Edited version of private ruling

Authorisation Number: 1011679774274

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Ruling

Subject: GST and time limits on refunds

Issue 1

Question 1

Does section 105-55 of Schedule 1 to the Taxation Administration Act 1953 (TAA) apply to restrict Entity A's (You) entitlement to a refund?

Advice/Answers

Yes, section 105-55 of Schedule 1 to the TAA applies to deny your entitlement to a refund.

Issue 2

Question 1

Does section 105-65 of Schedule 1 to the TAA apply to restrict your entitlement to a refund?

Advice/Answers

As section 105-55 of Schedule 1 to the TAA applies to deny your entitlement to a refund, there is no need to address this question.

Relevant facts

You have been registered for GST since 1 July 2000.

You report for GST on a monthly basis.

You have in the past always been in a refund situation.

You are currently implementing a new finance system to incorporate certain controlled entities in your GST group and as a result of the transition to the new system, your data has undergone extensive analysis and reconciliation activity.

This process has identified an overpayment in the activity statement for a tax period outside the four year time limit. This resulted in a one-off overstatement of G1 (total sales, income and other supplies) which is not attributable to particular supplies nor the incorrect GST classification of any transactions. This resulted in an error in the calculation of the net amount for the tax period outside the four year time limit.

The overstated amount was not connected with any taxable or non-taxable supplies for the tax period outside the four year time limit (or any other period).

Reasons for decision

Issue 1

Question 1

Section 105-55 of Schedule 1 to the TAA states:

(1) You are not entitled to a refund, other payment or credit to which this subsection applies in respect of *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; or

(b) within that period the Commissioner notifies you (in a notice of assessment or otherwise) that you are entitled to the refund, other payment or credit; or

(c) in the case of a credit - the credit is taken into account in working out:

(i) a *net amount or *net fuel amount that the Commissioner may recover from you only because of subparagraph 105-50(3)(b)(i); or

(ii) an amount of excess referred to in subsection 105-50(2) that the Commissioner may recover from you only because of subparagraph 105-50(3)(b)(ii).

(2) Subsection (1) applies to:

(a) a refund in relation to a *net amount or *net fuel amount in respect of a particular *tax period; or

(aa) another payment that represents some or all of an amount:

(i) that you paid as an amount of *indirect tax payable by you in respect of a particular tax period; and

(ii) that exceeded the amount (if any) of such tax that you were liable to pay in respect of that tax period; or

(b) an *input tax credit or *fuel tax credit that is attributable to a particular tax period; or

(c) a *wine tax credit the amount of which could have been included in a reduction of your *net amount for a tax period under section 21-15 of the *Wine Tax Act; or

(d) a refund of an amount of *indirect tax relating to an importation.

As a result of the amendments to sections 105-50 and 105-55 of Schedule 1 to the TAA, effective from 1 July 2008, the four year time limit on GST refunds and credits applies irrespective of whether the refund results from a reduction in an entity's liability or an increase in the amount of the refund.

You contend that section 105-55 of Schedule 1 to the TAA does not apply in this case because:

1. the overstated amount does not represent a 'net amount' for the purposes of paragraph 105-55(2)(a) of Schedule 1 to the TAA and section 17-5 of the Section 17-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

2. the overstated amount was never a payment for the purposes of paragraph 105-55(2)(aa) of Schedule 1 to the TAA.

Net amount

Miscellaneous Taxation Ruling MT 2010/1 deals with restrictions on GST refunds under section 105-65 of Schedule 1 to the TAA. It is relevant to consider paragraphs 38, 150, 151 and 153 of MT 2010/1.

Paragraph 38 states:

38. The scheme of the GST Act,¹² on which the section 105-65 policy is based, is premised on the following principles:

§ it is the supplier that determines if the supply it makes is taxable in the first instance. By determining that its supply is a taxable supply, an amount for GST is included in the price.

From the above paragraph it is clear that the supplier is the entity that determines whether a supply is taxable. This may happen where the supplier:

§ treats a GST free-supply as taxable

§ treats an input taxed supply as taxable

§ treats a non taxable supply as taxable

§ mistakenly reports GST on GST-free or input tax supplies

§ makes an error in calculation

§ incorrectly reports supplies, GST or ITC in their AS that should not be reported.

When the GST on those amounts is reported in an AS by the supplier for the relevant tax periods as taxable supplies, those amounts are included in and form part of the net amount under section 17-5 of the GST Act for that tax period. However, the net amount is not ascertained only in accordance with the provisions of the GST Act but also takes into account other statutory provisions which affect the amount payable or refundable including sections 105-50, 105-55 and 105-65 of Schedule 1 to the TAA. Paragraphs 150 and 151 of MT 2010/1 state:

150. Subdivision 105-C of Part 3-10 of Schedule 1 to the TAA is entitled 'Limits on credits, refunds and recovering amounts' and contains section 105-50, 105-55, 105-60⁵⁴ and 105-65. It has been argued that as these provisions are not referred to in Division 17 of the GST Act that they are mere recovery provisions and should not be taken into account in determining the net amount. However, section 7-15 of the GST Act clearly indicates that the amount a taxpayer is legally required to pay or is entitled to as a refund is the net amount. In determining the net amount the Commissioner considers that all sections of all relevant Acts that may bear on that legal obligation or legal entitlement must be taken into consideration.

151. GST is defined in section 195-1 of the GST Act as including 'tax that is payable under the GST law'. GST law is defined in section 195-1 of the GST Act in paragraph (d) as including the Taxation Administration Act 1953, so far as it relates to any Act covered by paragraphs (a) to (c )', which includes the GST Act, any Act that imposes GST and the GST Transition Act.⁵⁵ Section 2-30 of the GST Act also indicates that the provisions of the TAA contain provisions dealing with administration, collection and recovery of amounts of GST. This evidences that these Acts are to be read together.

Therefore, the net amount calculated under section 17-5 of the GST Act is also affected by the time limit imposed by section 105-55, irrespective of whether supplies were incorrectly treated as taxable. The Explanatory Memorandum (EM) in relation to Tax laws Amendment (2008 Measures No.3) Bill 2008 provides the following example.

Example 2.5

Mark Enterprises lodged its June 2008 quarterly business activity statement reporting GST of $50,000 on sales and input tax credits of $30,000 on creditable acquisitions and remitted $20,000 to the Commissioner on 28 July 2008.

On 15 November 2012, Mark Enterprises realised that it made an arithmetic error and the correct amount of GST payable on its sales was $45,000 and the net amount payable was $15,000. Mark Enterprises seeks to claim a refund of $5,000 for the amount of overpaid GST.

Mark Enterprises is not entitled to a refund because four years have elapsed since the end of the June 2008 tax period.

In the above example, the additional GST of $5,000 that Mark Enterprises included in its June 2008 AS (and which is part of its net amount), does not relate to any particular supply for that period or any other period and based on your contention this overstated amount which was included in the AS by mistake should not represent a 'net amount'.

However, example 2.5 in the EM suggests otherwise by stating that Mark Enterprises is not entitled to a refund because it failed to notify the Commissioner of its entitlement within the four year period.

In Australian Leisure Marine Pty Ltd v. Commissioner of Taxation [2010] AATA 620; (2010) 76 ATR 390; 2010 ATC 10-148 at paragraphs 16 and 17 Senior Member, Dr P McDermott states:

16. I might make some observations on the imposition of time limits by statute. As Windeyer J remarked in Australian Iron & Steel Ltd v Hoogland (1962) 108 CLR 471 at 488 such provisions "take various forms and have different purposes". The time limit which is imposed by s 105-55 of Sch 1 to the Act has in my view substantive effect and is not merely a procedural matter. As Mason CJ, Brennan, Dawson, Deane and Gaudron JJ explained in Deputy Federal Commissioner of Taxation v Moorebank Pty Ltd (1988) 165 CLR 55 at 65, to speak of a limitation provision as imposing merely a "procedural" bar can be descriptively misleading since some limitation provisions will "entail consequences which are substantive in that ... they will effectively extinguish both rights and liabilities."

17. In my view, s 105-55 of Sch 1 to the Act has substantive effect in that the expiry of the four year time limit extinguishes the right of a taxpayer to notify the Commissioner of an entitlement to the input tax credit. As such the provision certainly denies the entitlement of an entity to an input tax credit. The High Court of Australia has also recognised that taxation legislation which imposes time limits on amending an income tax assessment to have substantive rather than procedural operation: see
McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263.

As a result of the decision in the KAP Motors case (where it was held that the consideration was not paid in relation a supply), taxpayers who did not lodge a notification of entitlement before 30 June 2008, were limited to four years under the new amendments to section 105-55 of Schedule to the TAA effective from 1 July 2008. For those who lodged their notifications before 30 June 2008, they could claim the full entitlement for the periods within four years covered by the notification. For periods outside four years their claim was limited to the amount payable in the relevant tax periods. However, they could not claim a refund if a tax period was in a refund situation.

The relevant paragraphs from the Decision Impact Statement (DIS) in relation to the KAP Motors case are quoted below and provide the ATO view on restrictions on refunds outside four years regarding the matters raised in that case.

Notifying the Commissioner of your entitlement and the four year rule

Section 105-55 of Schedule 1 to the TAA provides that you are not entitled to a refund or credit unless you notify the Commissioner that you are entitled to the refund or credit within four years after the end of the tax period.

To be eligible to claim a refund you must notify the Commissioner in an activity statement or in some other written form. (also see "how to claim a refund').

The four year period ends four years after the end of the tax period for which a refund is payable or to which a credit is attributable. For example if you provide a valid notification to the Commissioner on 5 June 2008 then tax periods ending 30 June 2004 and later are within the four years and tax periods ending 31 May 2004 and earlier are outside the four years.

Where the net amount for a tax period is positive (i.e. the GST payable exceeds the input tax credits) you may be able to claim refunds of overpaid GST up to this net amount for tax periods outside the relevant four year period. However you cannot claim refunds for periods outside the relevant four year time period where you have a negative net amount (i.e. your input tax credits exceed your GST payable) and you were entitled to a refund from the Commissioner in that particular tax period or the claim will cause your net amount for that tax period to become negative unless you have previously notified the Commissioner of your entitlement to that refund within the relevant four year period.

Example 1

For the tax period ending 31 July 2000 (ie outside the relevant four year period)

You may make a claim for a refund of overpaid GST that arises because there was no supply at all however only to the extent of an amount equal to what you paid to the Commissioner for this tax period.

Example 2

For the tax period ending 31 July 2000 (ie outside the relevant four year period)

In this case you may not make a claim for a refund of overpaid GST that arises because there was no supply at all unless you have notified the Commissioner of your claim no later than 31July 2004.

Example 3

For the tax period ending 31 July 2000 (ie outside the relevant four year period)

After working out the holdback payments received for the tax period ending 31 July 2000 the amount of overpaid GST is $70,000. In this case for this tax period you are only entitled to a refund of $50,000 unless you have notified the Commissioner of your entitlement to the $70,000 claim by no later than 31 July 2004.

For the purposes of working out your net amount you must add any Luxury Car Tax and Wine Equalisation Tax debits or credits to your GST net amount (GST paid less ITC's), but you should exclude amounts relating to Fringe Benefits Tax or Pay As You Go that may also be reported on the same statements.

Further, in working out whether your input tax credits exceed your GST any wholesale sales tax credits permitted during the transition period at the commencement of the GST under section 16 of the A New Tax System (Goods and Services Tax Transition) Act 1999 are to treated as if they were an input tax credit.

The fact that in the tax period outside the four year time limit you treated as a taxable supply something that you contend was not connected with any taxable or non-taxable supply, does not prevent section 105-55 of Schedule 1 to the TAA from applying and denying your entitlement to that refund. The above paragraphs from the DIS, in particular example 2, are relevant to your case.

Your contention that the overstated amount in the tax period outside the four year time limit never formed part of the net amount and did not represent a 'net amount' for the purposes of paragraph 105-55(2)(a) of Schedule 1 to the TAA and section 17-5 of the GST Act is not accepted by the ATO. The question of whether supplies that an entity treats as taxable supplies were in fact supplies or no supplies is not relevant to the restriction in section 105-55 of Schedule 1 to the TAA where refund claims are made more than four years after the end of the relevant tax period. Section 105-55 of Schedule 1 to the TAA does not depend for its operation on whether there is a supply.

If in a tax period outside the four year time limit you treat supplies that are not taxable (or are not supplies) as taxable, they are included in the net amount under section 17-5 of the GST Act for that period. Section 105-55 of Schedule 1 to the TAA extinguishes the right of a taxpayer to notify the Commissioner after the four year time limit has expired. Paragraph 153 of MT 2010/1 states:

153. Section 105-50 provides a time limit after which unpaid net amounts and amounts of indirect tax cease to be payable, whilst section 105-55 provides a time limit that extinguishes a taxpayer's entitlement to refunds, credits and other payments. Similarly section 105-65 operates to remove the obligation imposed on the Commissioner by section 8AAZLF of the TAA to pay a refund whenever the section applies.

In relation to the attributions rules in Division 29 of the GST Act, those rules apply because the supply was treated as taxable as explained above.

Payment

Subsection 105-55(2) of Schedule 1 to the TAA states:

(2) Subsection (1) applies to:

(a) …

(aa) another payment that represents some or all of an amount:

(i) that you paid as an amount of *indirect tax payable by you in respect of a particular tax period; and

(ii) that exceeded the amount (if any) of such tax that you were liable to pay in respect of that tax period; or

As supplies that were not taxable (or were not supplies) were treated as taxable supplies, they were taken into account in working out your net amount for the tax period outside the four year time limit as per subsection 17-5(1) of the GST Act, and section 105-55 of Schedule 1 to the TAA applies to deny a refund. There is no need to separately address this contention.

Issue 2

Question 1

As section 105-55 of Schedule 1 to the TAA applies to deny your entitlement to a refund, there is no need to address this question.