Edited version of private ruling

Authorisation Number: 1011749197636

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Ruling

Subject: request for refund of overpaid GST

Question 1

Will the Commissioner exercise the discretion under section 105-65 of Schedule 1 to the Taxation Administration Act 1953 (TAA) to refund the GST incorrectly charged to recipients of your supplies of GST-free adult and community education courses and reported and remitted on your quarterly Activity Statements (AS) for June, September and December 2010?

Answer

No.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are a Registered Training Provider.

You have made supplies of adult and community education courses.

The courses you offer include general business computer skills of a kind likely to add to the employment related skills of participants.

You registered for GST from XX in the recent year.

From XX in the recent year you charged GST to participants of your training courses.

You have since been advised that most of the training courses you offer are GST-free according to subdivision 38-C of A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

You have requested a refund of the GST that has been overpaid.

You advised that when the business was registered for GST in the recent year, prices for the training courses supplied were not increased.

You sent information regarding the courses you offered, pricing and the recipients of your supplies. You also provided copies of several invoices you had issued, both prior to and after you registered for GST.

You sent a spreadsheet giving further details on the prices of the courses you supplied and how the prices have increased over time.

You advised that:

· when the business commenced, prices were set so as to offer a competitive rate when compared to other providers in the industry

· during the establishment phase of the business, there was no thought of increasing prices

· price increases were not to cover the GST costs, and

· price increases were to cover increased costs imposed by your suppliers.

· You also advised that;

· the increases in prices were in line with the consumer price index

· at no time were prices intentionally raised to cover GST costs

· the GST had been totally absorbed, and

· you deserved a refund of GST paid on behalf of course participants who were individuals.

Summary

You have overpaid an amount of GST because you treated supplies as taxable when they were not taxable because they were GST-free under section 38-85 of the GST Act.

However, you have not reimbursed a corresponding amount to the recipients of your supplies. Therefore section 105-65 of Schedule 1 to the TAA (section 105-65) applies to restrict the payment of the refund.

Section 105-65 contains a discretion which the Commissioner may exercise in certain limited circumstances to allow the refund. Your circumstances do not warrant the exercise of the discretion.

Detailed reasoning

The requirement for the Commissioner to give a refund of overpaid GST is subject to section 105-65, which provides that the Commissioner need not give a refund or apply an amount, if an entity overpaid an amount of GST where the requirements of the section are satisfied.

Under subsection 105-65(1), the Commissioner need not give you a refund of an amount if:

· you overpaid the amount, or the amount was not refunded to you, because a supply was treated as a taxable supply, and

· the supply is not a taxable supply to that extent (for example, because it is GST-free), and

· one of the following applies:

· the Commissioner is not satisfied that you have reimbursed a corresponding amount to the recipient of the supply, or

· the recipient of the supply is registered or required to be registered for GST.

· The restriction of refunds of overpaid GST will apply if all three of the following conditions are present:

· 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 an amount corresponding to the overpaid GST and/or the recipient of the supply is registered or required to be registered for GST.

The Commissioner's view of the application of section 105-65 is contained in Miscellaneous Taxation Ruling MT 2010/1 (MT 2010/1).

Section 105-65 applies in your circumstances because:

· following your registration for GST in the recent year, you have reported and remitted GST on your supplies of short computer courses. You have since been advised that most of the training courses you provide are GST-free in accordance with section 38-85 of the GST Act. As there was no GST payable on some of the supplies, the amount legally payable was less than reported and you have overpaid GST.

· you have mischaracterised the supplies of some of your short computer courses as taxable supplies in the quarterly tax periods ended 30 June, 30 September and 31 December in the relevant year, when these supplies were GST-free.

· you have not provided any evidence that you have reimbursed an amount corresponding to the overpaid GST amount to the recipients of the supplies.

As section 105-65 applies, the Commissioner need not refund the overpaid GST.

However, the Commissioner has a discretion to refund the overpaid GST in circumstances where the conditions of subsection 105-65(1) are satisfied. Some guiding principles for the exercise of this discretion are provided in paragraph 128 of MT 2010/1.

Subparagraph 128(c) of MT 2010/1 provides that in exercising the discretion, the Commissioner must have regard to the subject matter, scope and purpose of section 105-65. Section 105-65 is designed to prevent windfall gains to suppliers who have passed on the cost of the GST to recipients of the supply.

In deciding whether a supplier has passed the cost of the GST on to recipients, the Commissioner takes into consideration the factors outlined in Avon Products Pty Ltd v. Commissioner of Taxation [2006] HCA 29. While this case involved sales tax, it is considered that the guidance provided about who bears the burden of the tax applies equally in a GST context, given the similarities of the sales tax and GST regimes in that respect. In that case, the High Court stated at paragraphs 9 and 14:

9. That sales tax is expected to be passed on depends on the circumstances that sales of goods occur within an economy geared to making profit…In a profit-making structure, businesses will set prices so as to ensure at least that all foreseeable costs are recovered…it forms part of the cost structure of doing business…There is nothing extraordinary in the proposition that in the usual course of things sales tax will be passed on…

14. Additionally, once it is appreciated that it is in the nature of sales tax to be passed on, there is nothing remarkable in the consequences that proof to the contrary will occur comparatively seldom.

The presumption is that the cost of any GST liability is a foreseeable cost that will be passed on as part of the cost recovery and pricing structure of the supplier. It is for the supplier to prove that the GST has not been passed on.

The Commissioner will not generally exercise the discretion to allow a refund in cases where the supplier has not reimbursed the recipients an amount corresponding to the overpaid GST, and has not been able to demonstrate that the GST has not been passed on but has instead been absorbed by the business.

The invoices you have provided for the period after you registered for GST show a clearly identifiable GST amount and, on the basis of all the information you have provided, it is reasonable to conclude that from XX in the recent year your customers would have believed that they were paying GST as part of the price.

In addition, the invoices show that the courses that you provided were allocated a tax code in your accounting system of 'GST'. This implies that you were conscious of the fact that your registration for GST and your classification of the courses as taxable supplies required a change to your accounting system to reflect that a GST amount was payable on these supplies and that your price from that point on included a GST component.

Pricing information that you provided shows that there have been increases in the prices of your courses since 1 July 2009. The price of every course has increased to some extent since your GST registration commenced. While you have stated that these increases were to cover increased costs imposed by your suppliers, the GST liability on your supplies also represents a cost of doing business.

In your circumstances, the Commissioner considers that GST was included in the price of your supplies and was borne by the recipient. Therefore, refunding the overpaid GST would result in a windfall gain to you.

Accordingly, the Commissioner will not exercise the discretion to refund the overpaid GST.