Disclaimer
This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your private ruling

Authorisation Number: 1012301247685

Ruling

Subject: Refund of GST

Question

Will the Commissioner exercise his discretion under section 105-65 of Schedule 1 to the Taxation Administration Act 1953 (TAA) to allow you a refund of the goods and services tax (GST) when you incorrectly included GST in the price of a non-taxable supply and propose to reimbursed the recipients of the supply by way of a face value voucher (FFV) redeemable through your website or a credit note which may be applied as a discount against future purchases.

Answer

No

Relevant facts

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are a retailer established in Australia selling goods to Australian and overseas customers on-line.

You are registered for GST.

When a customer places an on-line order with you, you forward the individual order to a foreign manufacturer for fulfilment of the order.

The goods are shipped from the foreign manufacturer directly to the customer.

If the customer is located in Australia, the goods are shipped on a Free Carrier ("FCA") basis.

For the relevant period you incorrectly charged and remitted GST on all your sales to Australian based customers.

You contend that these supplies are outside the scope of GST, being supplies that involve the goods being imported into Australia by the recipient of the supply'.

Given the nature of the goods sold by you, it is your understanding that your customers are generally not registered or required to be registered for GST purposes, and/or do not purchase goods from your website in the course of carrying on an enterprise. That is, the transactions constitute 'business to consumer' supplies only.

As customers establish an on-line account with you at the time they order and purchase goods, you are able to identify all customers during the relevant period who have been incorrectly charged GST on their supply.

You intend to reimburse customers the GST incorrectly charged by way of a face value voucher which can be redeemed for goods on your website or a credit note which can be applied as a discount against a customer's next purchase.

Consistent with other vouchers currently issued by you, there will be no set expiry date for the redemption of these vouchers or the validity of the credit notes.

You are seeking confirmation that your intended course of action would likely result in the Commissioner not exercising his discretion to disallow a refund per section 105-65 of Schedule 1 to the TAA.

Relevant legislative provisions

Taxation Administration Act 1953, Section 105-65 of Schedule 1

Reasons for decision

Summary

The Commissioner is satisfied that you have overpaid an amount because you treated a supply as a taxable supply when the supply was not a taxable supply.

However, the Commissioner is not satisfied that you have reimbursed or will reimburse a corresponding amount to the recipient of the supply and so need not give you a refund.

Section 105-65 of Schedule 1 of the TAA contains a discretion which the Commissioner may exercise in certain limited circumstances to allow the refund. Your circumstances do not warrant the exercise of the discretion.

Detailed reasoning

Under the general rules the Commissioner is required to give a refund or apply that amount in accordance with the running balance account provisions in Divisions 3 and 3A of Part IIB of the TAA.

However, the requirement to give a refund of overpaid GST is subject to section 105-65 of Schedule 1 to the TAA which modifies the general rules so that the Commissioner need not give a refund or apply that amount if an entity overpaid its net amount or an amount of GST where the requirements of the section are satisfied.

Whether subsection 105-65(1) of Schedule 1 to the TAA applies to your circumstances

The restriction on refunds of overpaid GST under subsection 105-65 (1) of Schedule 1 to the TAA will apply if all three of the following conditions are satisfied:

Miscellaneous Tax Ruling MT 2010/1 provides the view of the Commissioner on section 105-65 of Schedule 1 to the TAA.

In this case you remitted GST of 1/11 of the price of your goods when these goods were in fact not taxable. It follows that you remitted more than was legally payable and that there has been an overpayment of GST.

You have advised that the majority of the recipients of your supply would not be registered for GST purposes. You have also advised that they have not been reimbursed for any amount corresponding to the GST overpaid.

As the three conditions are satisfied, section 105-65 of Schedule 1 to the TAA applies and the Commissioner has no obligation to pay a refund that would otherwise be payable under section 8AAZLF of the TAA.

However, it is the view of the ATO in paragraph 27 of MT 2010/1 that the Commissioner may exercise his discretion and choose to pay a refund even though the conditions in paragraphs 105-65(1)(a), (b) and (c) of Schedule 1 to the TAA are satisfied.

Paragraphs 116 and 117 of MT 2010/1 state:

This view is supported by the decision in Luxottica Retail Australia Pty Ltd v FC of CoT 2010 ATC 10-119 at 57 when the AAT referred to "residual discretion":

Paragraph 128 of MT 2010/1 provides some guiding principles to consider when exercising the discretion. It states:

Paragraphs 126 and 127 explain further:

It follows from the above that it is important when exercising the discretion to determine who has borne the burden of the GST. That is, whether a supplier has passed on the GST to the recipients.

In this case you have advised that the GST was in fact passed on to the recipients of the supply. Therefore, the cost has been passed on to the recipients and has not been borne by you.

You further advise that you intend to reimburse your customers the GST incorrectly charged by way of a FVV which can be redeemed for goods on your website or a credit note which can be applied as a discount against a customer's next purchase, and that consistent with other vouchers currently issued by you, there will be no set expiry date for the redemption of these vouchers or the validity of the credit notes.

Whether this action constitutes reimbursement requires further discussion.

The term reimburse is not defined in the GST Act and is therefore defined by its ordinary meaning.

The word 'reimburse' is defined in the Macquarie Dictionary Version 5.0 as follows:

Paragraph 18 of Frequently used terms for the purposes of this Ruling in MT 2010/1 states the following:

From the above it is clear that the reimbursement of the overpaid GST must either be of a monetary payment or a crediting of a customer's account that reduces a debt owed to you by the customer.

In conclusion, the Commissioner is satisfied that you have overpaid an amount because you treated a supply as a taxable supply when the supply was not a taxable supply. However, the Commissioner is not satisfied that the arrangements that you propose would constitute you reimbursing a corresponding amount to the recipient of the supply Accordingly section 105-65 applies and the Commissioner need not give you a refund.

The Commissioner will not exercise his discretion under section 105-65 of Schedule 1 to the TAA to refund any incorrectly remitted GST by you for the supply of your goods.

Further issues for you to consider

Where reimbursement has occurred, that is the discounts have been taken up by the customers to reduce their debt or liability to you, then section 105-65 will not apply to restrict the refund where they are not registered or required to be registered. At this point you are entitled to a refund of that amount of overpaid GST. For this to occur, you would need to revise each affected Activity Statement (AS). As this could result in multiple revisions of the same AS over time as the discounts are taken up, you may choose instead to do one set of AS revisions at the end of a year for all discounts taken up.


Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).