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Ruling

Subject: GST and refund of incorrectly overpaid GST

Question 1

Will the Commissioner refund the overpaid goods and services tax (GST) to you due to the miscalculation of the GST global amount?

Answer

Yes

Relevant facts and circumstances

· You are registered for GST.

· You are in the business of, amongst other things, providing gambling events to members and their guests.

· You have entered into an arrangement (Agreement) with a third party (Operator) to participate in state-wide linked (SWL) games.

· When you enter into an arrangement for the SWL services, the service is provided on a per machine basis. All of the money paid into the prize pool is paid out as prizes.

· The following explanation is based on a standard arrangement:

o Each participating club is required to pay two different types of fees from the Operator. The fees are made on 'per game' as opposed to 'per machine' basis.

o The first fee is the charge made for providing the SWL services.

o The second fee is the contribution to the prize pool and is calculated on a percentage of the turnover.

· The second fee was treated as being taxable, GST was charged to you by the Operator and you claimed input tax credit as per the invoice.

· You have not included the (net of GST) contribution to the jackpot pool in the calculation of your global GST amount under section 126-10 of the GST Act.

Relevant legislative provisions

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

Division 126

Taxation Administration Act 1953

Section 105-65 of Schedule 1

Reasons for decision

Summary

The Commissioner will refund the overpaid GST amount to you as section 105-65 of the Taxation Administration Act 1953 (TAA) will not apply to restrict the refund.

Detailed reasoning

Under the general rules the Commissioner is required to give a refund or apply that amount in accordance with the running balance account provisions in Divisions 3 and 3A of Part IIB of the TAA.

However, the requirement to give a refund of overpaid GST is subject to section 105-65 of Schedule 1 to the TAA (section 105-65) which modifies the general rules so that the Commissioner need not give a refund or apply that amount if an entity overpaid its net amount or an amount of GST where the requirements of the section are satisfied.

Subsection 105-65(1) states:

(1) 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.

Note: * asterisk denotes a defined term in the Act

Miscellaneous Tax Ruling MT 2010/1 (MT 2010/1), which was issued on 15 December 2010, provides the ATO view on how section 105-65 applies.

Whether subsection 105-65(1) applies to your circumstances

Section 105-65 applies to restrict refunds of overpaid GST if the conditions in subsection 105-65(1) are satisfied, including that the supply was treated as a taxable supply to any extent when it was not a taxable supply to that extent.

MT 2010/1 expresses the view that the phrase 'to any extent' should be interpreted widely and that section 105-65 covers overpaid amounts arising from miscalculations under the global GST amount (for example refer paragraph 24 of MT 2010/1).

However, following the decision in the recent Federal Court case Sportsbet Pty Ltd v Commissioner of Taxation 2011 ATC 20-268 (Sportsbet), the ATO has issued a Decision Impact Statement (DIS) providing its response to the case, including changes to the ATO view on how section 105-65 applies.

The DIS outlines that in accordance with the decision in Sportsbet, the ATO will now administer section 105-65 on the basis that the section 105-65 does not apply where, in tax periods which commenced prior to 24 March 2010, gambling operators have miscalculated their global GST amount under Division 126 by failing to include the value of monetary prizes paid to non-resident customers.

It is considered that this extends to any miscalculation of the GST payable under section 126-10 of the GST Act.

It is accepted that you have overpaid GST by miscalculating its global GST amount under section 126-10 of the GST Act by not including the (net of GST) contribution to the jackpot pool in the calculation.

It follows that section 105-65 does not apply to your circumstances and will not restrict the refund of GST.