Edited version of private advice

Authorisation Number: 1052055844036

Date of advice: 11 November 2022

Ruling

Subject: Excess GST - refund

Question 1

Can you get a refund under Division 142 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) for the excess GST you have reported in relation to the supply of short-term holiday accommodation?

Answer 1

No, you cannot get a refund under Division 142 of the GST Act for the excess GST you reported in relation to the supply of short-term holiday accommodation.

Question 2

Will the Commissioner exercise his discretion to allow a refund of excess GST under section 142-15 of the GST Act for the periods from DD MM YYYY to DD MM YYYY?

Answer 2

No. The Commissioner will not exercise his discretion to allow a refund of the excess GST. The Commissioner is not satisfied that allowing a refund will not result in a windfall gain to you.

This ruling applies for the following periods:

1 July 20YY to 30 June 20YY

1 July 20YY to 30 June 20YY

1 July 20YY to 30 June 20YY

1 July 20YY to 30 June 20YY

The scheme commences on:

The date this ruling is issued.

Relevant facts and circumstances

•         You were registered for GST reporting GST on a quarterly basis.

•         You purchased a residential beach house and your original intention was to offer it as short-term rental accommodation for visitors which has not changed since the property has been available for rent.

•         The property is marketed through your own booking portal, as well as commercial accommodations portals such as Airbnb, Booking.com, Expedia, Trivago, Trip Advisor, Vrbo/HomeAway/Stayz (agents) who advertise the property on their associated sites.

•         The rates charged to visitors are based on a seasonal nightly rate structure, Winter, Shoulder, Summer, Peak Summer Holiday, Public Long Weekend and the number of guests.

•         You charge $XX per stay for linen, laundry, water and cleaning. Guests can purchase additional services such as laundry access days and additional Wi-Fi access if needed.

•         Many of these agents determine the final price charged to the visitor, depending on the commission they wish to take or the discounts they are offering.

•         The rates are reviewed on a weekly basis, and depending on remaining availability, last minute or early advanced booking special discounts are offered.

•         Each quarter you analyse the income and expense for the prior 12 months and the expected expenses and income for the next 12 months and the nightly rates are adjusted accordingly.

•         You do not issue tax invoices as booking platforms such as Booking.com handles the payments and correspondence with guests.

•         You did notify the booking suppliers that you were registered for GST.

•         Cleaning services are provided by a variety of people and organisations including yourself depending on availability of cleaners at the time.

•         Base prices were set for 'normal' booking terms. Each booking agent had a different margin added to the base price to determine the minimum room price.

•         You provided sample base price rates showing base prices and mark up fees.

•         Booking.com, at their discretion, sold nights with various cancellation conditions. e.g. X% discount for non-refundable bookings or X% extra to allow full refund up to time of check in.

•         You supplied a copy of your booking agreement with Booking.com which shows that the agreed commission fee is X% along with an addition X% charged to you to cover credit card costs.

•         Your tax agent has stated that claim there is no mention of GST or taxes included in addition to the base price or the cleaning fee.

•         You are requesting the Commissioner to exercise his discretion under Division 142 of the GST Act and refund the excess GST remitted to the Tax Office for all of the above tax periods.

•         Our systems show that input tax credits (ITCs) have been claimed by you.

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 40-35

A New Tax System (Goods and Services Tax) Act 1999 Division 142

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 142-15

Reasons for decision

Before a decision can be made in relation to Division 142 of the GST Act, it is necessary to determine whether the GST is payable on any taxable supply that you make. The supply of your residential property by way of lease will be subject to GST if it meets the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act).

Section 9-5 of the GST Act states 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.

The primary issue in this case is whether your supply of the short-term accommodation through leasing or letting of the property would be an input taxed supply. Input taxed means that GST is not payable on the supply and there is no entitlement to an input tax credit for anything acquired to make the supply.

Input taxed supplies and residential premises

Subsection 40-35(1) provides that a supply of premises by lease, hire or license is input taxed if the supply is of residential premises (other than a supply of commercial residential premises or accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises).

'Residential premises' is defined in section 195-1 as land or a building that:

•                     is occupied as a residence or for residential accommodation, or

•                     is intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation;

(regardless of the term of the occupation or intended occupation).

Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) provides the Australian Tax Office's view of the factors to consider and the characteristics of residential premises. Paragraphs 9 and 15 of GSTR 2012/5 explain that a single test looking at the physical characteristics of the property will determine the premises' suitability and capability for residential accommodation. To satisfy the definition of residential premises, the premises must provide shelter and basic living facilities.

Paragraph 7 of GSTR 2012/5 explains that the physical characteristics of the premises will determine whether the property is residential premises for the purposes of subsection 40-35(1). It states that the definition of residential premises 'refers to premises that are designed, built or modified so as to be suitable to be occupied, and capable of being occupied, as a residence or for residential accommodation. This is demonstrated through the physical characteristics of the 'premises'.

From the facts and information provided, your beach house rented for short-term holiday accommodation satisfies the definition of 'residential premises', therefore the supply of those premises will be input taxed supplies.

Refunding the amount of excess GST and Division 142 of the GST Act

Division 142 of the GST Act provides that an excess amount of GST will not be refunded where that refund would result in a windfall gain for an entity.

Excess GST is defined in subsection 142-5(1) of the GST Act as an amount that has been taken into account in an assessed net amount but is not in fact payable. Under section 142-10 of the GST Act, if the excess GST has been passed on to another entity, that excess GST is taken to have always been payable until the passed-on GST is reimbursed to the other entity.

However, if the excess GST has not been passed on, section 142-10 does not apply, and the supplier may request an amendment to their assessment for the relevant tax period to reduce the amount of GST attributed to that tax period. Any resulting refunds are then to be paid or applied in accordance with Division 3 and 3A of Part IIB of the Tax Administration Act (1953) (TAA)

Goods and Services Tax Ruling GSTR 2015/1: 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) notes 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.

Paragraphs 24-27 of GSTR 2015/1 states:

24. The Explanatory Memorandum to the Tax Laws Amendment (2014 Measures No 1) Bill 2014 states that the GST Act envisages that the supplier 'passes on' the GST to the recipient of the supply. This simply reflects the design of the GST as an indirect tax which is generally expected to be passed on to the customer when a supply is treated as a taxable supply.

25. If excess GST is included on a tax invoice, this is prima facie evidence that the excess GST has been passed on.

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

27. A supplier claiming a refund, because it considers that the excess GST has not been passed on, will need to clearly substantiate the grounds on which it claims the refund. In any dispute, the taxpayer would have the onus of proving that its circumstances are outside the ordinary and that it did not pass on the excess GST.

In paragraph 28 of GSTR 2015/1the Commissioner considers that the matters relevant to whether GST has been passed on include:

(i)            the manner in which the excess GST arose

(ii)           the supplier's pricing policy and practice

(iii)          the documentary evidence surrounding the transaction, and

(iv)          any other relevant circumstances

The question of passing on is one of fact and not of fairness - considerations of fairness may be relevant in deciding whether the Commissioner exercises the discretion under subsection 142-15(1) but are not relevant to whether excess GST has been passed on.

The manner in which the excess GST arose is relevant in determining whether or not the GST has been passed on. Paragraph 31 of GSTR 2015/1 details some common circumstances where excess GST may arise. It includes, as is the case in your circumstances, incorrectly treating something which is not a taxable supply as a taxable supply.

The Commissioner at paragraph 33 of GSTR 2015/1 is of the view that where the excess GST arises as a result of an error made before setting the price (for example where the supplier incorrectly treats an input taxed supply as a taxable supply) as the case is here, that error will generally flow through to the sale price paid (short-term holiday accommodation) by the recipient and is likely to point towards a finding that excess GST has been passed on.

In your case, you have incorrectly treated your input taxed supplies of short-term holiday accommodation as taxable supplies and remitted GST to the ATO in relation to these supplies.

(ii)          The supplier's pricing policy and practice

The supplier's pricing policy and practice involves considering your conduct and knowledge at the relevant time of setting the price of a supply, in this case the price of short-term accommodation and whether there have been any changes in the price to account for GST (paragraph 40 of GSTR 2015/1).

Paragraph 41 and 42 of GSTR 2015/1 states:

41. Where a supplier sets a price with the knowledge or belief that the transaction is subject to GST, including a belief that the GST which later proves to be an overpayment is a real cost of doing business, that will point towards a finding that the excess GST has been passed on.

42. This may be demonstrated where the price charged is calculated so as to exceed costs (including GST) by a profit margin. Even if there is very little or no profit margin, this will not necessarily mean that the GST was not taken into account as a cost.

45. A supplier may seek to demonstrate that GST was not considered when setting the price it charged its customers. This is not, of itself, sufficient to establish that the excess GST has not been passed on. For example, where a supplier is a 'price taker' in a market that primarily makes taxable supplies, this usually indicates that the supplier has passed on the excess GST. The fact that the supplier may not have been aware of the GST cost when setting its prices is not enough by itself to demonstrate that GST has not been passed on

46. On the other hand, where a supplier sets its prices to a market that primarily makes non-taxable supplies, this may tend to support a conclusion that the supplier has not passed on the excess GST.

You set the initial prices charged to visitors based on a seasonal nightly rate structure, which are reviewed on a weekly basis. You claim that you do not believe that GST was specifically charged or collected from visitors even though you thought you were required to remit GST. However, in setting those prices, it reasonable to assume that GST was factored into your rates as you were of the understanding that GST was payable to the ATO and included GST in your activity statements in respect of your supplies of short-term holiday accommodation.

As outlined above, there is a general expectation that excess GST will have been passed on and a supplier will need to clearly substantiate the grounds on which it claims a refund of excess GST and that their circumstances are outside the ordinary. On the whole, you have not been able to clearly substantiate that you have not passed on the excess GST in respect of your short-term holiday accommodation.

Conclusion

As there is excess GST and it has been passed on by you, under section 142-10 of the GST Act the excess GST is treated as having always been payable on a taxable supply until and unless you reimburse the excess GST to your recipients.

You have not indicated that reimbursement is an option as you believe that GST was not charged in the first instance.

Under section 142-15 of the GST Act the Commissioner has a discretion to allow a refund of excess GST despite passing on having occurred and no reimbursement having been made. The discretion can only be exercised on application by the supplier in an approved form. The discretion should only be exercised where the Commissioner is satisfied that a refund of the excess GST would not provide an entity with a windfall gain.

You have not demonstrated that your circumstances are outside of the ordinary and that the GST on the sales of the short-term holiday accommodation were not passed on.

Therefore, based on the information you provided; the Commissioner will not exercise the discretion under section 142-15 of the GST Act because he is not satisfied a refund of the excess GST will not result in a windfall gain to you.