Edited version of your private ruling

Authorisation Number: 1012305209390

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 a company registered for GST.

You provide goods to resident and overseas entities.

You export the goods to your overseas customers within 60 days of receiving any consideration or issuing an invoice for the goods.

You use a software program to generate your invoices to your customers.

The majority of your work is for Australian residents and has GST charged in each invoice.

The work performed for overseas entities does not have GST charged in the invoices.

The invoices generated by your software calculated the GST to be collected correctly. However when you inputted a manual journal into your MYOB accounting software to record the sales for the month you did not take into account that some invoices were GST-free or had GST-free exempt components and have entered the details as GST applicable on the full amount.

The invoices sent to the non-resident customers do not include or show GST.

The recipients of your supply have not been reimbursed for any amount corresponding to the GST overpaid as they have not been invoiced or paid a GST amount

You have borne the cost of the GST.

The majority of your Australian companies are registered for GST and have been invoiced correctly.

Your non-resident clients are not registered for GST.

Relevant legislative provisions

Taxation Administration Act 1953,

Section 105-65 of Schedule 1

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

Section 9-5.

Section 9-25.

Subsection 38-185(1).

Reasons for decision

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 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 goods to non-resident clients) when you contend that these supplies were in fact not taxable.

A supply of goods, where those goods are exported from Australia, is GST-free if the requirements of one of the items in the table in subsection 38-185(1) of the GST Act are met.

Items 1 and 2 in the table are set out below:

Unless the consideration is provided in instalments, the only item in the table to consider is item 1.

Supplier exports the goods

For a supply of goods to be covered by item 1, the goods must be exported by the supplier. In this case, you export the printed goods.

Subsection 38-185(3) of the GST Act, however, provides that a supplier of goods is treated as having exported the goods for the purposes of item 1 and 2 if all of the following requirements are satisfied:

· Before the goods are exported, the supplier supplies them to an entity that is not registered or required to be registered.

· That entity exports the goods from Australia.

· The goods have been entered for export within the meaning of section 113 of the Customs Act, 1901.

· Since their supply to that entity, the goods have not been altered or used in any way except to the extent (if any) necessary to prepare them for export.

· The supplier has sufficient documentary evidence to show that the goods were exported.

· If the Tourist Refund Scheme (TRS) applies, a payment has not been sought under that scheme.

As the TRS does not apply to your circumstances, only the requirements in paragraphs (a) to (e) above must be satisfied.

Supplier exports the goods within 60-days

A supply of goods is GST-free if the supplier exports the goods before, or within a 60- day period (or such further period as the Commissioner allows). The law requires the goods to be actually exported before or within the time period.

The point at which goods are exported for the purposes of items 1 and 2 is when the goods physically leave Australia with the intention of being landed at a place outside Australia.

Goods can leave Australia on board a ship or aircraft. Thus the time at which goods are exported is the time at which the ship or aircraft with the goods on board departs its final Australian port or airport.

The Commissioner accepts that the timing aspect of the requirement is met if, before the end of the 60-day period, the supplier hands over possession of the goods to an international transport provider contracted to deliver the goods to an overseas destination. However, this is provided all of the other actions necessary to export the goods are completed.

You advised that the export of your goods occurs within the 60-day period as required by the GST Act. The requirements in item 1 are satisfied; therefore the supply of the goods to your overseas clients is a GST-free supply under subsection 38-185(1) of the GST Act.

As the supply is GST-free it follows that you remitted more than was legally payable and that there has been an overpayment of GST.

You have advised that the overseas 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 T 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 the supply of the goods to your overseas clients was made as a GST-free supply and you have provided examples of your invoices and software transaction logs which clearly provide that the supplies are GST-free. However due to an administrative error your Activity Statements for the relevant periods incorrectly treated those supplies as taxable supplies and you have been remitting GST calculated in accordance with the GST Act to the ATO.

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.

ATO view documents

Miscellaneous Taxation Ruling MT 2010/1

Goods and Services Tax Ruling GSTR 2002/6

Other references (non ATO view, such as court cases)

Avon Products Pty Ltd v Commissioner of Taxation (2006) HCA 29

Keywords

Goods and services tax

GST-free supply

Export of goods

GST supply

Taxable supply

Commissioner's discretion

GST refunds

Refund of overpaid GST

Technical Assurance