Edited version of your private ruling

Authorisation Number: 1012283594172

This edited version of your ruling will be published in the public register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.

Ruling

Subject: Refund of GST

Question

Will the Commissioner exercise his discretion under section 105-65 of Schedule 1 to the Taxation Administration Act 1953 (TAA) to allow you a refund of the goods and services tax (GST) when you incorrectly included GST in the price of a non-taxable supply?

Answer

Yes

Relevant facts

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 an incorporated company registered for goods and services tax (GST). 

You are endorsed as a public benevolent institution (PBI) for GST purposes.

You receive funding from the government to provide community transport and other community services to eligible clients. 

The program is jointly funded by the Commonwealth and the State Governments. Under this program you provide transport and support services to assist frail and elderly people and people with disabilities to live independently in their own homes and to participate in their communities. 

The funding requires that the recipient of the transport services contribute (make a voluntary payment) towards the total fees for your services.

The payment is a token towards your full costs of providing the service.

Where a client has been assessed as not having the capacity to pay, you will reduce or waive the (voluntary) payment required. You seek to ensure all members of the target population have access to the services offered, regardless of their ability to pay.

You advised that you have been reporting the voluntary payments as consideration for taxable supplies in your activity statements. That is: you have reported 1/11th of the voluntary payments at label 1A.

You advised that you have not issued any tax invoices for these voluntary received and have not reimbursed your clients on the GST charged.

Relevant legislative provisions

Taxation Administration Act 1953, Section 105-65 of Schedule 1

Reasons for decision

Issue 1

Question 1

Summary

The Commissioner is satisfied that you have overpaid an amount because you treated a supply as a taxable supply when the supply was not a taxable supply.

However, the Commissioner is not satisfied that you have reimbursed a corresponding amount to the recipient of the supply and so need not give you a refund.

Section 105-65 of Schedule 1 of the TAA contains a discretion which the Commissioner may exercise in certain limited circumstances to allow the refund. Your circumstances do warrant the exercise of the discretion.

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 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.

Whether subsection 105-65(1) of Schedule 1 to the TAA applies to your circumstances

The restriction on refunds of overpaid GST under subsection 105-65 (1) of Schedule 1 to the TAA will apply if all three of the following conditions are satisfied:

· 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

· either the recipient has not been reimbursed a corresponding amount of the overpaid GST and/or the recipient of the supply is registered or required to be registered for GST.

Miscellaneous Tax Ruling MT 2010/1 provides the view of the Commissioner on section 105-65 of Schedule 1 to the TAA.

In this case you remitted GST of 1/11 of the price of your supplies (being the supply of transport and support services to assist frail and elderly people and people with disabilities) when you contend that these supplies were in fact not taxable.

The specialist disability services that are GST-free pursuant to section 38-40 of the GST Act are only those for which the supplier receives funding under the Disability Services Act 1986 (Cth) or a complementary State law or Territory law.

Accordingly, it is by reference to supplies, or the components of those supplies, for which funding is provided that will determine whether the supply satisfies section 38-40.

The relevant Act provides a definition of disability services as:

Disability services, for people with a disability, means 1 or more of the following-

(a) accommodation support services;

(b) respite services;

(c) community support services;

(d) community access;

(e) advocacy or information services or services that provide alternative forms of communication;

(f) research, training or development services

Section 3 of the Disability Services Act 1986 (Cth) makes it clear that specialist disability services are services that, among other things, assist disabled persons to integrate into the community, and that seek to achieve positive outcomes for the disabled such as independence, employment opportunities, etc. Section 9 of that Act states that the Minister can provide approval of funding for a variety of services for people with disabilities, such as accommodation, support services, recreation services, transport services, etc. Any such services will be specialist disability services if the services are provided for people with disabilities.

As the provision of your supplies falls within the meaning of Specialist Disability Services then these services are GST-free under Division 38 of the GST Act and not taxable. It follows that you remitted more than was legally payable and that there has been an overpayment of GST.

You have advised that the majority of the recipients of your supply would not be registered for GST purposes. You have also advised that they have not been reimbursed for any amount corresponding to the GST overpaid.

As the three conditions are satisfied, section 105-65 of Schedule 1 to the TAA applies and the Commissioner has no obligation to pay a refund that would otherwise be payable under section 8AAZLF of the TAA.

However, it is the view of the ATO in paragraph 27 of MT 2010/1 that the Commissioner may exercise his discretion and choose to pay a refund even though the conditions in paragraphs 105-65(1)(a), (b) and (c) of Schedule 1 to the TAA are satisfied.

Paragraphs 116 and 117 of MT 2010/1 state:

116.The operation of section 105-65 to deny the requirement to pay refunds that would otherwise be payable is not discretionary.…The words of the provision say that where the section applies the Commissioner need not give you a refund of the amount or apply the amount under the relevant RBA provisions….

117. The Commissioner considers that the words "need not", in the context of section 105-65, do not prohibit the giving of a refund and accordingly the Commissioner has a discretion to pay a refund in appropriate circumstances….

This view is supported by the decision in Luxottica Retail Australia Pty Ltd v FC of CoT 2010 ATC 10-119 at 57 when the AAT referred to "residual discretion":

The question then becomes whether, in these circumstances, the discretion to pay the refund to the applicant should be exercised.

Paragraph 128 of MT 2010/1 provides some guiding principles to consider when exercising the discretion. It states:

128. Section 105-65 does not specify what factors are relevant to the exercise of this discretion. In exercising the discretion, the Commissioner will have regard to the following guiding principles:

(a) The Commissioner must consider each case based on all the relevant facts and circumstances.

(b) The Commissioner needs to follow administrative law principles such as not fettering the discretion or taking into account irrelevant considerations.

(c) The Commissioner must have regard to the subject matter, scope and purpose of section 105-65. As explained in paragraph 127 of this Ruling, it clear from the scope and purpose that section 105-65 is designed to prevent windfall gains to suppliers and to maintain the inherent symmetry in the GST system and is based on the underlying design feature and presumption of the GST system that the cost of the GST is ultimately borne by the non registered end consumer.

(d) The discretion should be exercised where it is fair and reasonable to do so and must not be exercised arbitrarily.

Paragraphs 126 and 127 explain further:

126. The discretion contained in section 105-65 must be exercised within a framework that the GST Act is structured on a basis that GST is passed on when a supply is treated as a taxable supply. As such, factors outlined in Avon at paragraphs 9 to 12, albeit in a sales tax context, would equally apply in a GST context:

127. It is clear from the scope and purpose of section 105-65 that the provision is designed to prevent windfall gains to suppliers and to require the supplier to ensure that any refund ultimately compensates the person or entity who ultimately bore the cost. In relation to a refund of overpaid GST, the potential or otherwise for a windfall gain, the requirement to ensure the refund compensates the person or entity that ultimately bore the cost and the potential to disturb the symmetry envisaged by the GST system, are factors that must be taken into account in relation to the exercise of the discretion.

It follows from the above that it is important when exercising the discretion to determine who has borne the burden of the GST. That is, whether a supplier has passed on the GST to the recipients.

In this case you have advised that you receive certain voluntary payments for your supplies of transport and support services to assist frail and elderly people and people with disabilities that are exempt from GST but have been remitting GST to the ATO on the payments to you.

The payments are not subject to GST, the clients did not pay any GST on the payments to you as you correctly treated these payments as GST-free. The error was made because of the mischaracterisation of the payments as discussed above. And because of the error, you are the entity who ultimately borne the GST. You have not passed on the GST to the clients and would not receive any windfall gain following the refund.

The refund of the overpaid GST is fair and reasonable in the circumstances.

Consequently the Commissioner will exercise his discretion under section 105-65 of Schedule 1 to the TAA to refund any incorrectly remitted GST by you.