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Ruling

Subject: GST and supply of newly constructed residential premises

Question1

Are your supplies of newly constructed residential premises in the development (the relevant supplies) under a development lease, input taxed?

Advice/Answers

Yes

Question 2

Will the Commissioner exercise his discretion to refund the overpaid GST to you on the relevant supply made after 27 January 2011?

Advice/Answers

Yes

Question 3

Are you entitled to the input tax credits (ITCs) claimed in relation to the relevant supplies?

Advice/Answers

No. The relevant acquisitions were not creditable acquisitions under section 11-5 of the GST Act because they relate to a supply that was always input taxed.

The over-claimed ITCs must be repaid by revising the relevant original BASs.

Question 4

If the outcome to Question 3 is that each business activity statement requires amendment, will the Commissioner allow your request to have all general interest charges (GIC) either remitted in full or reduced to the base interest rate?

Advice/Answers

See Detailed reasoning below

Relevant facts and circumstances

· You are a building entity and are registered for goods and services (GST)

· Prior to 20XX you were granted a long-term lease over land situated in Australia.

· Subsequently to the grant of the leases you have undertaken a medium density multi staged residential development on the land.

· Lease of the land

The lease was granted prior to 20XX by a government agency on behalf of the Commonwealth. The land is to be used for the purposes which includes residential use.

· Input tax credit claims during construction phase

During the construction phase you have treated the acquisitions as creditable in accordance with the view of the Tax Office at that time (GSTR 2003/3) and claimed all relevant input tax credits.

· Supplies made prior to 27 January 2011

You registered the unit plan prior to 27 January 2011 and subsequently commenced settling on Contract of sales of individual certificate of titles to third party purchasers. Upon settlement of the contracts for sale, the subsequent leases were assigned from you to the purchasers.

All supplies of residential premises made prior to 27 January 2011 have been treated as input taxed supplies, being the sales of residential premises that are not new residential premises

· Repayment of over-claimed Input tax credits

You have undertaken an exercise of quantification of the over-claimed input tax credit. An increasing adjustment pursuant to Division 129 of the GST Act was made in one of your BAS to repay the over-claimed input tax credits.

· Supplies made subsequent to 27 January 2011

Those contracts was entered into prior to 27 January 2011 and settled after 27 January 2011. You have provided some information included in the Settlement Statements:

- The contract price was GST-inclusive price

- No GST was stated in the Statement.

- The supplies have been treated as a taxable supply of new residential premises, relying on the Treasurer's press release on 27 January 2011 which announced that the relevant supplies will be treated retrospectively as taxable supplies by the amended legislation.

- A GST amount being 1/11 of the contract price was remitted to the Tax Office in your relevant BAS.

Relevant legislative provisions

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

Sections 9-5. 40-65, 40-75

Taxation Administration Act 1953

Divisions 3 and 3A of Part IIB

Sections 105-65 to the Schedule 1

Reasons for decision

Question1

Summary

Yes, the supplies of newly constructed residential premises in the relevant development are input taxed in accordance with the decision in Commissioner of Taxation v Gloxinia Investments (Trustee) [2010] FCAFC 46 (the Gloxinia case) and the amended legislation.

Detailed reasoning

The GST treatment of a supply of residential premises is considered under sections 40-65 and 40-70 of the A New Tax System (Goods and Services Tax) Act (GST Act). Under those sections, the sale or long term lease of residential premises to be used predominantly for residential accommodation is input taxed to the extent that the premises are not commercial residential premises or new residential premises.

The supplies of residential premises in the relevant development are not supplies of commercial residential premises.

The term 'new residential premises' is defined in subsection 40-75(1) of the GST Act. Of relevance to this case is paragraph 40-75(1)(a) which states:

40-75 Meaning of new residential premises  

When premises are new residential premises

(1) *Residential premises are new residential premises if they:

(a) have not previously been sold as residential premises (other than *commercial residential premises) and have not previously been the subject of a *long-term lease; or

(b)  …; or

(c)  …

Paragraphs (b) and (c) have effect subject to paragraph (a).

*asterisk denotes a defined term in the GST Act

The relevant supply in this case is a supply of a new land and house in the development by way of assigning a long term lease. Whilst it is accepted that the supply is a supply of residential premises as defined in the GST Act, the issue is whether the supply is a supply of new residential premises that would not be treated as input taxed under sections 40-65 and 40-70 of the GST Act.

Under paragraph 40-70(1)(a) of the GST Act, we need to consider whether the underlying supply in question (the house and land package) has previously been subject to a long term lease.

Goods and Services Ruling GSTR 2008/2 (issued on 11 May 2008) provided the view of the Tax Office on the supply of newly constructed residential premises under a development lease. Under this Ruling, it was considered that the government entity merely sells or leases land (not land and the attached development works) to the developer. Therefore, when the developer supplies the completed residential premises by way of sale or long-term lease, it is making supplies of new residential premises, as the premises 'have not previously been sold as residential premises and have not previously been the subject of a long-term lease'. It followed that the supply is a supply of new residential premises and paragraph 40-65(2)(b) of the GST Act applies to make the supply taxable.

However, following the decision in the Gloxinia case handed down by the Federal Court on 24 May 2010, the ATO issued a Decision Impact Statement (DIS) providing the amended view of the Tax Office in relation to this decision.

In the DIS the Commissioner considers, amongst other things, that:

To the extent that the land comprises residential premises, the developer does not make a creditable acquisition in acquiring the land from the land owner. This is because the acquisitions relate to the developer's subsequent sales of the premises to home buyers and investors and, in accordance with the decision, those subsequent sales are input taxed supplies of residential premises.

Therefore, following the Court decision in the Gloxinia case, the Tax Office confirmed that the correct decision was the input taxed treatment of the supplies, and GSTR 2008/2 was later withdrawn to reflect the Court decision.

On 21 March 2012, the Tax Law Amendment (2011 Measures No 9) Act 2011 (TLAA) received Royal Assent. Of relevance to this case are the new subsections 40-75(2B) and (2C) that apply to supply of residential premises on or after 27 January 2011 (subject to certain exceptions contained in items 12 and 13 of Schedule 4 to the TLAA). Under transitional provisions some supplies of residential premises after 27 January 2011 will not be subject to the amendments if the conditions contained in items 12 and 13 of Schedule 4 to the TLAA are satisfied.

Item 12 excludes certain 'wholesale supplies' of residential premises made on or after 27 January 2011 from the application of the new law (ss 40-75(2B)), subject to certain conditions being satisfied in relation to the whole sale supply.

Item 13 excludes supplies of residential premises made on or after 27 January 2011 from the application of the new law (ss 40-75(2C)) if the supply was made because a 'property subdivision' was lodged for registration before 27 January 2011 by the developer or their associate.

13  Exception - property subdivision plans lodged for registration before 27 January 2011

Subsection 40-75(2C) of the A New Tax System (Goods and Services Tax) Act 1999 (as inserted by this Schedule) does not apply to a supply of residential premises on or after 27 January 2011 if the supply is made because a property subdivision plan relating to the premises was lodged for registration (however described) before 27 January 2011 by the recipient of the supply or the recipient's associate.

The term 'property subdivision plan' is defined in section 195-1 of the GST Act to mean:

property subdivision plan means a plan:

(a) for the division of *real property; and

(b) that is registered (however described) under an *Australian law.

Note:

Examples are strata title plans and plans to subdivide land

In your circumstances:

· You were granted a ninety-five year (approximately) lease over land in the development. This means that the lease is a long term lease.

· You lodged an Application for Unit title prior to 27 January 2011.

Therefore under the exception in Item 13 of Schedule 4 to the TLAA, the supplies of residential premises by way of long term lease made after 27 January 2011 are not subject to the application of the amendment [section 40-75(2C)].

That is, the granting of individual strata lot leases over newly constructed residential premises upon a registration of a property subdivision plan (lodged before 27 January 2011) was sufficient to cause the newly constructed premises to cease to be new residential premises at that time (for the purpose of future supplies). Therefore they will be treated as input taxed when they are subsequently sold or supplied by way of assigning the long term lease.

Question 2

Summary

As the GST has not been passed on to the purchaser, the Commissioner will exercise his discretion to refund the overpaid GST.

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 Taxation Administration Act 1953 (TAA)

However, the requirement to give a refund of overpaid GST is subject to section 105-65 of Schedule 1 to the TAA (section 105-65) 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 105-65 are satisfied.

Subsection 105-65(1) 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.

Whether subsection 105-65(1) applies to your circumstances

The restriction of refunds of overpaid GST under section 105-65 will apply if all three of the following conditions are present:

· 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

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

Miscellaneous Tax Ruling MT 2010/1, which issued on 15 December 2010, provides the view of the Commissioner on the application of section 105-65.

Paragraph 20 of MT 2010/1 explains the meaning of 'overpaid'. It states:

In the context of 105-65 'overpaid' means the amount that has been remitted must be in excess of what was legally payable on the particular supply in the relevant tax period prior to taking into account or applying section 105-65.

Paragraph 21 of MT 2010/1 explains the meaning of 'treated' as a taxable supply. It states:

In the context of section 105-65 a supply would be treated as a taxable supply where the supplier has mischaracterised a supply as taxable because they believed the supply to be a taxable supply, has dealt with the recipient of the supply as if the supply was a taxable supply and has remitted an amount as GST to the Commissioner on that supply in the calculation of their net amount. A supply would also be treated as a taxable supply where a supplier correctly characterises a supply as GST-free or input taxed but mistakenly includes GST for that supply in the calculation of their net amount. A supply would also be treated as a taxable supply where a supplier correctly characterises a supply as taxable but miscalculates the GST for that supply in the calculation of their net amount. [emphasis added]

In your circumstances section 105-65 applies because:

· for supplies after 27 January 2011 you have incorrectly characterised the supplies of residential premises as taxable (as you have not anticipated the change in law correctly) and treated them as taxable supplies when it should have treated them as input taxed.

· you have dealt with the recipients of the supply as if the supply was a taxable supply and have remitted an amount of GST to the Commissioner on that supply in the calculation of your net amount.

· as no GST was payable on those supplies, the amount legally payable was nil and you have overpaid a GST amount in relation to those supplies.

· you have provided that you have not and will not reimburse the recipients the overpaid GST amounts.

In your circumstances, the error resulted in the mischaracterising the supply as taxable and so section 105-65 applies to restrict the refund.

Exercise of the Commissioner's discretion

As section 105-65 applies, 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 Commissioner that he has discretion in certain limited circumstances to pay a refund even though the conditions in paragraphs 105-65(1)(a), (b) and (c) are satisfied:

Paragraphs 116 and 117 of MT 2010/1 provide that:

116. The operation of section 105-65 to deny the requirement to pay refunds that would otherwise be payable is not discretionary … The words of the provision say that where the section applies the Commissioner need not give you a refund of the amount or apply the amount under the relevant RBA provisions.

…

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

This view is supported by the decision in Luxottica Retail Australia Pty Ltd v FC of T 2010 ATC 10-119 at 57 where the AAT referred to 'residual discretion'

As to paragraph (c), and accepting of course that subparagraph (ii) cannot apply, it is a fact that the customer has not been "reimbursed" to the extent of the overpayment. The question then becomes whether, in these circumstances, the residual discretion to pay the refund to the Applicant should be exercised. We think it should. [Emphasis added].

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

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) …

(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) …

In relation to the supply made after 27 January 2011 (after the first press release) where it is treated as taxable supply, you rely on paragraph 128(d)(ii) of MT 2010/1 and advise that:

o The contract was entered prior to 27 January 2011 with the settlement date after 27 January 2011.

o The contract price was GST-inclusive at the contract date. No GST was stated in the Settlement statement.

o The price agreed on at the contract date was prior to the press release, and was intended to be treated as input taxed at the contract date.

o However, at the completion date, the supply was treated as a taxable supply of new residential premises following the Treasurer's press release on 27 January 2011 (which announced that the relevant supplies will be treated retrospectively as taxable supplies by the amended legislation).

o At settlement date, the actual amount paid was not changed. A GST amount being 1/11 of the contract price was remitted to the Tax Office in the your relevant BAS.

In these particular circumstances it is considered that the overpayment of GST arises as a direct result of the actions of the Treasury announcement. You have 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. This is a scenario where, following the guidance in MT2010/1 (subparagraph 128(d)(ii)), it may be appropriate for the Commissioner to exercise the discretion available to allow a refund of the overpaid GST.

The Commissioner is satisfied in your case that you have borne the cost of GST rather than passing it on the recipients. The Commissioner will therefore exercise his discretion to allow a refund the overpaid GST amount.

Question 3

Summary

You are not entitled to input tax credits for acquisitions relating to its input taxed supplies. These acquisitions are not creditable acquisitions under section 11-5 of the GST Act, as they rely to supplies that are always input taxed. The error must be corrected by the revisions of the relevant original BASs.

Detailed reasoning

Pursuant to subsection 7-1(2) of the GST Act, entitlements to input tax credit arise on creditable acquisitions.

You have provided during the construction phase you followed the ATO's view in GSTR 2003/3 and GSTR 2008/2)) and treated the acquisitions as creditable and therefore claimed input tax credits on all relevant acquisitions.

Following the decision in the Gloxinia case, the correct treatment of the relevant supply is input taxed rather than taxable.

The acquisitions in question are not creditable acquisitions under Division 11 of the GST Act. You are not entitled to input tax credits for things acquired to make input taxed supplies. As you have claimed input tax credits that it is not entitled to, it is required to repay the over-claimed credits to the Tax Office.

The question is how the return of the over-claimed input tax credit can be done under the GST Act.

Division 129

Section 129-1 of the GST Act, although not an operative provision, provides a short explanation of the Division. It provides that when the extent of creditable purpose is changed by a later event, adjustments may be made.

Goods and services tax ruling GSTR 2000/24 Division 129 - making adjustments for change in extent of creditable purpose explains the Tax Office's view on how to work out an adjustment for an acquisition or importation under Division 129 of the GST Act. In particular, the Ruling explains the circumstances when an adjustment will arise for an acquisition. Paragraph 12 of this ruling states that:

When an adjustment arises

12. You may have an adjustment for an acquisition or importation where there is a difference between the actual use and the planned use of the thing for a creditable purpose. An adjustment also arises where there is a difference between the actual use of the thing up to the end of one adjustment period, and the actual use of it up to the end of the previous adjustment period. These adjustments are made in a tax period called an adjustment period

Similarly, paragraph 13 of GSTR 2009/4: new residential premised and adjustments for changes in extent of creditable purpose states that;

An adjustment under Division 129 arises for an acquisition in an adjustment period where:

o There is a difference between the actual application and the planned (or intended) application of the thing for a creditable purpose, or

o There is a difference between the actual application of the thing up to the end of one adjustment period and the actual application of the thing up to the end of the previous adjustment period.

The amount of the input tax credit depends on the extent to which the acquisition or importation is for a creditable purpose. In order to claim the correct amount of input tax credits, an entity will need to determine the extent of creditable purpose for its acquisitions and importations on a reasonable basis that reflects its planned use of an acquisition (section 11-15) or importation (section 15-10) in its enterprise relative to the total use.

Divisions 11 and 15 provide that it is the planned extent of creditable purpose for that acquisition or importation which is relevant for claiming input tax credits.

Division 129 provides that after an acquisition or importation is made, the extent to which it is actually applied or used for a creditable purpose may be different from the planned use. This means that the original input tax credit claimed may have been too much or not enough. Adjustments for such changes in the extent of creditable purpose are subject to the provisions of Division 129 of the GST Act.

The word 'apply' is defined in section 129-55 to include:

a. supply of the thing; and

b. consume, dispose of or destroy the thing; and

c. allow another entity to consume, dispose of or destroy the thing

Both Divisions 11 and 129 operate in respect of a 'thing'. Division 11 determines what input tax credits you are entitled to when you acquire a thing. Division 129 determines whether the amount you originally claimed in respect of the acquisition of the thing needs to be altered due to a change in use.

It is considered that 'applied' in step 1 of the method statement in section 129-40 requires the thing to actually be applied to a particular purpose, That is, the actual application of the thing. It compares this with your intention when you acquired the thing, or your former application of the thing. The method statement focuses on what you have actually done with the thing rather than a continuation of your intention when you acquired it.

· What are the consequences of this meaning of 'apply'?

Where an entity acquires a thing for a particular creditable purpose, but uses the thing for a different purpose, the only use relevant for the purposes of the method statement in Division 129 is the actual use of the thing. If the actual use is not for a creditable purpose, applying the method statement will result in an increasing adjustment that will require all of the input tax credits to be repaid in the first adjustment period.

· When does Division 129 apply?

As noted above, Division 129 operates where there is a change in the extent of creditable purpose. Section 129-1, when read in conjunction with section 182-10, requires the extent of creditable purpose to be changed by later events before you need to apply Division 129.

Division 129 only applies where there is a later event that causes the actual use of a thing to be different from the intended or former use of it. The later event could be any application of the thing. In other words, there has to be some active application of the thing, for example, applying residential premises to renting.

For example, a builder who constructs residential premises, with the intention of renting them and then selling the premises as new residential premises, will have both creditable and non creditable purposes in respect of acquisitions made to construct the premises. The builder will therefore be entitled to a proportion of the relevant input tax credits under Division 11. If, however, the premises are not sold during the first adjustment period, the actual use of the property has only been for a non-creditable purpose and the builder will be required to apply Division 129.

In your circumstances:

· You acquired things to build residential premises. The intended application of the thing acquired was the supply of the thing by way of an assignment of a long term lease to the purchaser.

· The actual application of the thing is the same. The purpose of the acquisitions was to supply the thing by way of an assignment of a long term lease to the purchaser. That is, the use of the things acquired to build the residential premises did not change from sale to, for example, rent.

The correct GST status of your supply is always input taxed, taking account the change in the view of the Tax Office and the exception in Item 13 of Schedule 4 to the TLAA (the amendment). Therefore, where you acquired things to make residential premises and supply them as input taxed supplies, you did not acquire things for a creditable purpose under paragraph 11-15(2)(a) of the GST Act. It follows that you did not make creditable acquisitions and therefore is not entitled to any input tax credit (at any time) from those acquisitions under Division 11 of the GST Act.

The change in the Tax Office's view and subsequent legislative change is not a later event that changes the application of the things.

In conclusion, under Division 11 of the GST Act, you are not entitled to any input tax credit in relation to acquisitions of things to make the input taxed supplies. Division 129 does not have any application to these acquisitions as explained above.

In order to repay the over-claimed input tax credit, you need to revise your relevant BASs to exclude the incorrectly claimed ITCs.

There are only two ways an entity may correct an error in a tax period other than the tax period of the original BASs:

o under the 'Correcting GST mistakes' rules.

o under Division 19 of the GST Act (adjustments).

Under the 'Correcting GST mistake' rules an entity can make a correction on a later BAS subject to the correction limits. For an entity whose turnover:

- less than $20m: the correction limit is less than $5,000

- $20m to less than $100m: the correction limit is less than $10,000

- $100m to less than $500m: the correction limit is less than $25,000

- $500m to less than $1b: the correction limit is less than $50,000.

As your correction amount of is greater than the relevant correction limit, you cannot apply the 'Correction GST mistake' rule.

Under subsection 29-20(1) of the GST Act, an adjustment is attributable to the tax period in which the entity becomes aware of the adjustment. However, for this section to apply there must be an adjustment event pursuant to of section 19-10(1) of the GST Act.

An adjustment event is defined in subsection 19-10(1) to mean any event which has the effect of:

o cancelling a supply or acquisition, or

o changing the consideration for a supply or acquisition, or

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

The circumstances that you over-claimed input tax credit do not fall into any of the requirements above.

Therefore, you cannot revise the error in any BAS other than the original BASs.

Question 4

Summary

As each business activity statement requires amendment, we have considered your request that all GIC charges in relation to the over-claimed input tax credits be remitted either in full or to the base interest rate.

Detailed reasoning

The following events lead to the input taxed treatment of the supplies in prior to 27 January 2011:

· GSTR 2008/2 was issued on 7 May 2008. This supported the view that the relevant supply is taxable, and therefore you was entitled to input tax credits for things acquired to make the taxable supplies.

· On 24 May 2010 the Federal Court handed down the Gloxinia decision, which provided the alternative view (that the supply would be input taxed).

· On 1 October the High Court refused the Commissioner's application for special leave to appeal.

You have advised that:

· For acquisitions made prior to 27 January 2011, for which relevant input tax credits have been claimed, you undertaken an exercise of quantification of the over-claimed input tax credits. A repayment amount was reported in one of your BAS as an increasing adjustment pursuant to Division 129 of the GST Act.

When the High Court refused the Commissioner's application for special leave to appeal the Federal Court decision (on 1 October 2010), it is appropriate that you reviewed its supplies and input tax credit in light of the Court decision.

Prior to 27 January 2011, you have determined that you were not entitled to the input tax credits you claimed earlier for acquisitions made to make the input taxed supplies.

In relation to the supply, you have decided correctly that it would make the supply input taxed. The supplies prior to 27 January 2011 were treated as input taxed.

Your penalty and GIC remission request is considered in light of section 358 of the TAA, Law Practice Statement PS LA 2008/3 and the ATO's approach to dealing with retrospective law changes.

In reaching a decision we have also considered the following:

· You were correct in anticipating the law changes by treating the supplies prior to 27 January 2011 as input taxed.

· The over-claiming of input tax credits was caused by the view under GSTR 2008/2. These views were later found to be incorrect and withdrawn.

· The amendments to repay the over-claimed input tax credits should have been made when the character of the supplies was determined. However, this did not occur until the lodgement of the later BAS (as you believed that Division 129 applied and therefore believed that the correct timing to repay the over-claimed input tax credit was the end of the year BAS).

In these circumstances it is appropriate for the Commissioner to exercise his discretion in relation to penalties and interest. You have acted in good faith and applied an approach that is fair, reasonable and equitable in view of the circumstances surrounding the case.

Accordingly the ATO has adopted the following approach:

· no tax shortfall penalties will apply.

· any interest attributable to the shortfall will be remitted to nil up to the date of the your decision to treat the supplies as input taxed (from when no entitlement to input tax credit existed).

· GIC applies at the base rate as from the date above to the actual date the repayment of the over-claimed input tax credits was made.

We note that this base GIC rate reflects the Commissioner's lack of access to these funds, rather than any element of punishment.

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