Edited version of private advice

Authorisation Number: 1051821709421

Date of advice: 15 April 2021

Ruling

Subject: Refund of excess GST

Question

Does Division 142 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act) apply to prevent the refund of excess goods and services tax (GST) on childcare services you provided?

Answer

No, Division 142 does not apply to prevent a refund as the excess GST on the childcare services you provided was not passed on.

Relevant facts and circumstances

•         You have been registered for GST since 1 July 2000 and you report GST on a monthly basis.

•         You provide an in-house Outside School Hours Care (OSHC) service to students.

•         You receive government subsidies in relation to all the OSHC services that you provided in the relevant period.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 38-145

A New Tax System (Goods and Services Tax) Act 1999 Division 142

A New Tax System (Goods and Services Tax) Act 1999 section 142-5

A New Tax System (Goods and Services Tax) Act 1999 section 142-10

A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Reasons for decision

Before a decision can be made in relation to Division 142 of the GST Act, it is necessary to determine whether the OSHC services provided by you, qualify under section 38-145 of the GST Act as a GST-free supply of an approved child care service.

Section 38-145 of the GST Act provides that a supply is GST-free if it is a supply of child care by an approved child care service (within the meaning of section 3 of the A New Tax System (Family Assistance) (Administration) Act 1999 (FAA Act).

Section 3 of the FAA provides that an approved child care service has the meaning given by section 194G of that Act. Section 194G of Division 1, Part 8 of the FAA Act states:

(1) A child care service is an approved child care service if an approved provider is approved in respect of the service under this Division and that approval is in effect.

Based on the information you provided, you are an approved child care service for the purposes of section 38-145 of the GST Act.

Therefore, your supplies of outside school hours child care are GST-free under section 38-145 of the GST Act. Hence, GST is not payable on your supplies of this child care.

Refunding the amount of excess GST and Division 142 of the GST Act

Division 142 of the GST Act generally restricts refunds when you make an overpayment of GST to the Australian Taxation Office (ATO) because a refund would result in a windfall gain to you.

Excess GST is defined in subsection 142-5(1) of the GST Act as an amount that has been taken into account in an assessed net amount but is not in fact payable. Under section 142-10 of the GST Act, if the excess GST has been passed on to another entity, that excess GST is taken to have always been payable until the passed-on GST is reimbursed to the other entity.

However, if the excess GST has not been passed on, section 142-10 does not apply and the supplier may request an amendment to their assessment for the relevant tax period to reduce the amount of GST attributed to that tax period. Any resulting refunds are then to be paid or applied in accordance with Division 3 and 3A of Part IIB of the Tax Administration Act (1953) (TAA)

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) notes that whether the excess GST has been passed on is a question of fact and must be determined on a case by case basis taking into account the particular circumstances of each case.

Paragraphs 24-27 of GSTR 2015/1 state:

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 2015/1 the GST Act envisages that the supplier 'passes on' the GST to the recipient of the supply.

The Commissioner provides in paragraph 28 of GSTR 2015/1 a list of factors that should be considered in determining whether the excess GST has been passed on to any recipients. This includes:

•         the manner in which the excess GST arose

•         the supplier's pricing policy and practice

•         the documentary evidence surrounding the overpayment, and

•         any other relevant circumstances

The manner in which the excess GST arose is relevant in determining whether or not the GST has been passed on. Paragraph 31 of GSTR 2015/1 details some common circumstances where excess GST may arise. It includes, as is the case in your circumstances, incorrectly treating something which is not a taxable supply as a taxable supply.

Paragraph 32 of GSTR 2015/1 provides that where an error occurs after the transaction has taken place, eg through a simple transcription error, this may point towards a finding that excess GST has not been passed on.

However, also relevant in determining whether or not the GST has been passed on is the documentary evidence surrounding the overpayment. Paragraph 57 of GSTR 2015/1 provides that whether GST is included in the price of a supply or not may be demonstrated by the documents surrounding the transaction. For example, the invoices or statements issued, a contract or other correspondence between the parties may indicate that GST was included in the price.

Paragraph 111 of GSTR 2015/1 provides that where an error is contained in the reporting on the GST return, and that error does not affect the transaction between the supplier and its recipient, then this will generally demonstrate that the excess GST has not been passed on.

Based on the documentation provided, you have sufficiently demonstrated that the excess GST on the approved child care services you provide has not been passed on.

Therefore, as the excess GST was not passed on, we consider that Division 142 does not apply to restrict your refund for the relevant tax periods.

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