Date of publication:  25 October 2013

ISSN: 1445-2782