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Ruling

Subject: Refund of overpaid GST

Question 1

Will the Commissioner exercise the discretion under section 105-65 of Schedule 1 to the Taxation Administration Act 1953 (section 105-65) to refund to you the goods and services tax (GST) overpaid in relation to supplies of certain products for a period, before you first reimburse your customers?

Answer

No.

Question 2

Will the Commissioner be satisfied that a reimbursement of the corresponding amount of GST will be made under the proposed arrangements?

Answer

No.

Relevant facts and circumstances

§ You are registered for GST.

§ You sell various products. You supply the products wholly within Australia.

§ We have previously provided advice that certain products that you supply are GST-free under section 38-45 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

§ However, for a period you treated supplies of these GST-free products to your customers as taxable supplies.

§ We have previously provided advice that the Commissioner would not exercise the discretion under section 105-65 to refund to you the GST overpaid in relation to supplies of certain products for the period based on the facts provided in relation to that ruling, including that you intended to claim the refund prior to reimbursing your customers.

§ Your customers are not registered or required to be registered for GST.

§ You now intend to:

o (a) firstly, refund customers an amount equal to the total 'overpaid' GST; and (b) secondly, lodge amended business activity statements for the relevant period, claiming back the overpaid GST amounts (which equal the amount of the payments made in accordance with (a) above).

o engage with relevant customers to advise of their entitlement to a GST refund and to:

(a) request confirmation that the relevant customer wishes to obtain the refund; and

(b) if so, to confirm the customer's preferred:

(i) GST refund payment method; and

(ii) administration fee payment method.

o Send a confirmation form (example provided) to your customers

o Provide the customer with a number of options to pay the administration fee, including by:

(a) credit card payment;

(b) direct deposit; or

(c) offset against the GST refund amount.

o Calculate the administration fee by reference to your actual costs incurred in administering:

(a) the refund process to the customers; and

(b) claiming the refund from the ATO.

§ You state that:

o From a legal and technical position, the administration fee is a separate liability incurred by the customers as owing to you and the payment by the relevant customer to you.

o If the customer elects to 'pay' the administration fee to you by way of offset from the GST refund amount payable by you, this does not:

(a) in any way alter the characterisation of the GST refund amount claimed by you; or

(b) result in a windfall gain to you.

o At all times, the customer is entitled to the FULL GST refund amount. However, as a practical matter (only), the customer may elect to 'pay' that fee by way of offset from the amount payable to them by you. Put simply, the offset arrangement reflects a common commercial approach of offsetting mutual liabilities and does not reflect the customer only being refunded the net amount.

o There is no positive obligation on the customer to pay the administration fee by way of offset (from the GST refund amount) and indeed, the customer may make that payment by their preferred method, which may include any means outlined above.

o You accepted that the administration fee will be a separate taxable supply and tax invoices will be issued accordingly.

o You will gross up the administration cost by the amount of the GST payable on that supply.

o There are no restrictions at law (and specifically, in the tax legislation) which prevent this commercial arrangement. The payment of the administration fee by the relevant customer is a separate legal arrangement from the GST refund being provided by you.

You provided, by email, the following additional information:

§ An example outlining how you propose to account for the offset arrangement:

§ Calculation of the administration fee.

In subsequent discussions held you requested that we treat this issue as an application for a private binding ruling.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Division 35 Section 35-99

A New Tax System (Goods and Services Tax) Act 1999 Section 38-45

Taxation Administration Act 1953 Schedule 1 Section 105-65.

Reasons for decision

Summary

You have overpaid GST, and section 105-65 applies to restrict the refund of this overpaid GST.

After considering all your circumstances, additional information and the application of section 105-65, the Commissioner will not exercise the discretion available under section 105-65 to allow the refund to you before you have refunded a corresponding amount to your customers.

However, if you first reimburse your customers an amount corresponding to the GST overpaid, section 105-65 will not apply to restrict a refund to you.

Where you first reimburse your customers an amount less than the GST overpaid, such as in your proposed offset arrangement, then section 105-65 will apply to restrict the refund to you by the amount of the offset.

Detailed reasoning

Question 1

Exercise of the discretion

Division 35 of the GST Act provides that you are entitled to refunds of net amounts in particular circumstances. However, a note to section 35-99 of the GST Act provides that section 105-65 also relates to refunds of net amounts. Hence, both sections of legislation need to be considered in relation to refunds of GST.

The Commissioner need not give you a refund of an amount where section 105-65 of the TAA applies to restrict a GST refund.

Section 105-65 applies to restrict your entitlement to a refund where you overpaid an amount because a supply was treated as a taxable supply, and the supply was not a taxable supply and the Commissioner is not satisfied that you have first reimbursed a corresponding amount to the recipient of the supply or, the recipient is registered or required to be registered. In this case your customers are not registered nor required to be registered for GST.

We have already advised (in our previous private ruling) that the Commissioner would not be exercising the discretion to allow you to claim a refund before you have reimbursed your customers.

You have still not reimbursed the recipients of your supplies an amount corresponding to the GST overpaid based on the supplies made to them and therefore section 105-65 applies to restrict any related refund.

The information you have provided in relation to this ruling about the proposed accounting treatment shows that you will still amend your activity statements, and therefore claim a refund, before you reimburse your customers. This would result in you claiming a refund to which you are not entitled.

There are no reasons for the Commissioner to exercise his discretion under section 105-65 in these circumstances to allow the refund to you.

You only become entitled to claim a refund once you have reimbursed your customers an amount corresponding to the overpaid GST. Once this has occurred section 105-65 no longer applies to restrict the refund. You may then claim a refund by revising your activity statements.

Question 2

Reimbursement and meaning of reimbursement corresponding to the amount of GST

You have provided a sample "Acceptance form". In the proposed acceptance form, paragraph 1 advises of the full amount of the entitlement to the refund. You also advise that you are charging a fee to cover your administration costs for this reimbursement. You require your customers to pay this fee before you will pay them a reimbursement. They may pay this fee by setting it off against the amount to be reimbursed to them, by a payment in advance to your trust account, or by a charge to their credit card. These options are advised to your customer, and paragraph 3 explains that it is you that requires the payment of the administration fee.

The arrangement you propose gives your customers a choice between receiving effectively a net refund (of the amount they overpaid to you less the administration fee) or receiving no refund. It does not give your customers the choice to receive the full amount of the refund without paying the administration fee. Neither does it explain to your customers that they have no liability to pay the administration fee.

Where the fee payment is required to be made we consider that your reimbursement of the GST overcharged to the customer is contingent on your receipt of the administration fee from the customer. Where it is contingent, the requirement to pay the administration fee effectively reduces the amount of reimbursement that you make.

Currently your customers have borne the burden of the overpaid GST. If the proposed arrangement is put into effect your customers would 'be out of pocket' to the extent of the grossed up administration fee, or arguably, the equivalent amount of the GST they originally overpaid.

As your proposal is to only reimburse where you have received the administration fee in advance, or will receive it by offsetting it against the amount to be paid to the customer, we consider that you will not be reimbursing an amount corresponding to the full amount of the GST, but a lesser amount being the full amount less the administration fee. Therefore section 105-65 applies to the amount of the administration fee and your ability to claim this amount as a refund is restricted. There is no other reason for the Commissioner to exercise the discretion in relation to this amount.

Other things to consider

In the proposed covering letter you state to your customers that you are seeking a refund from the ATO on their behalf and that you are required to notify the ATO of the amount sought on their behalf. These statements are incorrect.

You are not seeking a refund on behalf of your customers and there is accordingly no notification requirement for such a refund. You are registered for GST and only you are entitled to claim a refund for the GST you have overpaid. Your customers are not entitled to any refund of overpaid GST from the ATO. However you may reimburse them an amount corresponding to the amount of GST incorrectly included in the price of the goods they purchased from you.

Conclusion

For the reasons given above it is not appropriate for the Commissioner to exercise the discretion to allow a refund to you of the overpaid GST prior to you reimbursing your customers.

Where the Commissioner is satisfied that an amount of GST has already been reimbursed to your customers, section 105-65 will not apply to restrict a refund of that amount to you.

In the circumstances of your proposed arrangement, the Commissioner would only be satisfied that the recipients have been reimbursed to the extent of the net amount that they actually receive. You would be entitled to a refund of that net amount once reimbursement has already occurred.

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