Edited version of your private ruling

Authorisation Number: 1012472817642

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Ruling

Subject: GST and fees and charges and division 81

Question 1

Are the fees charged by you considered to be a taxable supply up to 30th June 2013 and subject to goods and services tax (GST)'?

Answer

No.

Question 2

Are these same fees considered to be a taxable supply after the 1st July 2013?

Answer

Yes. From 1 July 2013 the fees are consideration for a taxable supply.

Question 3

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 have incorrectly overpaid GST?

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 body politic of a State of Australia with perpetual succession and the legal capacity and powers of an individual, both in and outside the State.

· You are established under the Local Government Act (LG Act). You are empowered under the LG Act to:

· provide goods, services and facilities and to carry out activities, appropriate to the current and future needs of local communities and of the wider public;

· maintain responsibility for administering the regulatory systems under the LG Act; and

· manage, improve and develop the resources of your local government areas.

· You levy fees/charges for particular services (WMS) under particular sections of an Act.

· Additionally, under a subsection of the LG Act, you may charge and recover a fee for any service you provide.

· You provide your community with a Facility (WDF).

· Residential customers are able to use your WDF free of charge however you have a fee for businesses using the WDF. These fees are charged at a particular rate.

· You advise that the supply of a WDF may also be made by a supplier that is not an Australian government agency.

· A local company have disputed the GST charged on the fees and they have received a private ruling from the Tax Office (ATO) stating that GST should not be imposed.

· You have provided this company with tax invoices for a taxable supply with an amount inclusive of GST.

· Since receiving this private ruling this company has refused to pay the GST component of these fees but you have continued to report and pay these amounts to the ATO.

· You received general advice on the operation of the law, that in order to determine whether a fee or charge is specified in the A New Tax System (Goods and Services Tax) (Exempt taxes, fees and charges) Determination 2011 (No. 1) (Determination), it must be confirmed whether the fees are covered by certain Items in the Determination and if the fees are specified in the Determination the charges will not be consideration for a supply and will not be subject to GST.

· You note that an Item of the Determination states that only compulsory fees are included under the item and therefore only compulsory fees are excluded from GST under this item.

· You have also been advised by your accountant that compulsory fees are exempt from GST and optional charges are GST inclusive.

· Some of the amounts that are being disputed relate back to previous financial years.

Relevant legislative provisions

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

Section 9-5

Section 9-39

Section 9-40

Division 81

Section 81-5

Section 81-10

Subsection 81-10(1)

Subsection 81-10(2)

Subsection 81-10(4)

Subsection 81-10(5)

Section 81-15

Section 195-1

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

Regulation 81-10.01

Regulation 81-15.01

Regulation 81-15.02

Income Tax Assessment Act 1997

Section 995-1

Taxation Administration Act 1953,

Section 105-65 of Schedule 1

A New Tax System (Goods and Services Tax) (Exempt taxes, fees and charges) Determination 2011 (No. 1)

Waste Avoidance and Resources Recovery Act 2007

Local Government Act WA 1995

Reasons for decision

Issue 1

Question 1

Summary

Where the fees are listed in the 2011 determination they will not be subject to GST for the transitional period 1 July 2011 to 30 June 2013.

Detailed reasoning

GST is payable on taxable supplies. Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you make a taxable supply if:

(a) you make the supply for consideration; and

(b) the supply is made in the course or furtherance of an enterprise that you carry on; and

(c) the supply is connected with Australia: and

(d) you are registered or required to be registered.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

Also, relevant to your circumstances, chapter 4 of the GST Act contains special GST rules that apply in particular circumstances. The special rules modify the application of the basic GST rules. Rules in Division 81 of the GST Act provide that certain payments to Australian government agencies are not the provision of consideration. The application of this Division must be considered in your circumstances.

When the GST was introduced the Commonwealth, states and territories agreed that the GST would apply to the commercial activities of government at all levels, but that the non-commercial activities of government would be outside the scope of the GST. Division 81 of the GST Act gives effect to this agreement.

Division 81 was amended with effect from 1 July 2011 to allow entities to self assess the GST treatment of a payment of an Australian tax or an Australian fee or charge in accordance with certain principles.

Under the transitional arrangements, those Australian taxes, fees and charges that were not subject to GST under the Determination remain not subject to GST until
30 June 2013 and thereafter will be assessed under Division 81 as amended.

The fees charged for collections from commercial premises or for disposing of commercial waste at a WDF that are the subject of this Private Binding Ruling (PBR) are:

· Unsecured Commercial Loads

· Commercial Bulk Waste
delivered to landfill site

The determination lists certain fees that may align with the fees that you charge.

The fees charged to businesses to use your Facility fit the description in a certain Item in the Determination and therefore are not subject to GST for the specified period.

Question 2

Summary

For the reasons discussed below, payment of the fees is the provision of consideration for a taxable supply

Detailed reasoning

Division 81 of the GST Act was amended as of 1 July 2011. The amended legislation continues the intention that regulatory charges that do not relate to particular goods or services will be exempt from GST. In this context, Division 81 of the GST Act allows entities to self assess the GST treatment of a payment of an Australian tax or an Australian fee or charge in accordance with certain principles.

In particular section 81-5 of the GST Act provides that the payment of an Australian tax is not consideration, and section 81-10 of the GST Act considers that the payment of certain Australian fees and charges are not consideration. Regulations pursuant to Division 81 have also been made that specifically include or exempt certain payments from being the provision of consideration (see regulations 81-10.01 and 81-15.01 of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations).

Australian tax, fee or charge

As a starting point, it is necessary to determine whether the taxes, fees or charges described meet the specific requirements of an Australian tax, fee or charge before the further substantive requirements of Division 81 and the regulations made under Division 81 can be considered.

An Australian tax is a tax (however described) imposed under an Australian law. An Australian fee or charge is a fee or charge (however described), imposed under an Australian law and payable to an Australian government agency (section 195-1 GST Act).

An Australian law means a Commonwealth, state or territory law. Australian government agency means the Commonwealth, a state or territory, or an authority of the Commonwealth or of a state or territory (section 195-1 GST Act, as defined by reference to section 995-1, Income Tax Assessment Act 1997 (ITAA 1997)).

Australian government agency has the meaning given by section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997). This in turn provides that Australian government agency means the Commonwealth, a State or a Territory, or an authority of the Commonwealth or of a State or a Territory.

There also needs to be a clear authority to impose a particular tax, fee or charge before it can be considered to be imposed under a state law.

Where the fees are paid to an Australian government agency and are imposed under an Australian law (which includes a law of a State) it will be an Australian fee or charge.

The fees that are the subject of this Private Ruling are imposed under a section of the LG Act

We consider that the LG Act is a state law, and therefore satisfies the definition of an Australian law. Therefore the fees are imposed under an Australian law.

We also consider that the fees are payable to an Australian government agency. You are a body politic of a State of Australia with perpetual succession and the legal capacity and powers of an individual, both in and outside the State and are registered for GST.

You come within the definition of an Australian government agency in section 995-1 of the Income Tax Assessment Act 1997 (ITAA).

We therefore accept that in your circumstances, based on these relevant factors, you meet the definition of an Australian government agency for the purposes of Division 81 of the GST Act.

Having established that the fees are an Australian fee or charge, it is necessary to consider whether they are a fee or charge that does not constitute consideration under Division 81 of the GST Act and is therefore not subject to GST.

Section 81-10 of the GST Act considers the effect of payment of certain Australian fees and charges. Australian fees or charges are not treated as the provision of consideration for a supply at first instance where they are of the nature described in this section. Subsection 81-10(4) of the GST Act considers that a payment is not the provision of consideration to the extent that the fee or charge relates to an application for, the provision, retention, or amendment, under an Australian law, of a permission, exemption, authority or licence (however described).

We consider that your circumstances do not involve a fee or charge relating to an application for, the provision, retention, or amendment, under an Australian law, of a permission, exemption, authority or licence.

Fees or charges that are consideration under the Regulations

Regulations may be made (under subsection 81-10(2) of the GST Regulations) that prescribe fees and charges that are to be treated as consideration. Such regulations have been made in Division 81 of the GST Regulations, at regulation 81-10.01 of the GST Regulations. A fee or charge that will constitute consideration includes a fee or charge for a supply of a non-regulatory nature.

The word 'regulatory' is not defined in the GST Act or the Regulations. However, the Explanatory Statement (ES) to A New Tax System (Goods and Services Tax) Amendment Regulation 2012 (No.2) states

"the term ' regulatory' captures those supplies made by a government agency, where that agency is legislatively empowered to make the relevant supply and the supply is to satisfy a regulatory purpose"

Generally where only Government organisations have the legislative authority to do certain things, it will be regulatory in nature.

Paragraph 81-10.01(1)(d) of the GST Regulations provides that a fee for the use of a waste disposal facility is prescribed for section 81-10 and constitutes consideration. Therefore, under this Regulation, a fee charged to businesses to dump rubbish at your WDF is consideration. You therefore make a taxable supply and GST is payable.

Additionally paragraph 81-10.01(1)(h) of the GST Regulations provides that a fee or charge for a supply by an Australian government agency, where the supply may also be made by a supplier that is not an Australian government agency is prescribed for section 81-10 and constitutes consideration.

The explanatory statement to the A New Tax System (Goods and Services Tax) Amendment Regulation 2012 (No.2) (ES) states the following in relation to paragraph 81-10.01(1)(h) of the GST Regulations:

This paragraph ensures that the regulatory activities of government made in competition with the private sector are subject to GST where the other requirements of section 9-5 of the Act are satisfied.

Fees and charges in this category are not excluded from being consideration for a taxable supply. This is consistent with the National Competition and Consumer Policy guidelines and ensures that a government entity is not given a competitive advantage over a private sector supplier making the same type of supply.

In this case whilst the Facility is owned and run by you the supply of a Facility may also be made by a supplier that is not an Australian government agency

Fees or charges that are not consideration under the Regulations

Section 81-15 of the GST Act allows the making of regulations that provide that the payment of a prescribed Australian fee or charge, or of an Australian fee or charge of a prescribed kind, or the discharging of a liability to make such a payment, is not the provision of consideration. Such regulations have been made at Division 81 of the GST Regulations. In particular, regulation 81-15.01 of the GST Regulations prescribes fees and charges which do not constitute consideration.

Regulation 81-15.01 of the GST Regulations sets out those fees and charges that are prescribed for section 81-15 and which do not constitute consideration. This regulation adds to the kinds of fees and charges that are already made exempt from GST under subsections 81-10(4) and (5) of the GST Act.

Another fee or charge that is prescribed for section 81-15 by virtue of regulation 81-15.01 of the GST Regulations is a fee or charge for a supply of a regulatory nature made by an Australian government agency.

For the purposes of paragraph 81-15.01(1)(f) of the GST Regulations, a supply made by an Australian government agency is of a regulatory nature if an Australian law authorises the agency to make the supply in order to, amongst other thing, regulate behaviour, ensure consumer protection and ensure compliance with certain standards.

As an example, a council provides waste management services (as waste depot access) to properties with no kerbside collection of waste by the council. This is an example of a regulatory supply.

Fees and charges covered by both regulations 81-10.01 and 81-15.01 of the GST Regulations

If a fee or charge is covered by both regulations 81-10.01 and 81-15.01 of the GST Regulations, regulation 81-15.02 of the GST Regulations determines which regulation would prevail. For example, a fee for the use of a waste disposal facility that is covered by both paragraph 81-15.01(1)(f) (regulatory supplies) and paragraph 81-10.01(1)(d) (waste disposal fees) of the GST Regulations is to be treated as the provision of consideration (see paragraph 81-15.02(2) of the GST Regulations).

Each of the taxes, fees or charges imposed are considered below to determine whether their payment is the provision of consideration in light of Division 81.

Fee A

Taxable supply under Paragraph 81-10.01(1)(d) of the GST Regulations.

Fee B

Taxable supply under Paragraph 81-10.01(1)(d) of the GST Regulations.

Question 3

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.

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.

Example 1

In this case you treated the supply of your fees as taxable and you invoiced your clients accordingly. However, a local company have disputed the GST charged on Facility fees and have received a private ruling from the ATO stating that GST should not be imposed.

Since receiving this private ruling this company has refused to pay the GST component of these charges but you have continued to report and have remitted GST of 1/11 of the price when these supplies were in fact not taxable. It follows that you have remitted more than was legally payable and that there has been an overpayment of GST.

You have advised that the company in question who is the recipient of your supply is 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 (Luxottica) 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 [Emphasis added].

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 answering this question, the Commissioner takes into consideration the factors outlined in paragraphs 9-12 of Avon Products Pty Ltd v Commissioner of Taxation (2006) HCA 29 (Avon). It is considered that the guidance provided by the Avon case about who bears the burden of the indirect tax impost applies equally in the GST context given the similarity in the sales tax and GST regimes in that respect. Those paragraphs are reproduced as follows:

9. That sales tax is expected to be passed on depends upon the circumstance that sales of goods occur within an economy geared to making profit. It is the profit-making motive of business which, in the nature of things, generally results in sales tax being passed on. This is because, leaving aside rare cases where sales tax is separately identified and superadded to the invoice price after sale, sales tax can only be passed on indirectly through the price mechanism. In a profit-making structure, businesses will set prices so as to ensure at least that all foreseeable costs are recovered, anything above this being conceptualised as a margin of profit. Because sales tax is levied upon the vendor prior to the ultimate sale by retail in the manner explained by Dixon J in Ellis & Clark, 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.

10. As has been explained, it is for the taxpayer to establish a circumstance out of the ordinary, namely that the amount of the overpayment of sales tax has not been passed on. Where the whole or part of the economic burden of sales tax may have been passed on indirectly through prices, the inquiry in this regard is likely to be complex. The complexity arises because prices may be set with reference to a wide range of factors (including considerations of cost of production, competitive advantage, operational cash flow and customer goodwill). However the starting point must be the seller's pricing policy and practice.

11. In this way, the question is to be approached with reference to the actual conduct of the seller in setting prices based upon its actual knowledge at the relevant time. That knowledge includes the belief that the component of sales tax which later proves to have been an overpayment is a real cost of doing business. Accordingly, it is unsurprising that a seller's intention, whether subjective or objectively ascertained, will generally be to pass the burden of the impost on to the purchaser. Since the onus of proof lies upon the taxpayer, it will be for it to establish that a price which is set so as to ensure that it recovers its cost does not include the economic burden of the sales tax.

12. Additionally, once it is appreciated that it is in the nature of sales tax to be passed on, there is nothing remarkable in the consequence that proof to the contrary will occur comparatively seldom. …. But, given what has been said above, realism requires a recognition that in the ordinary course sales tax will have been passed on.

Whether GST is passed on is a question of fact that needs to be determined in any particular case.

In your circumstances, you have advised that GST was included in the fees (price of the supply) during the relevant period but the company has refused to pay the GST component of these charges and have therefore treated them as GST-free.

This indicates that the supplies made during the relevant period were treated as taxable supplies by you.

The payments are not subject to GST. The clients by refusing to pay the GST amount of the invoice did not pay any GST on the payments to you and correctly treated these payments as GST-free. The differing treatment of the fees was made because of the different advice received by the company and you from the ATO as to the appropriate treatment of the fees.

As you have invoiced the company for an amount inclusive of GST (even though they have not remitted the GST amount to you) we consider that you have, in fact, passed on the amount of GST to them. The company's failure to pay the full amount of the invoice is a private contractual matter between the parties to the transaction and not a matter that the ATO can provide comment on.

Given the context in which section 105-65 appears, the provision will apply as the recipient is registered.

In this circumstance, the Commissioner is under no obligation to refund the overpayment, the reason being that the recipient is registered for GST and would have been entitled to claim the corresponding input tax credit (representing a business to business transaction). Therefore, the Commissioner will not exercise his discretion and refund the overpaid amount of GST.

Consequently the Commissioner will not exercise his discretion under section 105-65 of Schedule 1 to the TAA to refund any incorrectly remitted GST by you where the company has not paid the GST to you.

Example 2

· In this case you treated the supply of your Facility fees as taxable and you invoiced your clients accordingly. Where you have made a taxable supply, when in fact the supply was GST-free and have remitted GST in connection with this supply, you will have remitted an amount in excess of what was legally payable on the supply. That is, you will have overpaid an amount of GST.

Before any refund of the overpaid amount can be claimed, the impact of section 105-65 of Schedule 1 to the TAA (section 105-65) must be considered. Section 105-65 of the TAA places a restriction on refunds that arise from the overpayment of GST in certain circumstances.

Section 105-65 of the TAA applies and the Commissioner need not give you a refund if you overpaid an amount because a supply was treated as a taxable supply when the supply was not a taxable supply and one of the following applies: either the recipients have not been reimbursed an amount corresponding to the overpaid GST, or the recipient of the supply was registered or required to be registered.

In this case, the Commissioner is not required to refund the overpaid GST as you have advised that the recipients of the supply would mostly be registered for GST. However, there may be some circumstances where the Commissioner will consider exercising his discretion to allow a refund of the overpaid GST. The guiding principles for the Commissioner to exercise his discretion under section 105-65 of Schedule 1 to the TAA are discussed above.

The scheme of the GST Act, on which the section 105-65 policy is based, is premised on the following principles:

· it is the supplier that determines if the supply it makes is taxable in the first instance. By determining that its supply is a taxable supply, an amount for GST is included in the price.

· double taxation is avoided by the registered recipient being entitled to claim an input tax credit for that taxable supply where it is acquired for a creditable purpose and the supplier, in the relevant circumstances, provided a tax invoice. In this way the Act envisages symmetry between the GST payable and the input tax credit which may be claimed.

· it is the unregistered end consumer that bears the cost of the GST(paragraph 38 MT 2010/1).

Given the context in which section 105-65 appears, the provision will apply unless the Commissioner is satisfied that the taxpayer has reimbursed the recipient of the supply and the recipient is unregistered.

As this is not the case, in this circumstance, the Commissioner is under no obligation to refund the overpayment, the reason being that you have not reimbursed the recipient and the recipient is registered for GST and would have been entitled to claim the corresponding input tax credit (representing a business to business transaction). Therefore, the Commissioner will not exercise his discretion and refund the overpaid amount of GST.

Further information

The Commissioner continues to abide by the approach in ATO Practice Statement Law Administration PS LA 2002/12 (withdrawn) not to require reversal of transactions where an arrangement occurs between registered entities that has resulted in incorrectly treating an arrangement as taxable, provided the following conditions are met.

The conditions for a registered supplier are:

· A non-taxable supply has been treated as a taxable supply;

· The supplier issued to the recipient an invoice that would be a valid tax invoice if the supply had been a taxable supply;

· The supply did not occur in the current tax period. The amount incorrectly included as GST in the price has been included in the supplier's activity statement for a previous tax period and the amount remitted to the ATO;

· The supplier has not reimbursed the registered recipient for the amount incorrectly included as GST in the price;

· The supplier has not cancelled the tax invoice by issuing any later document that indicates the correct non-taxable status of the supply; and

· The supplier began to treat current and future supplies of the same type as non-taxable as soon as it became aware of the error.

The conditions for a registered recipient are:

· The recipient is in possession of a document that would be a valid tax invoice if the supply had been a taxable supply;

· The invoice indicates that a supply is a taxable supply and includes an amount represented as GST in the price;

· The supply is non-taxable;

· The recipient relied on the tax invoice to claim the input tax credit;

· If the supply had been a taxable supply the recipient would have been entitled to claim full or partial input tax credits;

· The ATO has already refunded or credited the amount included as GST in the price to the recipient;

· The recipient has not been reimbursed by the supplier;

· The tax invoice has not been cancelled by the supplier and superseded by a later document that indicates the true status of the supply as non-taxable; and

· The registered recipient ceased to claim input tax credits for current and future acquisitions of the same type as soon as it became aware of the error.

The policy will apply to an entity only if the conditions in both the paragraphs above are met. The conditions are self-regulating, and if one of the entities to a supply fails to meet all of its conditions, the other party would also fail to meet its conditions.

· The ATO will not require the supplier to retrospectively amend its activity statements in relation to non-taxable supplies that have been incorrectly treated as taxable;

· The ATO will not credit or refund to a supplier the amount of GST incorrectly included in the price;

· If the supplies were non-taxable because they were input-taxed, and the supplier has claimed input tax credits on acquisitions in relation to those supplies because it incorrectly treated those input-taxed supplies as taxable, the supplier must repay those input tax credits. If the supplier had treated the supplies as taxable supplies in reliance on an earlier ruling issued to it by the ATO, it may ask the Commissioner to decide whether subsection 105-60(2) of Schedule 1 to the TAA requires the credits to be repaid;

· The ATO will not require the registered recipient to retrospectively revise its activity statements and repay the input tax credits it claimed in reliance on incorrect tax invoices; and

· …

This is due to the ATO recognising that reversal of transactions and revising BAS' to make corrections of this type amount to a round robin among the registered recipient, the supplier and the ATO. Significant compliance costs can be incurred with no change to the financial result.

The thrust of the policy is that if both of the registered parties meet the criteria and do nothing to disturb the situation, then neither will the ATO if there is no compromise to revenue or the integrity of the tax system by doing so.