Edited version of your written advice

Authorisation Number: 1051251845901

Date of advice: 14 July 2017

Ruling

Subject: Non-profit entity refund request

Question 1

Will section 142-10 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) apply to restrict a refund for period A?

Answer

Yes. Section 142-10 of the GST Act will apply to restrict a refund for period A.

Question 2

Are you entitled to a refund on the excess GST paid to the Commissioner from section 142-10 if the GST Act applies to restrict a refund for period B?

Answer

No, section 142-10 of the GST Act will not apply to restrict a refund on the excess GST paid to the Commissioner for period B.

Relevant facts and circumstances

● you are a GST registered endorsed charity reporting on a monthly basis

● You conduct a business on donations, bequests and volunteers, providing care services.

Invoices issued by you from:

● You stated that you simply acted in a manner that you thought an entity registered for GST had to, by issuing tax invoices and paying 1/11th of the total consideration received for all of the supplies you made.

● You were issued a Private Binding Ruling (PBR) advising that the methodology that you proposed to use to determine the cost of making a supply was in accordance with para38-250(2)(b)(1) of the GST Act. (GST-free non-commercial activities of charitable institutions is less than 75% of the consideration the supplier provided or is liable to provide).

● You make both taxable supplies and GST-free supplies. You have determined that you have overpaid GST on some services that were treated as taxable supplies that are GST-free supplies.

● You are requesting a refund for tax periods. The refund has been calculated by reference to and in accordance with the PBR.

● You are not claiming refunds made to Groups and Councils even if those supplies would have been for nominal consideration.

● Since GST ceased to be shown on the invoices, you have not changed the price of the services

● It is unlikely any of your customers of GST-free supplies would be registered for GST.

● You have not and could not refund the customers of the GST-free supplies.

● You have provided the pricing policy.

● The pricing policy states that it is a mandatory requirement that all other employees who are involved in billing items and services must comply with the pricing policy.

● The pricing policy is reviewed and approved annually.

● The pricing policy states, among other things, that core services and all other services shall be kept at very low levels compared to market prices and unit costs; and other services and products will be offered at approximately the mean price of other practices.

Type of service - for the current policy lists all services with no mention of GST, some of these services are;

● Core services shall be at or below the 20th percentile

● All other services are between the 40th and 60th

● Your consumer products are outlined in Table - goods are listed as cost plus mark-up plus GST.

● The pricing policy rules outline the further discounts that are available. Some fees are waived altogether.

● You stated that you simply acted in a manner that you thought an entity registered for GST had to, by issuing tax invoices and paying 1/11 of the total consideration received for all of the supplies you made to the ATO.

● Calculations as disclosed in your application for the PBR are in line with your industry practices.

● You advised that certain supplies are taxable:

Question 1

For the tax periods starting on or after 31 May 2014, Division 142 of the GST Act applies. Broadly, Division 142 of the GST Act provides that excess GST that has been passed on is taken to be payable on a taxable supply until the supplier reimburses the other entity (usually the recipient) for the passed-on GST.

Goods and Services Tax Ruling GSTR 2015/1: the meaning of the terms 'passed on’ and 'reimburse’ for the purposes of Division 142 of the A New Tax System (Goods and Services Tax) Act 1999 (GSTR 2015/1) provides guidance in relation to the meaning of 'passed on’.

Refunding excess GST will give a windfall gain to the supplier if the supplier has not reimbursed the recipient. You have stated that you have not and could not reimburse the recipients of the excess GST.

Paragraphs 24-27 of GSTR 2015/1 states:

24. The Explanatory Memorandum to the Tax Laws Amendment (2014 Measures No 1) Bill 2014 states that the GST Act envisages that the supplier 'passes on’ the GST to the recipient of the supply. This simply reflects the design of the GST as an indirect tax which is generally expected to be passed on to the customer when a supply is treated as a taxable supply.

25. If excess GST is included on a tax invoice, this is prima facie evidence that the excess GST has been passed on.

26. However, while there is a general expectation that, in ordinary circumstances, excess GST has been passed on, particular facts and circumstances of an individual case may demonstrate that excess GST has not been passed on.

27. A supplier claiming a refund, because it considers that the excess GST has not been passed on will need to clearly substantiate the grounds on which it claims the refund. In any dispute, the taxpayer would have the onus of proving that its circumstances are outside the ordinary and that it did not pass on the excess GST.

As outlined in paragraph 24 of GSTR 2015/4 the GST Act envisages that the supplier 'passes on’ the GST to the recipient of the supply. You stated that you simply acted in a manner that you thought a registered entity for GST had to, by issuing tax invoices and paying 1/11th of the total consideration received for all of the supplies made. This is indicative that you have passed on the excess GST as outlined in paragraph 41 of GSTR 2015/1

41. Where a supplier sets a price with the knowledge or belief that the transaction is subject to GST, including a belief that the GST which later proves to be an overpayment is a real cost of doing business, that will point towards a finding that the excess GST has been passed on.

You stated that the price for services was set based on what customers could afford and that cost recovery is not relevant in setting prices, and that GST was not considered when setting the prices of services. The price of your consumer products is set at market value and you have included a GST component on tax invoices, which is prima facie evidence that the excess GST has been passed on.

Your pricing policy utilises set prices, for example. The survey assists managers in determining what fees they should charge for their professional and retail services.

While it is accepted that you make the GST classification on the supplies (under Subdivision 38-250 of the GST Act) after reviewing and setting prices annually, as set out in the pricing policy it does not necessarily follow that the price does not include a GST component.

In your circumstances, where the supplies had been treated as taxable since 2000, it is reasonable to conclude that the price setting review each year did include a GST component, as per the MPV figures as a normal consequence of accounting practice when looking at possible costs associated with the supplies and that this would have been the belief of the responsible officers.

You are a not-for-profit entity that operates a business in which you provide services at nominal consideration and sell consumer products that are set at market value. You have stated that GST was not considered when setting the price of the services. Not-for-profit entities are covered in paragraph 125 of GSTR 2015/1 which provides that:

125. While it is common for not-for-profit entities to set prices so as to not recover all costs, each case must be assessed on its merits to determine whether the cost of GST has been passed on to recipients. Similar to other entities, it is appropriate to consider the conduct of the not-for-profit entity in setting prices based on their knowledge at the relevant time, including any belief that GST is a real cost. Often, not-for-profit entities operate similarly to a normal commercial enterprise and, where this is the case, those entities should be considered in that context. (emphasis added)

When setting prices of your services in reference to the MPV data it is more likely that you have factored in the cost of the GST into your pricing reviews, albeit indirectly, and therefore you have passed on the GST. Your pricing policy sets prices for core and all other services normal commercial practices. You undertake activities in your enterprise similarly to an ordinary commercial venture and consequently will be considered as any other commercial enterprise.

Even though you are a not-for-profit entity, you seek to maximise the commercial success of the business by selling some goods and services at a price acceptable to the market by setting prices at cost rising to the a percentile for services and market price for goods. In this way, you are operating similarly to an ordinary commercial enterprise and so we must consider your circumstances in that context.

The fact that you have not changed the price of the services since the issue of nominal consideration was determined does not indicate that you did not pass on the GST, as stated in paragraph 51 of GSTR 2015/1

Therefore, based on the information provided you have not demonstrated that your circumstances are outside the ordinary, consequently the Commissioner is satisfied that section 142-10 of the GST Act applies to treat the excess GST as always having been payable.

Question 2

For the tax periods you did not show GST on tax invoices but an excess of GST was assessed by you and overpaid to the Commissioner. Therefore you have excess GST that you have not passed on and you are entitled to a refund. Note 2 of section 142-10 of the GST Act states:

Any excess GST you have not passed on will be refunded as described in section 155-75 in Schedule 1 to the Taxation Administration Act 1953.

For GST purposes the fact sheet 'Correcting GST errors’ provides guidance on when you may correct errors on a later activity statement if you meet certain conditions. Please see Goods and Services Tax; Correcting GST Errors Determination 2013 (GSTE 2013/1).

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