Edited version of your private ruling

Authorisation Number: 1012567933542

Ruling

Subject: GST and vacation care services

Question 1

Is your supply of vacation care services GST-free under Subdivision 38-D of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes

Question 2

If the answer to Question 1 is Yes, can you claim back the incorrectly remitted to the Australian Taxation Office (ATO)?

Answer

Yes

Relevant facts and circumstances

· You owned and operated a vacation care centre.

· You are registered for goods and services tax (GST).

· You operate a children's vacation care program and are a registered provider through the Department of Education, Employment and Workplace Relations.

· You are an approved childcare service provider under the A New Tax System (Family Assistance)(Administration) Act 1999.

· Your Vacation Care Program has access to the gymnastics facility, indoor and outdoor netball courts, table tennis, squash courts, basketball…Children can participate in wide range of activities including gymnastics, art and craft, dance, sport, cooking, free play and excursions.

· Your promotional material provides that:

- Fees are $xxx per day per child

- Excursions are an additional cost

- Families pay the net of Child Care Benefit (CCB) to you

· There is no mention of GST in your website or promotional material.

· You have provided two sample monthly statements (invoice to parents) where no GST has been included or stated.

· You have further provided that:

- You use a software package called XYZ which is a commonly used package for providers of child care services.

- Payments are calculated by whole days, with the current rate being $xx/day. XYZ calculates the amount and generates a statement (invoice).

- The BAS is prepared by a third party on your behalf. The GST payable has been worked out on the gross revenue received for vacation care.

- You believe that the practice of remitting GST commenced in 2000 when the XYZ receipting system was implemented. At that point an option to tick a box to indicate GST was payable on vacation care receipts would have been made. That box is still ticked and 10% GST on vacation care income continues to be processed through your BAS.

Relevant legislative provisions

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

Section 38-145

Subdivision 38-D.

Taxation Administration Act 1953 (

Section 105-65 of Schedule 1

Reasons for decision

A supply of childcare is GST-free under section 38-145 of the GST Act if it is

· A supply of childcare by an approved childcare service (within the meaning of section 3 of the A New Tax System (Family Tax Assistance) (Administration) Act 1999

· It is a supply of an excursion that is directly related to a supply of childcare covered above.

You are operating vacation care programs and are registered through the Commonwealth Department of Education, Employment and Workplace Relations. You are an approved childcare service provider under the A New Tax System (Family Assistance)(Administration) Act 1999.

Under section 38-145 of the GST Act, your supply of vacation care services including excursions is GST-free.

In accordance with section 38-1 of the GST Act, if a supply is GST-free then no GST is payable on the supply and an entitlement to an input tax credit for anything acquired to make the supply is not affected.

Question 2

Summary

Section 105-65 of Schedule 1 to the Taxation Administration Act 1953 (TAA) will not apply to restrict the refund of 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 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 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.

Note: * asterisk denotes a defined term in the Act

Miscellaneous Tax Ruling MT 2010/1 provides the ATO view on how section 105-65 applies.

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

Section 105-65 applies to restrict refunds of overpaid GST 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

· 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.

Meaning of overpaid

In the context of section 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.

In your circumstances, it is considered that the supply of vacation care services is GST-free under section 38-145 of the GST Act. No GST is payable on the supply.

However, as a result of a reporting error (when your receipting system was implemented an option to tick a box to indicate GST was payable on vacation care receipts would have been made. That box is still ticked and 10% GST on vacation care income continues to be processed through your BAS. You have remitted GST in all of your BAS since 1 July 2000. Had the error not been included in the calculation of GST, the GST payable for the relevant tax period would be lower. Therefore, the amount of GST remitted was in excess of the GST amount legally payable had the error not been taken into the GST calculation. As the GST payable was overstated, the net amount for the tax period wais also overstated.

A supply was treated as a taxable supply when it was not a taxable supply or was taxable to a lesser extent

Broadly, in the context of section 105-65 a supply would be treated as a taxable supply where the supplier mischaracterises a supply as taxable, either in whole or in part.

For section 105-65 to apply, the relevant supply must be 'treated' as a taxable supply. Broadly, in the context of section 105-65 a supply would be treated as a taxable supply where the supplier believes the supply to be a taxable supply, has dealt with the recipient of the supply as if the supply was taxable and has remitted GST to the Commissioner on that supply or arrangement.

In your circumstances:

· The overpayment arose because of an error in preparing the BAS that treats the supply as taxable.

· The miscalculation of the GST amount led you to pay a higher amount of GST on your supplies than was legally payable as well as a higher net amount of GST for the relevant tax periods that was correctly payable.

Section 105-65 applies to restrict refunds of overpaid GST if the conditions in subsection 105-65(1) are satisfied, including that the supply was treated as a taxable supply to any extent when it was not a taxable supply to that extent.

MT 2010/1 expresses the view that the phrase 'to any extent' should be interpreted widely and that section 105-65 covers overpaid amounts arising from miscalculations.

However, following the decision in the recent Federal Court case Sportsbet Pty Ltd v Commissioner of Taxation 2011 ATC 20-268 (Sportsbet), the ATO has amended MT 2010/1 providing its response to the case, including changes to the ATO view on how section 105-65 applies. The changes extend to any miscalculation of the GST payable under the GST Act.

Paragraph 25B was inserted into MT 2010/1 and states:

The Commissioner takes the view that section105-65 will not apply in cases where the supply is always correctly characterised and treated by the supplier, but an overpayment of GST arises from a mere miscalculation. Examples of such cases include where:

· a supplier correctly characterises a supply as taxable but merely miscalculates the GST for that supply in the calculation of their net amount;

1…

You have provided that:

o There is no mention of GST in your website or promotional material of in your statement (invoice). The vacation care dealt with the parents on the basis that the payments have no GST implications

o You have not issued any tax invoice (which includes GST) in relation to the vacant care services. You have issued only monthly statements without any GST included or stated.

o The error has been made by the BAS preparer only after the issue of the statement where the GST box was ticked at the time the accounting software was implemented.

You remitted the GST on a supply that the vacation care centre has not charged GST and the parents have not paid GST.

The overpayment of GST has not resulted from a mischaracterisation of the supply as a taxable supply. It is considered that that you have overpaid GST by miscalculating your GST liabilities in your BAS since 1 July 2000.

It follows that section 105-65 will not apply in your circumstances and will not restrict the refund of GST to you.

Four-year time limit

You have overpaid GST and wish to seek a refund of the overpaid GST, a GST refund claim must be made within the four-year time limit for GST refunds (section 105-55 of Schedule 1 to the TAA). This section states:

105-55(1)

You are not entitled to a refund, other payment or credit to which this subsection applies in respect of a *tax period or importation unless:

(a) within 4 years after:
(i) the end of the tax period; or

(ii) the importation;

as the case requires, you notify the Commissioner (in a *GST return or otherwise) that you are entitled to the refund, other payment or credit;

You may preserve your entitlement to a refund by lodging a Notification of Entitlement to GST refund form within the time limits for seeking refunds. However, we will treat your Private Binding Ruling Application lodged in xxxx as equivalent to the Notification of Entitlement to GST Refund. Therefore, you can revise your BASs from xxxx to now to correct the miscalculation.

GSTE 2013/1- Goods and Services Tax: Correcting GST Errors Determination allows you to correct GST errors, made in an earlier tax period, in a later tax period in specified circumstances. As you have made credit errors (mistake you made in working out your net amount for a tax period that it would, if it was the only mistakes made in the tax period, have resulted in the net amount or assessed net amount being overstated), in accordance with GSTE 2013/1 you can correct the errors made in your BASs started from xxx BAS in your next BAS.

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