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Ruling

Subject: Entitlement to refund of overpaid Goods and Services Tax (GST)

Question 1

Will the Commissioner refund the GST paid in relation to your supplies of tickets?

Answer

No.

Relevant facts and circumstances

You are registered for GST.

You are a Public Benevolent Institution and Deductible Gift Recipient. You are endorsed to access various concessions, including GST concessions.

You sell tickets to an event to the general public. Different categories of ticket are available and are sold at different prices.

You set the price of your tickets by taking certain factors into consideration. The factors taken into account are:

· budgeted costs of running the event based on quotes obtained up to the date of determining the price

· affordability of tickets for your target audience

· day upon which the event falls (weekday or weekend).

Your aim in setting the price is to ensure the success of the event by maximising the number of tickets sold, and ensuring that as many people as possible are able to afford access to the event.

An internal memorandum is prepared by your staff, and approved by your senior management, to record the reasons taken into account in relation to any ticket price increases.

You have advised that you do not specifically consider the GST-treatment of the tickets in setting the prices. The amount of GST (if any) that is remitted is not a factor that is considered by you in the ticket price setting process.

The ticket prices for all classes of tickets have increased steadily each year. These increases have been above inflation, but in line with the increasing logistics costs of running the event.

The terms and conditions for tickets state that all ticket prices are inclusive of GST.

In the course of the ticket price setting process you received preliminary advice that indicated some classes of tickets may not be subject to GST. However, you did not change the price increases that had been approved for the event, and you remitted 1/11^th of the price of all the tickets sold for the event.

You have since self-assessed (based on a review by your representative) that the consideration received by you for supply of certain classes of tickets was less than 75% of the consideration you provided for acquiring the thing supplied and that therefore these supplies are GST-free under subparagraph 38-250(2)(b)(ii) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). You have not sought the Commissioner's confirmation of your self-assessment.

You have advised that you have therefore overpaid GST on supplies of certain classes of tickets. You have not specified which classes for the purposes of the ruling.

You have reviewed your records to ascertain the amount of GST overpaid and have advised the overpayment amount.

You are requesting that the Commissioner confirm that you are entitled to a refund of GST overpaid.

Relevant legislative provisions

Taxation Administration Act (1953)

Section 105-65 of Schedule 1

Reasons for decision

Summary

You have overpaid GST, and section 105-65 of Schedule 1 to the Taxation Administration Act (1953) (section 105-65) applies to restrict the refund of this overpaid GST.

After considering all your circumstances and the intention of section 105-65, the Commissioner will not exercise the discretion available under section 105-65 to allow the refund to you.

Detailed reasoning

Overpayment of GST

We have assumed that your self-assessment is correct and that the particular tickets are in fact GST-free.

Based on this assumption that the tickets are GST-free, the amounts that were remitted for these tickets in the relevant period are in excess of what was legally payable. Therefore you have overpaid GST.

Section 105-65 applies

You have requested a refund of these overpaid amounts. The Commissioner must consider whether there are any impediments to issuing this refund.

Section 105-65 applies to restrict certain refunds of overpaid GST. It will apply where you overpaid the amounts because a supply was treated as a taxable supply when the supply was not a taxable supply and the recipients have not been reimbursed an amount corresponding to the overpaid GST.

We consider that you have treated the supplies as taxable because you believed them to be taxable, you dealt with the recipients of the supplies (customers) as if the supplies were taxable supplies, and you remitted an amount as GST to the Commissioner on those supplies.

You have not reimbursed a corresponding amount to the recipients of the supplies, and therefore section 105-65 applies to restrict the refund in these circumstances.

Exercise of the discretion available under section 105-65

Section 105-65 applies such that the Commissioner need not give a refund of the overpaid amount, but has a discretion to do so in appropriate circumstances. This discretion is explained, and guidance as to its use is given, in Miscellaneous Taxation Ruling MT 2010/1.

There are two important policy reasons behind the operation of section 105-65. These are that the GST on a taxable supply is intended to be borne by the end consumer, and that there should not be a refund of overpaid GST to a supplier where it may result in a windfall gain to the supplier. Potential exercise of the discretion must be considered with this policy in mind.

Any refund must compensate the person or entity that ultimately bore the cost of the GST. If you have passed on the cost of the GST to your customers, and therefore cannot be said to have borne the cost of your overpayment yourself, it is not appropriate to refund the overpaid amount of GST to you.

Cost of the GST

The underlying premise of the GST is that GST is payable by suppliers but is ultimately borne by the consumers of goods and services. Therefore in normal circumstances the GST is passed on to the end consumer such that the supplier who remits the tax is not bearing the cost of the tax.

Some of your supplies of tickets are GST-free due to the operation of a concession available for certain entities under the GST Act (subparagraph 38-250(2)(b)(ii): supplies for nominal consideration). While this can involve some uncertainty as to the GST treatment until total cost and revenue is known, there is an onus on you to make the best possible estimates for these purposes. Regardless of this, at the time of making the supplies in question you were not aware of the potential application of this concession. Therefore the GST was understood to be a cost to you, and this cost was clearly quantifiable based on the ticket price. Simply because some tickets have been sold at less than cost, it does not necessarily follow that the price that was charged did not include GST.

There are many situations where GST may not consciously be factored into a price, but such a failure to consider the GST is not normally sufficient to show that the GST has not been passed on. The ATO does not accept that pricing to a market price (or using other pricing mechanisms such as fixed prices, price points etc) means that the supplier has necessarily borne the cost of the GST at the time of pricing or thereafter. Therefore not explicitly considering GST at the time of setting your prices does not necessarily mean that you have not passed on the cost of the GST.

Rather, there is a presumption that the cost of any GST liability is a foreseeable cost that will be passed on as part of the cost recovery and pricing structure of the supplier. It is for the supplier to demonstrate that the GST has not been passed on before a refund can be allowed using the discretion in section 105-65.

While there may not be such a general presumption that 'not for profit' entities will set prices so as to recover costs, each case must be assessed on its merits to determine whether the cost of GST has been passed on to the recipients. It is appropriate to approach this question with reference to your conduct in setting prices based on your knowledge at the relevant time, including a belief that the GST is a real cost (even though it is later determined not to have been payable).

You have advised that your products are priced by seeking to receive the greatest amount whilst also maximising ticket sales. Even though you are a non-profit entity, you therefore seek to maximise the commercial success of the event by selling as many tickets as possible at a price acceptable to the market. In this way, you are operating similarly to a normal commercial enterprise and so we must consider you in that context.

Your prices for tickets have increased each year in line with the increasing costs of running the event. Based on this information, we consider that it is your aim to meet your costs as far as possible. You have also expressed this in your request to the Commissioner.

With this aim in mind, you considered that your supplies were all subject to GST until at least 2011 (when you first received preliminary advice to the contrary). This is demonstrated by your remitting GST on the ticket sales, and also the information available on your website that advises that all ticket prices are inclusive of GST. Therefore you understood that GST was one of your costs. As already explained, your ticket prices were set in a manner to recoup all foreseeable costs and it follows that these costs include the GST liability you believed you had. Even when you became aware you may not have to pay GST on certain tickets you did not change your pricing structure as a result of this information. We therefore consider that the GST is among the costs that have been passed on to your customers.

Further, as your terms and conditions indicate that the price is GST inclusive, it is reasonable to conclude that your customers would form the opinion that the amount that they were paying for their ticket included GST.

You have stated that you do not recover GST from purchasers of the tickets as an amount in addition to the ticket's face value price. However, for the reasons discussed above we consider that there was a GST component in the (GST-inclusive) price advertised to customers. We also note that it is appropriate that the price of a supply that is considered to be taxable is expressed as inclusive of GST.

We consider that the cost of the GST has been passed on to all your customers, including on those supplies that are now considered to be GST-free. You have not borne the cost of the GST in these circumstances.

Conclusion

In the circumstances it has not been demonstrated that you have borne the cost of the GST in relation to these supplies. Rather, you have passed the cost on to your customers. The Commissioner considers that you held the belief that GST was payable, and that the GST was one eleventh of the price charged to the recipient.

Therefore, refunding the overpaid GST to you would result in a windfall gain to you at the expense of your customers.

For these reasons it is not appropriate to exercise the discretion to allow the refund to you of the overpaid GST.

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