Edited version of your private ruling

Authorisation Number: 1012334599574

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Ruling

Subject: GST and education courses

Question 1

Is your supply of the training courses, a GST-free supply of an education course?

Answer

Yes, your supply of the training courses will be a GST-free supply of an education course.

Question 2

If yes to question 1, are you required to issue replacement invoices to the training participants?

Answer

No, you are not required to issue replacement invoices or adjustment notes to the training participants.

Question 3

If yes to question 1, are you entitled to revise activity statements in order to claim a refund of the overpaid GST?

Answer

No, you are not entitled to revise activity statements in order to claim a refund of the overpaid GST.

Relevant facts and circumstances

You are registered for GST.

You are currently registered as a Registered Training Organisation (RTO) and authorised to provide a range of training courses.

For an earlier period you supplied training courses under another RTO.

The TGA website ( www.training.gov.au ) states the earlier period that you were registered as an RTO.

The TGA website did not include any details of the accredited courses or training products that you were approved to deliver under your previous RTO but a report later supplied by the TGA shows the training courses that you were authorised to supply.

You sold the business assets and your RTO registration was also part of the sale but as an RTO cannot be transferred you had to allow the new owner to apply for a new RTO registration before ceasing your RTO registration.

You reapplied for a new RTO registration for a range of different training courses and this was granted. The courses offered under this new RTO have no relationship to the previous RTO registration.

You have advised that your private ruling request is only in relation to the training courses you conducted prior to the sale.

The majority of the training participants (99-100%) were individuals who were not registered for GST.

While you were unable to provide any documentation in relation to the pricing of the training courses, you have advised that the amount charged for each training course was the standard price being charged for that course in the market at that time.

Due to incorrect accounting advice, you charged GST on all training courses, issued tax invoices which included GST and remitted the GST amounts to the ATO.

You have advised that the invoice contained the relevant information.

You now believe that the training courses satisfied all of the requirements to be an education course and as such, were GST-free. Therefore, you consider that you are required to issue replacement tax invoices showing the change in GST status and the change to the components which make up the total consideration. There will be no change to the total consideration already showing on the tax invoice. As well, you consider that you are entitled to amend all of the activity statements for the relevant period.

In our letter requesting additional information, we advised that a previous private ruling application form constituted a notification to the Commissioner for the purposes of section 105-55 of Schedule 1 to the Taxation Administration Act 1953 (TAA).

We also advised in our letter that an entitlement to claim a refund of overpaid GST is subject to section 105-65 of Schedule 1 to the TAA which provides that you must first reimburse the recipients of the relevant supplies the amount of GST that you consider was overpaid.

In response to our request for additional information, you advised that you are not planning on reimbursing the GST component to the training participants (recipients) and gave reasons.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Division 19

A New Tax System (Goods and Services Tax) Act 1999 Subsection 19-10(1)

A New Tax System (Goods and Services Tax) Act 1999 Subsection 29-75(2)

A New Tax System (Goods and Services Tax) Act 1999 Section 38-85

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1

Taxation Administration Act 1953 Division 3 of Part IIB

Taxation Administration Act 1953 Division 3A of Part IIB

Taxation Administration Act 1953 Section 105-55 of Schedule 1

Taxation Administration Act 1953 Section 105-65 of Schedule 1

Taxation Administration Act 1953 Subsection 105-65(1) of Schedule 1

Reasons for decisions

Question 1

Summary

As you are accredited under your RTO registration to provide the training courses, they will satisfy the definition of a tertiary course and as such, are a GST-free supply of an education course.

However, only those training courses conducted for that period are GST-free as your first RTO registration only commenced from.

Detailed reasoning

Section 38-85 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that a supply of an 'education course' is GST-free.

The term 'education course' is defined in section 195-1 of the GST Act and includes a tertiary course and an adult and community education course. To be an education course, only one of the definitions in section 195-1 of the GST Act needs to be satisfied.

A tertiary course is defined in section 195-1 of the GST Act as:

· a course of study or instruction that is a tertiary course determined by the Education Minister under subsection 5D(1) of the Student Assistance Act 1973 (SAA) for the purposes of that Act

· a course of study or instruction accredited at Masters or Doctoral level and supplied by a higher education institution or a non-government higher education institution, or

· any other course of study or instruction that the Education Minister has determined is a tertiary course for the purposes of the GST Act.

As stated above, the term 'tertiary course' includes a course of study or instructions that is determined to be a tertiary course by the Education Minister under subsection 5D(1) of the SAA.

The Education Minister has made a number of determinations under subsection 5D(1) of the SAA for the purposes of that Act. The relevant determinations were referred to.

In all of the above determinations the Education Minister has determined that a course specified in Column 1 of the table in Schedule 2 to the relevant determination which is conducted by an education institution specified for that course in Column 2 of that table is a tertiary course.

In addition, the table in Schedule 2 in all of the determinations lists, among other things, a vocational education and training programme (Column 1) which is conducted by a higher education institution or an RTO (Column 2).

The determinations define a vocational education and training program as:

· an accredited vocational education and training course

· a sequence of training consisting of one or more subjects or modules where each subject or module is from an accredited vocational education and training course, or

· a structured approach to the development and attainment of competencies for a particular Australian Qualifications Framework (AQF) qualification specified in an endorsed training package.

Following on from this, an accredited vocational education and training course is a course that leads to the award of an AQF qualification or a Statement of Attainment and which has been accredited as a vocational education and training course by the authority responsible for the accreditation of these courses in the State or Territory in which the course is conducted.

In accordance with the determinations, to be a tertiary course, the accredited vocational education and training course must be conducted by either a higher education institution or an RTO.

An RTO is defined in the determinations as an organisation that is registered by the relevant State or Territory training recognition authority in accordance with the Australian Quality Training Framework to provide one or more vocational education and training programs.

This means that a course that is within the scope of an RTO's registration will be an accredited vocational education and training course and as such, will be a tertiary course.

In this case, for the period you were registered as an RTO, the ATO was advised of the training courses you were authorised to provide.

Therefore, these training courses are accredited vocational education and training courses and will be tertiary courses in accordance with the determinations issued by the Education Minister. As such, they will be education courses and thus, GST-free under section 38-85 of the GST Act.

However, training courses that are not accredited or that are not within the scope of your RTO registration do not satisfy the definition of a tertiary course.

You have indicated that you started conducting your training courses on or about a particular date but your first RTO registration did not commence until a later date. Therefore, any training courses conducted prior to the later date would not satisfy the definition to be a tertiary course and as such, would not be an education course.

Question 2

Summary

There is no requirement to issue a replacement invoice or an adjustment note to the training participants as a result of the incorrect classification of your training courses because, in the circumstances, the error is not an adjustment event.

Detailed reasoning

Subsection 29-75(2) of the GST Act provides that an entity must issue a replacement invoice in the form of an adjustment note if it makes a taxable supply that is later subject to an adjustment as a result of an adjustment event.

Division 19 of the GST Act explains the meaning of an adjustment event and the circumstances under which an entity will have an adjustment.

In particular, subsection 19-10(1) of the GST Act provides that an adjustment event is any event which has the effect of:

· cancelling a supply or acquisition

· changing the consideration for a supply or acquisition, or

· causing a supply or acquisition to become, or stop being, a taxable supply or creditable acquisition.

Goods and Services Tax Ruling GSTR 2000/19 explains the Commissioner's view on adjustments and adjustment events.

In relation to errors or omissions, paragraph 70 of GSTR 2000/19 states:

It is not an adjustment event if you wrongly classify a supply as being, or not being, a taxable supply, or an acquisition as being or not being a creditable acquisition. However, if there is a change in consideration as a result of correcting the error, this is an adjustment event in the period you become aware of this.

You have advised that this error will not cause a change to the total consideration already showing on the tax invoices provided to the training participants.

Therefore, as there is no change to the consideration already received for the training courses, it is not an adjustment event and as such, there is no requirement to issue a replacement invoice or an adjustment note to the training participants.

Question 3

Summary

You are not entitled to revise activity statements in order to claim a refund of the overpaid GST as all of the three conditions in subsection 105-65(1) of Schedule 1 to the TAA are satisfied and, based on the available information, it is not appropriate for the Commissioner to exercise his discretion to allow a refund.

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 Division 3 and Division 3A of Part IIB of the TAA.

However, there are two exceptions to these general rules that need to be considered when the refund or credit arises from an overpayment of GST.

Under the first exception there is a four year time limit for claiming a GST refund or credit from the ATO. In particular, section 105-55 of Schedule 1 to the TAA provides that you are not entitled to a GST refund or credit in respect of a tax period unless, within four years after the end of the tax period, you notify the Commissioner (in a GST return or otherwise) that you are entitled to the refund or credit.

In this case, you charged GST on all training courses but as determined in Question 1, only the training courses you conducted for a particular period were GST-free education courses under section 38-85 of the GST Act. As part of this period is outside of four years the exception contained in section 105-55 of Schedule 1 to the TAA will apply.

However, as stated in our letter, a previous private ruling application form constituted a notification to the Commissioner for the purposes of section 105-55 of Schedule 1 to the TAA. This means that any entitlement to a refund of overpaid GST in respect of the GST-free education courses can apply for the quarterly tax periods from rather than the relevant four year period.

The second exception is contained in section 105-65 of Schedule 1 to the TAA which provides that the Commissioner need not give a refund or credit of overpaid GST where the requirements of this section are satisfied.

Subsection 105-65(1) of Schedule 1 to the TAA states:

(1) The Commissioner need not give you a refund of an amount to which this section applies, or apply (under Division 3 or 3A of Part IIB) an amount 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 was treated as giving 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.

(* asterisk denotes a term defined in section 195-1 of the GST Act)

In other words, a 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:

· there was an overpayment of GST

· a supply was treated as a taxable supply when it was not a taxable supply or was taxable to a lesser extent, and

· either the recipient has not been reimbursed a corresponding amount of the overpaid GST and/or the recipient of the supply is registered or required to be registered for GST.

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

In particular, paragraph 20 of MT 2010/1 explains the meaning of 'overpaid' and paragraph 21 of MT 2010/1 explains the meaning of 'treated' as a taxable supply.

During the relevant period, you treated the training courses you conducted as taxable supplies and remitted GST to the ATO. It has now been determined that these training courses were in fact, GST-free.

As a result, there has been an overpayment of GST and the supplies of training courses have been treated as a taxable supply when they were not a taxable supply. Therefore, the first two conditions of subsection 105-65(1) of Schedule 1 to the TAA have been satisfied.

In relation to the third condition, you have advised that the majority of the training participants were individuals that were not registered for GST and that you are not planning on reimbursing the GST component to these training participants. Therefore, the third condition of subsection 105-65(1) of Schedule 1 to the TAA is satisfied.

As the three conditions in subsection 105-65(1) of Schedule 1 to the TAA are satisfied, the Commissioner has no obligation to pay you a refund of the overpaid GST.

However, as outlined in paragraph 27 of MT 2010/1, the use of the words 'need not' indicates that the Commissioner may choose to pay a refund in appropriate circumstances even though the conditions in paragraphs 105-65(1)(a), (b) and (c) of Schedule 1 to the TAA are satisfied.

The circumstances in which the Commissioner may exercise the discretion to refund are explained at paragraphs 113 to 127 of MT 2010/1. However, as stated in paragraph 118 of MT 2010/1 '… the supplier needs to demonstrate that its circumstances make it appropriate for the Commissioner to give a refund.'

The guiding principles that the Commissioner will consider when determining whether to exercise the discretion are contained in paragraph 128 of MT 2010/1 which states:

128. Section 105-65 does not specify what factors are relevant to the exercise of this discretion. In exercising the discretion, the Commissioner will have regard to the following guiding principles:

(a) The Commissioner must consider each case based on all the relevant facts and circumstances.

(b) The Commissioner needs to follow administrative law principles such as not fettering the discretion or taking into account irrelevant considerations.

(c) The Commissioner must have regard to the subject matter, scope and purpose of section 105-65. As explained in paragraph 127 of this Ruling, it clear from the scope and purpose that section 105-65 is designed to prevent windfall gains to suppliers and to maintain the inherent symmetry in the GST system and is based on the underlying design feature and presumption of the GST system that the cost of the GST is ultimately borne by the non registered end consumer.

(d) The discretion should be exercised where it is fair and reasonable to do so and must not be exercised arbitrarily. The circumstances in which the Commissioner considers it may be fair and reasonable to exercise the discretion include, but are not limited to, the following:

(i) The overpayment of GST occurs as a result of an arithmetic or recording error made by the supplier.

For instance, an entity correctly treated its supply as GST-free when making the supply to the customer. However, when filling out its activity statement the entity incorrectly included the supply as a taxable supply in the calculation of the net amount returned on the activity statement. In such circumstances it would not be necessary for the supplier to refund the recipient of the supply whether the recipient is registered or unregistered.

(ii) The overpayment of GST arises as a direct result of the actions of the Commissioner and the taxpayer has not had the opportunity to factor in the cost of the GST or otherwise pass on the GST, for instance through a gross up clause.

For instance, an entity had treated its supply as GST-free, the Commissioner subsequently treats the supply as taxable, the entity pays an amount for GST on the supply, but the Commissioner later reverses that decision. In such circumstances it would not be necessary for the supplier to refund the recipient of the supply whether the recipient is registered or unregistered.

(iii) The supplier is able to satisfy the Commissioner that an amount corresponding to the refund will be, or has been, passed on to the party that ultimately bore the cost of the overpaid GST.

In a business to business transaction it is generally not enough simply to show that the supplier refunded the immediate business recipient. A supplier must be able to prove that an unregistered end consumer is the one ultimately compensated.

Where the registered recipient is unable to claim input tax credits or is only allowed to partially claim input tax credits, then, before the Commissioner would pay a refund to the supplier, the supplier would have to refund the registered recipient and the registered recipient would have to show it either did not pass the foreseeable cost (that is denied input tax credits) to the next recipient or that they have also refunded that amount to the next recipient and the entity that ultimately has borne the cost is compensated.

(e)The discretion would generally not be exercised where it produces an unreasonable result, for example an asymmetrical revenue outcome. This could occur where, for example, a supplier reimburses a registered recipient for the overpaid GST but the Commissioner is unable to reclaim the overclaimed input tax credit from the recipient.

In addition, paragraph 129 of MT 2010/1 states:

Generally, the Commissioner will not exercise the discretion in cases where the supplier has not reimbursed the unregistered recipients a corresponding amount of the overpaid GST, unless there are other countervailing reasons for doing so.

Of relevance to your circumstances is the guiding principle that the Commissioner must have regard to the subject matter, scope and purpose of section 105-65 of Schedule 1 to the TAA which is explained in paragraph 127 of MT 2010/1 as follows:

It is clear from the scope and purpose of section 105-65 that the provision is designed to prevent windfall gains to suppliers and to require the supplier to ensure that any refund ultimately compensates the person or entity who ultimately bore the cost. In relation to a refund of overpaid GST, the potential or otherwise for a windfall gain, the requirement to ensure the refund compensates the person or entity that ultimately bore the cost and the potential to disturb the symmetry envisaged by the GST system, are factors that must be taken into account in relation to the exercise of the discretion.

In addition, the Explanatory Memorandum to the Tax Law Amendment (2008 Measures No 3) (which introduced the current version of section 105-65) states:

2.2 Without the restriction on refund requirement, there is a potential for a windfall gain to arise to businesses that receive the refund of GST but have not borne the incidence of the tax.

It follows from the above that before the Commissioner will exercise the discretion to refund it must be determined who has borne the burden of the GST. In other words, has the supplier passed on the GST to the recipients of the supply.

In answering this question, the Commissioner will take into consideration the factors outlined by the High Court in paragraphs 9 to12 of Avon Products Pty Ltd v Commissioner of Taxation (2006) HCA 29 (Avon). It is considered that the guidance provided by the Avon case, albeit in a sales tax context, about who bears the burden of the indirect tax impost applies equally in the GST context given the similarity between the sales tax and GST regimes in that respect. These paragraphs are reproduced below:

9. That sales tax is expected to be passed on depends upon the circumstance that sales of goods occur within an economy geared to making profit. It is the profit-making motive of business which, in the nature of things, generally results in sales tax being passed on. This is because, leaving aside rare cases where sales tax is separately identified and superadded to the invoice price after sale, sales tax can only be passed on indirectly through the price mechanism. In a profit-making structure, businesses will set prices so as to ensure at least that all foreseeable costs are recovered, anything above this being conceptualised as a margin of profit. Because sales tax is levied upon the vendor prior to the ultimate sale by retail in the manner explained by Dixon J in Ellis & Clark, it forms part of the cost structure of doing business. There is nothing extraordinary in the proposition that in the usual course of things sales tax will be passed on.

10. As has been explained, it is for the taxpayer to establish a circumstance out of the ordinary, namely that the amount of the overpayment of sales tax has not been passed on. Where the whole or part of the economic burden of sales tax may have been passed on indirectly through prices, the inquiry in this regard is likely to be complex. The complexity arises because prices may be set with reference to a wide range of factors (including considerations of cost of production, competitive advantage, operational cash flow and customer goodwill). However the starting point must be the seller's pricing policy and practice.

11. In this way, the question is to be approached with reference to the actual conduct of the seller in setting prices based upon its actual knowledge at the relevant time. That knowledge includes the belief that the component of sales tax which later proves to have been an overpayment is a real cost of doing business. Accordingly, it is unsurprising that a seller's intention, whether subjective or objectively ascertained, will generally be to pass the burden of the impost on to the purchaser. Since the onus of proof lies upon the taxpayer, it will be for it to establish that a price which is set so as to ensure that it recovers its cost does not include the economic burden of the sales tax.

12. Additionally, once it is appreciated that it is in the nature of sales tax to be passed on, there is nothing remarkable in the consequence that proof to the contrary will occur comparatively seldom. …. But, given what has been said above, realism requires a recognition that in the ordinary course sales tax will have been passed on.

The presumption from the Avon case is that the cost of any GST liability is a foreseeable cost that will be passed on to the recipient as part of the cost recovery and pricing structure of the supplier. It is for this reason that section 105-65 of Schedule 1 to the TAA evinces a stance that ordinarily overpaid GST need not be refunded. However, where a supplier contends that it has borne the cost of the GST, it is the supplier that must prove that the GST has not been passed on to the recipients.

In this case, you have advised that due to incorrect accounting advice your supplies of training courses were treated as taxable supplies. That is, you charged GST on all training courses, issued tax invoices which included GST and remitted the GST amounts to the ATO.

In addition, you advised that the relevant information were on each invoice.

The fact that you issued tax invoices that showed an amount of GST is prima facie evidence that there was a GST component in the price charged to the training participants.

In addition, you have advised that the amount charged for each training course was the standard price being charged for that course in the market at that time but you have been unable to provide any documentation in relation to your pricing of the training courses.

You have also not supplied any documentation to support your contention that the price charged was the market price for the training courses at that time or any evidence that the market price itself did not include a GST component.

Therefore, it is reasonable to conclude in the circumstances that the price of your supplies of training courses included a GST component and that this GST component was passed onto the training participants. As such, the burden of the GST was borne by the training participants rather than by you.

Accordingly, the Commissioner will not exercise his discretion under section 105-65 of Schedule 1 to the TAA to refund any incorrectly remitted GST. Therefore, you are not entitled to revise activity statements in order to claim a refund of the overpaid GST.

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