Edited version of private ruling

Authorisation Number: 1011813991433

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Ruling

Subject: GST refund

Question 1

Does subsection 105-65 (1) of Schedule 1 to the Taxation Administration Act 1953 (TAA) apply to the refund of the over paid GST on your GST-free supplies?

Answer

Yes but only to the extent of the amount you have not refunded the overpaid GST to the recipient.

Question 2

If the answer is yes, will the Commissioner exercise his discretion under subsection 105-65 (1) of Schedule 1 to TAA to refund the over paid GST?

Answer 2

No

Relevant facts:

· You are registered for goods and services tax (GST).

· You provided a supply of services to a recipient of a supply where you charged GST and issued a tax invoice.

· The recipient of the supply is not registered nor required to be registered for GST.

· You reported and paid the GST in your activity statements.

· However, the Australian Taxation Office (ATO) advised that your supply to the recipient is a GST-free supply.

· Following ATO advice, you lodged an entitlement to the GST refund within the time limit and made a request for a refund of the overpaid GST.

· You advised that you are in the process of refunding the GST to the recipient of the supply.

Reasons for decision

1. Does subsection 105-65 (1) of Schedule 1 to the TAA apply to the refund of the over paid GST on your GST-free supplies?

You include GST in your prices for your GST-free supplies which you pay to ATO.

You notify the Commissioner of your entitlement to the GST-refund on the overpaid GST. Therefore we need to consider your request for refund of overpaid GST under subsection 105-65 (1) of Schedule 1 to the TAA.

GST refund

Subsection 105-65(1) of Schedule 1 to the TAA states:

The Commissioner need not give you a refund of an amount to which this section applies, or apply (under Division 3 or 3A of Part IIB) an amount to which this section applies, if:

(a) you overpaid the amount, or the amount was not refunded to you, because a *supply was treated as a *taxable supply, or an *arrangement was treated as giving rise to a taxable supply to any extent; and

(b) the supply is not a taxable supply, or the arrangement was treated as giving rise to a taxable supply, to that extent (for example, because it is *GST-free); and

(c) one of the following applies:

(i) the Commissioner is not satisfied that you have reimbursed a corresponding amount to the recipient of the supply or (in the case of an arrangement treated as giving rise to a taxable supply) to an entity treated as the recipient;

(ii) the recipient of the supply, or (in the case of an arrangement treated as giving rise to a taxable supply) the entity treated as the recipient, is *registered or *required to be registered.

Subsection 105-65(1) of Schedule 1 to the TAA provides that where GST is incorrectly included in the price of a supply the Commissioner is not obliged to refund or credit the overpaid GST to the supplier, where either they have not reimbursed the GST, incorrectly included in the price, to the recipient or the recipient is registered (or required to be registered) for GST. The ATO's view on GST refund relating to the Commissioner's discretion is provided in Miscellaneous Taxation Ruling MT 2010/1. We enclose a copy for your reference.

You have advised that you have made arrangement to refund the GST to the recipient of the supply. 

In addition, the recipient of supply is not registered nor required to be registered for GST.

Therefore, based on the above information we consider subsection 105-65 (1) of Schedule 1 to the TAA does not apply to the extent of the amount of GST refunded to the recipient of supply.

Paragraph 115 of MT 2010/1 states:

However if the supplier satisfies the Commissioner that it has reimbursed the recipient of the supply and the recipient of the supply is not registered or required to be registered the Commissioner has a prima facie obligation to pay the refund of overpaid GST under section 8AAZLF provided the supplier satisfies any other legislative conditions (for instance, the time limits contained in section 105-55). In all other cases section 105-65 provides that the Commissioner 'need not' give a refund

As you have lodged a notification for the GST refund within the time limit and you have refunded the GST to recipient for the overpaid GST, you may revise your earlier activity statements by calling 13 28 66 to request for revised activity statements.

Where you have not refunded an amount to the recipient, subsection 105-65 (1) of Schedule 1 to the TAA will apply to the amount of GST not refunded. In these cases we need to consider whether the Commissioner will exercise his discretion to refund the GST to you under subsection 105-65 (1) of Schedule 1 to the TAA.

2. If the answer is yes, will the Commissioner exercise his discretion under subsection 105-65 (1) of Schedule 1 to TAA to refund the over paid GST?

Paragraph 27 of MT 2010/1 states:

The operation of section 105-65 to deny the requirement to pay refunds that would otherwise be payable is not discretionary. Where the conditions in section 105-65 apply, the Commissioner has no obligation to pay a refund that would otherwise be payable under section 8AAZLF of the TAA. Where the section applies the Commissioner need not give you a refund of the amount or apply the amount under the relevant RBA provisions. However, the words need 'not' indicate the Commissioner may choose to pay a refund in appropriate circumstances, even though the conditions in paragraphs 105-65(1)(a), 105-65(1)(b) and 105-65(1)(c) are satisfied. It is to that limited extent that the Commissioner has a discretion.

Paragraphs 113 to 132 of MT 2010/1 outline the circumstance in which the Commissioner may exercise his discretion to refund the overpaid GST. Paragraph 128 of MT 2010/1 provides the guiding principles for the Commissioner to exercise this discretion. Generally the discretion is exercised where it is fair and reasonable. Examples of such circumstances are:

1. overpayment of GST by the supplier as a result of an arithmetic or recording error in their records

2. overpayment of GST by the supplier as a direct result of ATO's actions and the supplier does not have the opportunity to take account of GST; or

3. the supplier is able to satisfy the Commissioner that an amount corresponding to the GST refund will be, or has been, passed on to the recipient of the supply

Based on the facts provided, the Commissioner considers that it is not appropriate to exercise his discretion under subsection 105-65(1) to Schedule 1 of TAA to refund the overpaid GST where you have not refunded the overpaid GST to the recipient.

The recipient has paid GST for your GST-free supplies which you forward to ATO. The Commissioner will exercise his discretion to refund the overpaid GST where the refund compensates the entity that incurs the cost of GST.