Edited version of private advice

Authorisation Number: 1012636427231

Ruling

Subject: GST and commission

Question 1

Can you revise your Business activity statements to claim the refund of the overpaid goods and services tax (GST) on the commission you received from non-resident merchants?

Answer

Yes

Relevant facts and circumstances

• You are registered for GST.

• You are an online business which offers services to resident and non-resident merchants.

• A number of your merchants are non-resident entities that are not in Australia at the time your service is done.

• In consideration for your services, you charge the non-resident merchants a commission calculated by reference to the total GST-inclusive monies received from customers that purchase the merchants' goods and services through you. The commission charge varies depending on the nature of the purchase.

• Historically, you have accounted for GST on all commission received from the merchants irrespective of whether they are non-resident.

• Under a clause of the Agreement your commission is calculated as a percentage of the total GST inclusive monies which you receive from the customers who place orders to buy goods and services through you.

• You have provided a number of samples of tax invoices issued to resident and non-resident merchants.

• In all tax invoices provided GST is calculated at 10% of the Total Ex GST.

• The GST was overpaid in relation to services provided to non-resident merchants during the relevant period is $xxxxx. This amount has not been reimbursed to non-resident merchants.

• In all sample tax invoices GST is calculated at 10% of the Total Ex GST.

• You have also provided working papers for the sample tax invoices No aaaa and bbbb above issued to non-resident merchants for your services: In the sample tax invoices the GST was included. The agreed commission (based on the gross collection on behalf of the non-resident recipients and the agreed commission percentage) is reduced by the GST included in the tax invoices.

• The underlying supply made by the non-resident merchants does not include any GST.

• When your account for the commission in your accounting system, the commission transaction was not correctly captured by the coding in the accounting system.

The accounting system incorrectly processed the payment as being inclusive of GST and by extension remitted the GST to the Tax Office and automatically issue tax invoices for the transaction.

Relevant legislative provisions

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

Section 9-5

Section 38-190

Taxation Administration Act 1953

Section 105-65 to Schedule 1.

Divisions 3 and 3A of Part IIB

Section 8AAZLF

Reasons for decision

Summary

The overpaid GST is the outcome of an accounting error. Section 105-65 to Schedule 1 of the Taxation Administration Act 1953 will not apply to prevent the refund of the overpaid GST.

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 Taxation Administration Act 1953 (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 which was issued on 15 December 2010 and subsequent amendments 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 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

• 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.

Meaning of overpaid

In the context of section 105-65, 'overpaid' means the amount that has been remitted must be in excess of what was legally payable on the particular supply in the relevant tax period prior to taking into account or applying section 105-65.

In your circumstances, you have provided that the supply of your services to the non-resident merchants is GST-free under section 38-190 of the GST Act. No GST is payable on the supply.

Paragraph 20 of MT 2010/1 explains the meaning of 'overpaid'. It states:

In the context of 105-65 'overpaid' means the amount that has been remitted must be in excess of what was legally payable on the particular supply in the relevant tax period prior to taking into account or applying section 105-65.

Paragraph 21 of MT 2010/1 explains the meaning of 'treated as taxable supply'. It states:

In the context of section 105-65 a supply would be treated as a taxable supply where the supplier has mischaracterised a supply as taxable because they believed the supply to be a taxable supply, has dealt with the recipient of the supply as if the supply was a taxable supply and has remitted an amount as GST to the Commissioner on that supply in the calculation of their net amount. A supply would also be treated as a taxable supply where a supplier correctly characterises a supply as GST-free or input taxed but mistakenly includes GST for that supply in the calculation of their net amount. A supply would also be treated as a taxable supply where a supplier correctly characterises a supply as taxable but miscalculates the GST for that supply in the calculation of their net amount. [emphasis added]

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.

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 amended MT 2010/1 providing its response to the case, including changes to the ATO view on how section 105-65 applies. The changes extend to any miscalculation of the GST payable under the GST Act.

Paragraph 25B was inserted into MT 2010/1 and states:

The Commissioner takes the view that section105-65 will not apply in cases where the supply is always correctly characterised and treated by the supplier, but an overpayment of GST arises from a mere miscalculation. Examples of such cases include where:

• a supplier correctly characterises a supply as taxable but merely miscalculates the GST for that supply in the calculation of their net amount;

1…

In your circumstances subsection 105-65 would not apply because:

• The underlying supply made by the non-resident merchants (that you charge your service commission) does not include any GST. There is no mention of GST in your agreement with the non-resident merchants. You deal with the non-resident merchants on the basis that the payments of commission have no GST implications

• When you, account for the non-resident merchant commission in your accounting system, the commission transaction was not correctly captured by the coding in the accounting system.

The accounting system incorrectly processed the payment as being inclusive of GST and by extension remitted the GST to the Tax Office and automatically issue tax invoices for the transaction.

You have provided working papers for your sample tax invoices where:

• The amount of commission based on the gross sales and the commission percentage does not change due to the incidence of GST.

• The GST is deducted from the commission and was not added on to the agreed commission. Your agreed commission is less due to the payment of GST that you have not passed on to the non-resident merchants.

You remitted the GST on a supply that you have not charged GST and the non-resident merchants have not paid GST.

The overpayment of GST has not resulted from a mischaracterisation of the supply as a taxable supply. It is considered that that you have overpaid GST by miscalculating your GST liabilities in your relevant BASs.

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

You have overpaid GST and wish to seek a refund for the overpaid GST remitted. A GST refund claim must be made within the four-year time limit for GST refunds (section 105-55 of Schedule 1 to the TAA). It is considered that the time limit under this section does not apply to the overpaid GST in question.

GSTE 2013/1- Goods and Services Tax: Correcting GST Errors Determination allows you to correct GST errors, made in an earlier tax period, in a later tax period in specified circumstances. As you have made credit errors (mistakes made in the tax period, have resulted in the net amount or assessed net amount being overstated), in accordance with GSTE 2013/1 you can correct the errors made in your BASs started from month 200X in your next BAS.

It is also noted that you need to replace all relevant tax invoice issued to non-resident merchants in error with invoices with no GST component to reflect the fact that the commission you charged does not include GST.