Edited version of private advice

Authorisation Number: 1051658670866

Date of advice: 16 April 2020

Ruling

Subject: Excess GST

Question

Have you passed on GST to another entity for the purposes of section 142-10 of the A New Tax System (Goods and Services Tax) Act 1999 for taxable supplies of the Products?

Answer

No.

Relevant facts

Prior to Year A, you treated the Products as GST-free.

In Year A, the Commissioner provided you with a classification guide which detailed its view with regards to your range of products including his position that the particular Products should be taxable. The implementation date to comply with the Commissioner's view was Year B.

From Year B, you commenced remitting GST on your sales of the Products.

As you did not agree with the Commissioner's view, you did not treat the impacted Products as taxable in your merchandise systems and, as a result, there was no GST applied to the Products and no GST was shown on tax invoices.

You maintained the GST exclusive sell price of $X per Product that applied pre-Year A and remitted GST by way of a manual adjustment in your BAS.

The $X sale price continues to apply.

You set the price of the Products with the knowledge that the Products were GST-free. Following notification that the Commissioner's view is that the Products should be taxable, you did not increase your sales price despite your cost base remaining unchanged.

From the commencement of the scheme, the tax invoice shows the amount of GST payable in relation to the Products.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5.

A New Tax System (Goods and Services Tax) Act 1999 Section 142-5.

A New Tax System (Goods and Services Tax) Act 1999 Section 142-10.

A New Tax System (Goods and Services Tax) Act 1999 Section 142-25.

Reasons for decision

Summary

You have not passed on GST to another entity for the purposes of section 142-10 as you have absorbed and not passed on the cost of the excess GST.

Detailed reasoning

Where the Products are found to be GST-free, if the excess GST has not been passed on section 142-10 does not apply and you may, subject to the period of review, request an amendment to your assessment for the relevant tax period to reduce the amount of GST attributable to the tax period.

Division 142 provides that excess GST is not to be refunded if this would give an entity a windfall gain.

The object of Division 142 is to ensure that excess GST is not refunded if this would give an entity a windfall gain. Generally, the Division operates so that a supplier is not entitled to a refund of an amount of excess GST where the supplier has passed on the GST to another entity (the recipient), and has not reimbursed that other entity for the passed-on GST.

Under subsection 142-5(1) 'excess GST' is an amount of GST that has been taken into account in an entity's assessed net amount and is in excess of what was payable by the entity in the relevant tax period prior to taking into account or applying the provisions of Division 142.

In relation to refunding the excess GST, section 142-10 provides that the excess GST that has been passed on to a recipient is taken to have always been payable and payable on a taxable supply, until the recipient has been reimbursed for the passed-on excess GST.

This means that an amount of excess GST will only be refundable if:

·         it has not been passed on to the recipient, or

·         it has been passed on to the recipient and the recipient has been reimbursed.

The Commissioner's view on the meaning of the terms 'passed on' and reimburse' for determining whether section 142-10 applies to an amount of excess GST is explained in Goods and Services Tax Ruling GSTR 2015/1 Goods and services tax: the meaning of the terms 'passed on' and 'reimburse' for the purposes of Division 142 of the A New Tax System (Goods and Services Tax) Act 1999 (GSTR 2015/1).

Paragraphs 23 to 33 of GSTR 2015/1 provide the view of the Commissioner as to when excess GST has been passed on.

Paragraph 23 of GSTR 2015/1 states that whether the excess GST has been passed on is a question of fact and must be determined on a case by case basis taking into account the particular circumstances of each case. However, section 142-25, and the policy and scheme of the GST Act more generally, give rise to an expectation that the excess GST will be passed on in most cases.

While there is a general expectation that in the ordinary circumstances, excess GST has been passed on, the particular facts and circumstances of an individual case may demonstrate that excess GST has not in fact been passed on.

The matters relevant to determining whether GST has been passed on are outlined in paragraph 28 of GSTR 2015/1 and can include the supplier's pricing policy and practice and the documentary evidence relevant to that transaction.

Paragraph 44 of GSTR 2015/1 provides that where a supplier sets a price on the basis that no GST is payable on the transaction, and subsequently pays the GST liability without seeking (or being able to seek) recovery from the recipient, this may point towards a finding that the supplier has absorbed and not passed on the cost of the excess GST.

Your submission is in the event that you commence showing GST on your tax invoices for supplies of the Products. You will issue customers with tax invoices which mark the Products as taxable. The $X sale price continues to apply.

You set the price of the Products with the knowledge that the Products were GST-free. Following notification of the Commissioner's view that the Products are taxable, you did not increase your sales price despite your cost base remaining unchanged. You did not treat the Products as taxable in your merchandise systems and, as a result, there was no GST applied to the Products and no GST was shown on tax invoices. In essence, you maintained the GST exclusive sell price of $X per Product that applied pre- Year A and remitted GST by way of a manual adjustment in your BAS.

You contend that you have absorbed the GST remitted to the ATO on supplies of impacted Products and therefore any potential GST refund claim should not give rise to a windfall gain. This is because you are of the view that you have not passed on the impact of the GST treatment to your customers. Rather, you have met your obligations by way of paying it out of your own pocket.

Taking the facts of this case into consideration and, in the absence of evidence to the contrary, we accept that you have not passed on the GST on the Products, for the purposes of section 142-10.

Consequently you are not prevented from recovering the excess GST that is not passed on, as per Note 2 at the end of subsection 142-10, where it is subsequently determined that the supply of the Products is GST-free.