Edited version of private advice

Authorisation Number: 1012637010409

Ruling

Subject: GST and refund of overpaid GST

Question

Can you revise your Business activity statements (BAS) to claim the refund of the overpaid goods and services tax (GST) when you incorrectly included GST in the price of a non-taxable supply and remitted that amount to the Australian Taxation office (ATO)?

Answer

Yes

• You are a Government agency and are registered for GST.

• The GST overpayment has arisen in respect of an Authority's activity.

• The Authority was a member of a GST group of which you were the GST group representative. As a result, the proportion of the GST overpayment that occurred prior to a certain date was reported in your business activity statement (BAS) as the GST group representative.

• From a certain date the Authority's functions were amalgamated with yours. Therefore, the GST overpayment for the relevant tax periods were reported in your BAS.

• On a particular date the Authority introduced a card which formed part of an electronic ticketing system.

• Each card has a unique identifying number attached to it. Users of the card 'touch on' before starting a journey and 'touch off' at the end of the journey. The cost of each journey is deducted from the card balance.

• The Authority's systems are configured to account for GST to the Australian Taxation Office (ATO) as 1/11th of the total cost of each 'use' once the card holder has 'touched off' at the end of the journey.

• To encourage the use of the cards, the Authority gave away a large number of cards preloaded with a value of $xx credit (Cards).

• The Authority remitted GST on the Cards as and when the $xx credit on the Card was used by the card holder, despite no consideration being received from the card holder (given that the cards were given away for free).

• However, as the Authority never made a taxable supply to the holder of the Card (given that no consideration was received for the cards), the Authority should not have remitted GST to the ATO in respect of the Cards.

• The Authority has quantified the amount of GST that was overpaid on the Cards by tracking the unique identifying number on each Card in their accounting system and by applying a certain set of rules based on the balance of the cards at a particular date.

• Based on the above criteria the Authority has overpaid GST on free cards for the relevant tax periods.

Relevant legislative provisions

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

Section 9-5

Section 9-20

Section 11-5

Taxation Administration Act 1953:

Section 105-65 Schedule 1

Reasons for decision

Summary

The overpaid GST is the outcome of an accounting error. Section 105-65 to Schedule 1 of the Taxation Administration Act 1953 (TAA) will not apply to prevent the refund of the overpaid GST.

Detailed reasoning

Section 105-65 of the TAA

Under the general rules of the TAA 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 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 section 105-65 applies to your circumstances

Subsection 105-65(1) of Schedule 1 to tile TAA provides that the Commissioner need not provide a refund of an amount to which this section applies if:

a) the amount was overpaid because a supply was treated as a taxable supply; and

b) the supply is not a taxable supply; and

c) one of the following applies:

(i) the Commissioner is not satisfied that the taxpayer has reimbursed a corresponding amount to the recipient of the supply; or

(ii) the recipient is registered or required to be registered.

Miscellaneous Tax Ruling MT 2010/1 Miscellaneous tax: restrictions on GST refunds under section 105-65 of Schedule 1 to the Taxation Administration Act 1953 (MT 2010/1) provides the view of the Commissioner on Section 105-65.

Paragraphs 20 and 20A of MT 2010/1 explain the circumstances in which Section 105-65 applies and provides further clarification of the term overpaid. They state:

20. For section 105-65 to apply, there must firstly be an amount of GST taken into account in an entity's assessed net amount which is in excess of what was legally payable on the particular supply in the relevant tax period ('incorrect GST').

20A. Section 105-65 applies to the extent that an entity's assessed net amount for a tax period takes into account an amount of incorrect GST and this resulted in:

• an overpaid amount - because the assessed net amount the entity paid was more than its amended assessed net amount for the tax period, or

• an amount not refunded - because the assessed net amount paid to the entity was less than the amended assessed net amount payable to it.

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

21. 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 and remitted an amount as GST to the Commissioner on that supply in the calculation of their net amount. They may also have overtly dealt with the recipient of the supply as if the supply was a taxable supply (for example, by issuing a tax invoice) though this may not always be apparent when the dealings are with unregistered recipients.

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…

In your circumstances subsection 105-65 would not apply because:

• The supply of the Cards by the Authority did not include any GST, they were provided for no consideration.

• When the recipients of the Cards 'touched off' at the end of the journey the Authority's systems accounted for GST to the ATO and therefore the transaction was not correctly captured by the accounting system

In the Authority's circumstances, the Authority remitted GST on the Cards as and when the $xx credit on the Card was used by the card holder, despite no consideration being received from the card holder in your activity statements for the relevant tax periods.

Whilst the Cards were issued by you for nil consideration, when the Cards were redeemed for travel, the Authority's systems are configured to account for GST to the Australian Taxation Office (ATO) as 1/11th of the total cost of each fare once the card holder has 'touched off' at the end of the journey.

Nevertheless, as no consideration was paid by the recipient for the Cards, the recipient was not actually charged any GST, even though it was incorrectly included on the Authority's systems and BAS.

In this instance the overpayment of GST occurred as a result of an arithmetic or recording error made by you. You inadvertently remitted GST for these supplies whereas the GST amount was actually nil. However, the recipients have not been charged GST as they did not pay any consideration. It follows that section 105-65 will not apply in your circumstances and will not restrict the refund of GST to you.

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 (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 relevant BASs.

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