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Edited version of private ruling
Authorisation Number: 1011476598921
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Ruling
Subject: Commissioner's residual discretion and refund of GST
Question
Will the Commissioner exercise the residual discretion in section 105-65 of Schedule 1 to the Taxation Administration Act (1953) (TAA) to refund the overpaid GST on the supply where you have not and do not intend to reimburse the recipient of the supply?
Answer: No.
Relevant facts and circumstances
You are registered for GST.
For each supply you calculated the GST payable and remitted the amount so determined to the Australian Taxation office (ATO).
The recipients of your supply were not registered nor required to be registered for GST.
You do not intend to reimburse the recipients of your supply as you made the supply at commercial/market rates and hence have absorbed the cost of the GST.
You have not provided any information to support your claim that you did not pass on the GST to the recipients of your supply.
For all of the supplies you have an acknowledgment of entitlement to a refund letter.
Summary
It is the supplier that determines if the supply it makes is taxable in the first instance. By determining that it is taxable GST is included in the price. Once embedded in the supply chain it is the unregistered end consumer that bears the cost of the GST. The onus is on you to demonstrate that your circumstances make it appropriate for the Commissioner to give a refund.
Detailed reasoning
In your case you are not intending to reimburse the unregistered recipients of your supply. Therefore, we need to consider whether the Commissioner will exercise the residual discretion in section 105-65 of Schedule 1 to the TAA.
The payment of a refund when an entity has not complied with the specific requirements of section 105-65 will be the exception rather than the norm.
The onus is on the supplier to demonstrate that their circumstances are such that it would be appropriate for the Commissioner to exercise the discretion.
There are two important policy reasons behind the operation of section 105-65 of Schedule 1 to the TAA. Namely that:
· GST charged on a taxable supply is meant to be borne by the unregistered end consumer, and
· there should not be a refund of GST where it may result in a windfall gain to the supplier.
Furthermore, the scheme of the A New tax System (Goods and Service Tax) Act 1999 on which the section 105-65 of Schedule 1 to the TAA policy outlined above is based, is premised on the following principles:
· It is the supplier that determines if the supply it makes is taxable and in determining it is taxable includes GST in the price
· double taxation is avoided as the GST registered recipient entitled to claim an input tax credit for that taxable supply where it is acquired for a creditable purpose, and
· once GST is embedded in the supply chain, it is the unregistered end consumer that bears the cost of the GST.
You have advised that you made the supply in a commercial environment.
We consider that your sales were made under normal business operating conditions and that GST was a consideration in determining the final supply price. In our view this demonstrates that you have passed the GST on to the recipients.
In the absence of refunding the amount overpaid to the non-GST registered recipients of your supply you would receive a windfall gain. As noted above, the enactment of section 105-65 of Schedule 1 to the TAA operates to prevent this from occurring.
Therefore, the Commissioner will not exercise the discretion in section 105-65 of Schedule 1 to the TAA and will not refund the amount to you.
In coming to our decision, we have taken into consideration Draft Miscellaneous Taxation Ruling MT 2009/D1 Miscellaneous tax: restrictions on GST refunds under section 105-65 of Schedule 1 to the Taxation Administration Act 1953, which is available on our website.
This publication is a draft for public comment. It represents the Commissioner's preliminary view about the way the law applies. It is not a ruling or advice until it is officially released as a final public ruling.
If the final ruling differs materially from the draft, the final ruling will prevail. This may affect the treatment of the issues in this advice. Therefore, we recommend that you monitor our website for the release of the final ruling and consider its effect on the treatment of the Commissioner's residual discretion.
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