Edited version of private ruling

Authorisation Number: 1011619565479

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Ruling

Subject: Time limits and restrictions on GST refunds

Question 1

Does your correspondence received in the relevant year satisfy the notification requirements under section 105-55 of Schedule 1 to the Taxation Administration Act 1953 (TAA)?

Answer 1

Yes, your correspondence received in the relevant year satisfies the notification requirements under section 105-55 of the TAA. We acknowledge receipt of that notification for the one month tax period from 1 August 2006 to 31 August 2008. As you notified the Commissioner of Taxation (the Commissioner) in respect of the one month tax periods prior to August 2006 was received outside the four year time limit, you are not entitled to a GST refund or credit for those tax periods.

Issue 2

Question 2

Does your notice of Objection and cover letter received in an earlier year against superannuation guarantee default assessments and a subsequent telephone conversation with the ATO constitute a notification for the purposes of section 105-55 of the TAA?

Answer 2

No, in absence of evidence to the contrary, your cover letter and notice of Objection in conjunction with a subsequent telephone conversation with the ATO do not constitute a notification for the purposes of section 105-55 of the TAA.

Issue 3

Question 3

Will the Commissioner give you a refund of overpaid GST to the extent the net amount paid relates to the practitioner's activities under Subdivision 105-C of the TAA?

Answer 3

No, the Commissioner will not give you a refund of overpaid GST to the extent the net amount paid relates to the practitioner's activities under Subdivision 105-C of the TAA. The Commissioner will not exercise the residual discretion under section 105-65 of Schedule 1 of the TAA to refund the GST requested by you in relation to the one month tax periods from 1 August 2006 to 31 August 2008.

As discussed in the reasons for decision for question 1 you are no longer entitled to a GST refund in relation to the one month tax periods prior to July 2006 (see detailed reasons for decision below).

Relevant facts and circumstances

You are registered for goods and services tax (GST) with effect from 1 July 2000.

You account and have accounted for GST on a cash basis with one month tax periods applying to you.

You carry on an enterprise which involves the supply of goods and services.

In an agreement (the agreement) with an individual practitioner (the practitioner), the practitioner was to exercise their profession using your facilities (for example, premises, equipment and services).

Under the agreement entered into you were to collect all of the fees paid by clients in respect of the services provided to them. You were to charge the practitioner a service fee equal to a percentage of those client fees. The practitioner was to be entitled to the balance of the fees.

The services provided to clients of the practice were treated as GST-free supplies.

You treated the supplies of services and facilities made by you to the practitioner under the agreement as taxable supplies on which GST was payable.

You issued tax invoices to the practitioner in relation to the supplies made to the practitioner. In that regard you included the GST payable in respect of those supplies in your activity statements for each of the relevant one month tax periods.

You provided a number of documents including:

A copy of the agreement with the practitioner.

A document in which you are said to engage all front desk and administration staff, provide the premises, provide the systems, trades in goods etc and pays the bills. You then charge each of the practitioners a fee (calculated as a percentage of client fees) in return for providing these services.

A copy of a document which included the words 'tax invoice' in respect of a service fee issued by you to the practitioner and showing a total amount payable in fees and the GST included in the amount payable.

A copy of information provided to the practitioner which sets out the calculation of entitlements.

The ATO's records indicate that the practitioner was registered for GST during the tax periods in question.

The ATO issued you with superannuation guarantee default assessments in relation to the practitioner.

Later you objected to the superannuation guarantee default assessments (the Objection) on the basis that the practitioner was not an employee of your's within the meaning of section 12(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA). You argued you were the provider of services under the agreement to the practitioner in her independent pursuit of her profession

In the Objection you stated that the practitioner was registered for GST and you provided the practitioner's Australian Business Number (ABN).

In the Objection you set out your financial arrangement with the practitioner.

The Commissioner in response to your Objection determined that in considering the totality of the relationship, the practitioner was your employee at common law in accordance with subsection 12(1) of the SGAA.

As a result of the Commissioner's decision you advised the Commissioner in the relevant year in writing that you were entitled to a GST refund pursuant to Subdivision 105-C of the TAA.

In your correspondence received in the relevant year you submit that assuming the practitioner was, as asserted by the ATO an employee of your's (which is not admitted), you are entitled to a GST refund pursuant to Subdivision 105-C of the TAA of overpaid GST to the extent the net amounts paid relate to the practitioner's activities. Furthermore you submit that, as there was no taxable supply involved in the relationship between you and the practitioner, the Commissioner has no discretion to refuse the refund in respect of the periods prior to 1 July 2008 under section 105-65 of the TAA and the Kap Motors case.

In relation the GST refund requested by you, you propose that subject to the ATO undertaking to refund the GST paid by you in respect of the practitioner's activities, being observed, you would undertake to reimburse the practitioner an amount equal to the GST charged to them, minus the amount paid as Superannuation Guaranteed Charge under the assessments in respect of the abovementioned periods.

In correspondence received later in the relevant year you submit that given the Commissioner's decision that the practitioner was employed by you, it cannot be said that an employer supplies such facilities or services to an employee in the sense required for there to be a supply.

Furthermore, you argue that the covering letter to the objection dated in the earlier year signed by your public officer should be accepted as putting the Commissioner on notice that should a decision be reached that the relationship was one of employment, then there was implicitly a request on foot for the GST paid to be refunded. You also refer in that correspondence to a telephone conversation taking place sometime later between your public officer and the ATO officer which had dealt with your Objection in which the public officer recollects having said that if there was an employment relationship between you and the Partitioner then the GST paid by you and presumably claimed by the practitioner as input tax credits was based on a mistake.

Reasons for decisions

In your correspondence received you requested a refund to the GST overpaid to the extent that the net amounts paid relate to the practitioner's activities.

Several provisions of the TAA are relevant in your circumstances and impose certain restrictions and time limits in relation to the recovery of refunds of GST. These provisions are contained in Schedule 1 to the TAA and are outlined below.

Time limit on refunds etc from the Commissioner

Section 105-55 of the TAA limits claims for certain refunds and credits after four years from the end of the tax period to which the entitlement relates, unless within that four year period you have notified the Commissioner or the Commissioner has notified you of your entitlement of the refund. Section 105-55 of the TAA reads as follows:

105-55(1)

You are not entitled to a refund, other payment or credit to which this subsection applies in respect of a *tax period or importation unless:

(a) within 4 years after:

(i) the end of the tax period; or

(ii) the importation;

as the case requires, you notify the Commissioner (in a *GST return or otherwise) that you are entitled to the refund, other payment or credit; or

b) within that period the Commissioner notifies you (in a notice of assessment or otherwise) that you are entitled to the refund, other payment or credit; or

(c) in the case of a credit - the credit is taken into account in working out:

(i) a *net amount or *net fuel amount that the Commissioner may recover from you only because of subparagraph (105-50(3)(b)(i)); or

(ii) an amount of excess referred to in subsection 105-50(2) that the Commissioner may recover from you only because of subparagraph 105-50(3)(b)(ii).

Miscellaneous Taxation Ruling MT 2009/1 sets out the Commissioner's view on what constitutes notification by an entity to the Commissioner under paragraphs 105-55(1)(a) of the TAA. The Tax Laws Amendment (2008 Measures No. 3) Act 2008 amended section 105-55 with effect from 1 July 2008. The application of the amendments to refunds, other payments or credits to which an entity is entitled before 1 July 2008 depends on whether a notification of the entitlement was provided before 1 July 2008. The Commissioner's views in MT 2009/1 in relation to the validity of section 105-55 notifications are also applicable to notifications for the purposes of the application of these amendments.

There is no specific form that is required for a notification for the purposes of section 105-55 of the TAA. However the notification should be in writing and must be received on or before the fourth anniversary of the end of the relevant tax period.

The Commissioner expresses the view at paragraph 12 of MT 2009/1 that a valid notification for the purposes of section 105-55 of the TAA includes:

· an activity statement or revised activity statement which includes the relevant entitlement in the relevant tax period;

· an application for a private indirect ruling, an objection or other correspondence from an entity that asserts the entity has an entitlement and:

- provides a description of the nature of the entitlement to a refund, other payment or credit, which is sufficient to bring to the Commissioner's attention the basic factual and legal basis for the entitlement; and

- specifies the tax period(s) or importation(s) to which the entitlement relates.

In some cases an entity may provide correspondence purporting to be a notification for the purposes of paragraph 105-55(1)(a) of the TAA, but which is not a valid notification (for example, because it lacks the requisite specificity). If the entity subsequently provides further information the correspondence may then be sufficient to meet the requirements of a valid notification. However, the notification will only be valid from the date the further information is received (paragraph 15 of MT 2009/1).

Section 105-55 of the TAA does not expressly state that a notification needs to be in writing in order to be valid. However, it would only be in very rare circumstances that a statement made orally could sufficiently bring to the Commissioner's attention the matters necessary for a valid notification under section 105-55 (see paragraph 21 and 22 of MT 2009/1).

Question (1) Correspondence received in the relevant year

With regards to your correspondence received in the relevant year, that correspondence:

· is in writing and makes a clear assertion to an entitlement to a GST refund

· provides a description of the circumstances under which the GST refund being requested arises

· sets out the legal basis under which you submit you are entitled to a GST refund, and

· lists each one month tax period beginning in September 2005 and ending in August 2008 including the amounts of GST involved.

Your correspondence received in the relevant year constitutes a notification to the Commissioner for the purposes of section 105-55 of the TAA. We acknowledge receipt of that notification for the one month tax period from 1 August 2006 to 31 August 2008.

As your notification in relation to the one month tax periods from 1 September 2005 to 31 July 2006 was received outside the four year time limit, your entitlement to a GST refund or credit for those tax periods ceased.

Question (2) Notice of Objection

You argue in correspondence received in the relevant year that the Objection and cover letter received in the earlier year and a subsequent telephone conversation between your public officer and the ATO taking place between later in the year should constitute a notification for the purposes of section 105-55 of the TAA as implicitly a request was on foot for the GST paid to be refunded.

Notwithstanding that the notice of Objection and cover letter are in writing it contains:

· no assertion that you have an entitlement to a GST refund

· refer to quarterly periods in respect of superannuation obligations

· describes the correspondence as being a formal notice of Objection against default assessments under the SGAA.

In the absence of evidence to the contrary your assertion that you provided notification for the purposes of section 105-55 of the TAA in the Objection and cover letter in conjunction with the telephone conversation is not accepted.

Restrictions on refunds (section 105-65 of the TAA)

Where a notified entitlement relates to GST that has been overpaid, any entitlement may also be affected by section 105-65 of the TAA which provides for a restriction on refunds.

Section 105-65 of the TAA provides that the Commissioner need not give you a refund to which this section applies … if:

(a) you overpaid the amount, or the amount was not refunded to you, because a *supply was treated as a *taxable supply; or an arrangement was treated as giving rise to a taxable supply, to any extent; and

(b) the supply is not a taxable supply, or the arrangement does not give rise to a taxable supply, to that extent (for example, because it is *GST-free); and

(c) one of the following applies:

(i) the Commissioner is not satisfied that you have reimbursed a corresponding amount to the recipient of the supply or (in the case of an arrangement treated as giving rise to a taxable supply) to an entity treated as the recipient;

(ii) the recipient of the supply, or (in the case of an arrangement treated as giving rise to a taxable supply) the entity treated as the recipient, is registered or required to be registered.

Section 105-65 of the TAA was amended from 1 July 2008 so that it applies whether or not a transaction is subsequently held to be a 'supply' as defined in section 9-10 of the GST Act. This addressed the deficiency of the former legislation identified in Kap Motors Pty Ltd v Commissioner of Taxation [2008] FCA 159; 2008 ATC 20-007; (2008) 68 ATR 927 (Kap Motors) where it was held that the former section 105-65 did not apply where there was not a 'supply' for GST purposes. Section 105-65 was amended to cover an overpayment of GST involving an arrangement that was treated as a taxable supply but which does not give rise to a supply (see Tax Laws Amendment (2008 Measures No 3) Act 2008).

These amendments apply in respect of GST refunds relating to tax periods starting on or after 1 July 2008. The GST refund being sought by you in respect of tax periods before 1 July 2008 is considered under the former section 105-65 of the TAA. The GST refund in respect of the July and August 2008 tax periods is considered under the amended section 105-65. However, in the present circumstances the practical effect remains the same for the reasons articulated below.

Formally subsection 105-65(1) of the TAA read as follows:

The Commissioner need not give you a refund to which this section applies, or apply an amount under Division 3 or 3A of Part IIB to which this section applies, if: 

(a) you overpaid the amount, or the amount was not refunded to you, because a *supply was treated as a *taxable supply to any extent; and

(b) the supply is not a taxable supply to that extent (for example, because it is *GST-free); and

(c) one of the following applies:

(i) the Commissioner is not satisfied that you have reimbursed a corresponding amount to the recipient of the supply;

(ii) the recipient is *registered or *required to be registered.

Note that the terms with the asterisks are defined terms in the dictionary at section 195-1 of the GST Act.

In the present circumstances you considered the agreement was a contract for the supply by you of services and facilities to the practitioner in support of their practice. The decision by the ATO in its notice of objection decision issued in the relevant year confirms the ATO's view that the agreement operated to render the practitioner an employee of yours at common law.

You argue that there was no supply made by you to the practitioner and as such section 105-65 of the TAA (as it formerly read) does not operate to preclude you from recovering any GST overpaid to the Commissioner.

Supplies within the meaning of the GST Act

Accordingly, in considering the application of section 105-65 of the TAA in your circumstances the issue arises of whether there were supplies made by you to the practitioner where the practitioner has been determined to be a common law employee.

Section 9-5 of the GST Act sets out the requirements for a taxable supply including that 'you make the supply for consideration'. It follows that for there to be a taxable supply, there must first be a supply.

Under section 9-10 of the GST Act a 'supply' is 'any form of supply whatsoever' and includes:

· a supply of goods

· a supply of services

· a provision of advice or information

· a grant, assignment or surrender of real property

· a creation, grant, transfer, assignment or surrender of any right

· a financial supply

· an entry into or release from an obligation to do anything or to refrain from an act or to tolerate an act or situation (paragraph 9-10(2)(g))

· any combination of any two or more of those matters.

Goods and Services Tax Ruling GSTR 2006/9: 'Goods and services tax: supplies' explains the Commissioner's view on the meaning of 'supply'. At paragraph 33 (and following) of GSTR 2006/9 it makes it clear that the phrase 'any form of supply whatsoever' is defined broadly and is intended to encompass supplies as widely as possible.

It is the Commissioner's view that when you provided the practitioner with facilities, equipment, services and information you made supplies to the practitioner within the wide meaning of section 9-10 of the GST Act and that this would be the case, regardless of whether the practitioner was an employee.

Paragraph 9 of Goods and Services Tax Ruling GSTR 2001/3 describes benefits provided by an employer to an employee which are exempt under the Fringe Benefits Tax Assessment Act 1986 as including plant and equipment that is located on the business premises of the employer used wholly or principally by the employee in connection with the operation of that business. A 'benefit' is widely defined to include any right (including any property right) privilege, service or facility. The provision of such benefits comes within the meaning of 'supply' in section 9-10 of the GST Act.

It follows that we do not accept your submission that the former section 105-65 does not operate to preclude you from recovering any GST overpaid to the Commissioner because there were no supplies.

Was there consideration for the supplies?

The term 'consideration' is defined in paragraph 9-15(1)(a) of the GST Act as including:

any payment, or any act or forbearance, in connection with a supply of anything.

Without consideration there cannot be a taxable supply notwithstanding that there may be a supply.

Paragraph 61 of GSTR 2001/3 explains that:

An employee does not provide his or her services as consideration for the use of a desk or an office or other similar conditions of employment. Employee services are provided for the employer's provision of salary and wages plus remuneration benefits.

Applying the principles in GSTR 2001/3, the services provided by the practitioner are not consideration for the equipment, facilities and other services or benefits provided by you for the practitioner's use. Therefore there was no consideration provided for the supplies made by you.

Question (3) Restrictions on GST refunds and section 105-65 of the TAA

Without consideration there were no taxable supplies (within the meaning of that term as defined in section 9-5 of the GST Act) made by you to the practitioner and you were not liable under the GST Act for the GST payable on those supplies. This gives rise to the possible application of section 105-65 of the TAA.

The Commissioner has issued Draft Miscellaneous Ruling MT 2009/D1 setting out its preliminary view on section 105-65 of the TAA which provides for a restriction on GST refunds. It is not a public ruling or advice for the purposes of section 105-60 of Schedule 1 to the TAA.

For section 105-65 of the TAA to apply there has to be an overpayment of GST, that is, the amount of GST remitted for a supply in a relevant tax period must exceed the amount which was required to be remitted on that supply. Additionally, that overpayment has to occur because you treated supplies as taxable supplies where those supplies were not taxable supplies or were taxable to a lesser extent.

In the present circumstances you remitted GST in one month tax periods from 1 September 2005 to 31 August 2008 in respect of supplies you made to the practitioner. You overpaid GST because you incorrectly treated supplies made by you to the practitioner as taxable supplies when those supplies were not taxable supplies.

If the supplier satisfies the Commissioner that it has reimbursed the recipient of the supply and the recipient of the supply is not registered or required to be registered the Commissioner must refund the overpaid GST. In all other cases section 105-65 provides that the Commissioner 'need not' give a refund (paragraph 98 of MT 2009/D1).

While you have proposed reimbursing the practitioner with an amount equal to the GST charged to the practitioner minus the amount paid as Superannuation Guarantee Charge under the assessments issued to you, you have not reimbursed the recipient an amount corresponding to the overpaid GST. Also the recipient (practitioner) was registered for GST during the tax periods in question and was issued with tax invoices by you. It follows that the Commissioner 'need not' give you a GST refund.

The Commissioner considers that the words 'need not' in the context of section 105-65 of the TAA, do not prohibit the giving of a refund and that he has a residual discretion to pay a refund in appropriate circumstances.

Paragraph 100 of MT 2009/D1 provides that given the scheme of the GST Act, the payment of a refund when an entity has not complied with the specific requirements of section 105-65 of the TAA will be the exception rather than the norm. Therefore, the onus is on the supplier to demonstrate that their circumstances make it appropriate for the Commissioner to give the refund despite the fact that the Commissioner need not do so.

Section 105-65 of the TAA does not specify what factors are relevant to the exercise of this residual discretion. In your circumstances the Commissioner has had regard to those guiding principles listed at paragraph 106 of MT 2009/D1 in relation to whether to exercise the residual discretion under section 105-65.

At paragraph 108 of MT 2009/D1 the Commissioner explains that notwithstanding the primary stated policy of preventing windfall gains, the drafting of subparagraph 105-65(1)(c)(ii) of the TAA also appears to reflect a 'preserving the status quo' policy.

Paragraph 109 of MT 2009/D1 further explains that when the supplier has decided to treat a supply as taxable it includes GST in the price it charges to the recipient. Where the acquisition of that supply is used by the registered recipient in its enterprise, it has been entitled to input tax credits in relation to that acquisition. In such cases there would not usually be any compelling reasons to justify paying a refund. Since the treatment of the supply as taxable was GST neutral; then notwithstanding the fact that both the supplier and the recipient have separate and distinct responsibilities under the law, there would not usually be any policy reasons to unwind the treatment that was adopted. Such unwinding may give rise to administration and compliance costs, as well as a risk to the revenue if there is any doubt about the Commissioner's ability to recover input tax credits.

Preserving the status quo?

The issue arises as to whether it is appropriate for the Commissioner to exercise the residual discretion to refund despite the fact that both you and the practitioner were registered for GST for the periods for which the refund is being sought, particularly in circumstances where you propose reimbursing the practitioner with an amount equal to the GST charged to them minus the amount paid as Superannuation Guarantee Charge under the assessments. That is, you propose to refund an amount less than the GST remitted on the supplies made by you and for which the practitioner presumably claimed input tax credits.

The Commissioner notes that:

· under the agreement the practitioner had paid you for the services provided to it by you as percentage of total fees collected plus GST, therefore the amount of GST remitted by you to the ATO has been passed to the practitioner in the price you charged. Consequently, if the Commissioner was to accept your proposal whereby, the ATO refunds the whole amount of previously remitted GST to you, allows you to only refund part of that GST to the practitioner and then the ATO seeks to recover the whole amount of GST from the practitioner, this would result in the Superannuation Guarantee effectively being paid by the practitioner. However, had you and the practitioner characterised your relationship as one of employer/employee from the start, the superannuation obligations would have been a liability that you would have been required to cover. This liability should not be effectively shifted to another party through attempting to remedy the situation.

· there is no nexus between the discharge of an obligation under the SGAA and the discharge or failure to discharge an obligation under the GST Act. Likewise the imposition of an obligation under the SGAA is in no way linked to any discretion to refund GST under the TAA. The obligations under the various laws (SGAA and GST Act/TAA) should be viewed independently in considering the application of section 105-65.

Having regard to the principles outlined at paragraph 106 of MT 2009/D1, there is nothing in the relevant facts and circumstances to indicate that it is fair and reasonable for the Commissioner to exercise the residual discretion and refund an amount of GST to you. Neither is there any compelling reason to disturb the 'status quo'. The Commissioner therefore declines to exercise the residual discretion to refund the GST requested by you in relation to the one month tax periods from 1 August 2006 to 31 August 2008.

As discussed above you are no longer entitled to a GST refund in respect of the one month tax periods from 1 September 2005 to 31 July 2006.

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