TAXATION RULING NO. ST 2456
ST 2456
SALES TAX : REFUNDS UNDER SUBSECTION 26(1) OF SALES TAX ASSESSMENT ACT (NO. 1)
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FOI status:
May be releasedFOI number: I 1011599PREAMBLE
The purpose of this Ruling is to outline the policy of the Australian Taxation Office to be followed in those cases where a refund is sought in accordance with subsection 26(1) of Sales Tax Assessment Act (No. 1) or similar provisions in the other Sales Tax Assessment Acts. The Ruling is not intended to be an exhaustive statement of the refund provisions contained in the sales tax law. It does not, for example, deal with refunds available under provisions such as section 12A of the Sales Tax Procedure Act, subsections 26(2) to 26(5) of Sales Tax Assessment Act (No. 1) and regulations 48, 49 and 58 of the Sales Tax Regulations.
2. Subsection 26(1) provides that :-
"Subject to subsection (1A), where the Commissioner finds in any case that tax has been overpaid by a person, the Commissioner shall -Subsection 26(1A) provides that :-
- (a)
- refund the amount of any tax overpaid; or
- (b)
- apply the amount of any tax overpaid against any liability of the person to the Commonwealth, being a liability arising under, or by virtue of, an Act of which the Commissioner has the general administration, and refund any part of the amount that is not so applied."
"Subsection (1) does not apply in relation to any tax paid by a person unless the Commissioner is satisfied that the tax has not been passed on by the person to another person, or, if passed on to another person, has been refunded to the other person."
3. Refunds of overpaid tax are limited by the statutory time limits contained in section 12C of the Sales Tax Procedure Act. Section 12C provides that :-
"(1) Where the Commissioner finds that any person has made an overpayment of tax, the Commissioner shall not make any refund to that person unless he so finds -
from the date upon which the overpayment was made".
- (a)
- within a period of three years; or
- (b)
- on consideration of a claim in writing for that refund lodged with the Commisioner within a period of three years,
FACTS
4. Refunds of overpaid sales tax where tax has been paid :
- (i)
- at an incorrect rate;
- (ii)
- on an incorrect sale value; or
- (iii)
- in circumstances in which no tax at all was properly payable,
- (a)
- where the Taxation Office reviews either the classification of goods or their sale value and concludes that either no tax is payable or less tax is payable - the review may be conducted by the Taxation Office on its own initiative or it could be at the request of a taxpayer or other interested party;
- (b)
- where the Administrative Appeals Tribunal or a court of law holds on an appeal by a taxpayer that the rate of sales tax or the sale value determined by the Taxation Office for particular goods is incorrect;
- (c)
- where a taxpayer seeks a declaration from a court that the rate of sales tax or the sale value determined by the Taxation Office for particular goods is incorrect; or
- (d)
- where a taxpayer incorrectly assumes a liability to pay tax but no liability exists or classifies goods at a rate higher or adopts a higher sale value than that determined by the Taxation Office.
RULING
Mistake of Law
5. The question whether a taxpayer who pays an amount of sales tax under a mistake of law is entitled to a refund of that tax has generated much debate. Sales tax refunds have been denied by the Taxation Office for many years where the tax has been overpaid under a mistake of law.
6. The general rule at common law is that money paid voluntarily, that is to say, without compulsion or extortion or undue influence and with a knowledge of all the facts, cannot be recovered even though it may have been paid without any consideration.
7. This common law principle has been applied to situations where tax has been voluntarily overpaid - refer, for example, to National Pari - Mutuel Association Limited v The King (1930) 47 TLR 110 and the decision of the High Court of Australia in Werrin v The Commonwealth (1938) 59 CLR 150.
8. Werrin's Case has been relied by this Office until recently as providing support for the view that sales tax paid under a mistake of law is not recoverable.
9. Where a refund of overpaid sales tax is claimed under a specific statutory refund provision such as subsection 26(1), however, Werrin's Case does not authorise denial of such a claim. In fact the House of Lords has recently indicated that the common law principle (that overpayments are irrecoverable where they are made under a mistake of law) has no effect where there is some provision of primary or subordinate legislation which authorises refund of the overpayment (Customs and Excise Commissioners v Fine Art Developments plc [1989] BTC 5036).
10. The Taxation Office now accepts that subsection 26(1) provides for a refund of overpaid tax whether it is overpaid by mistake of law or by mistake of fact.
Passing On of Tax
11. Subsection 26(1A) provides that no refund is payable unless the Commissioner is satisfied that the tax has not been passed on to another person, or, if passed on to another person, has been refunded to that other person.
12. The expression "passed on" in subsection 26(1A) is not defined in the sales tax law, and so, bears its ordinary meaning. As presently relevant, the words "pass on" ordinarily mean "to send or hand (anything) on to the next member of a series" (The Shorter Oxford English Dictionary, 3rd ed., vol. 2, p. 1522) or "to move to another place" (The Macquarie Dictionary p. 1265).
13. In its context in subsection 26(1A), the words "passed on" in relation to tax are considered to encompass:
- (a)
- sales tax that is stated on an invoice by a taxpayer who has a right under subsection 70C(2) of Sales Tax Assessment Act (No. 1) to recover it from a purchaser; and
- (b)
- sales tax that is sought to be recovered by a vendor, as an element of the vendor's costs, in the price at which it sells to a purchaser.
14. The Taxation Office in the past has denied refunds under subsection 26(1) of sales tax overpaid (where the tax has been passed on to other persons) unless all persons to whom it was passed on have been recompensed for the tax so passed on. Tax on taxable goods is commonly passed on by a wholesaler to a retailer and is later included in the price for which the goods are sold by the retailer to a consumer. The result was that no refund was paid to the wholesaler of any tax overpaid by him until the Commissioner was satisfied that the amount of tax overpaid had been refunded to the retailer and, in turn, to the consumer.
15. It has been decided that this policy is no longer to be maintained. Subsection 26(1A) only requires the Commissioner to be satisfied that tax either not be passed on by a taxpayer to another person at all or, where it is passed on by a taxpayer to another person, that it be refunded to that particular person. In the situation outlined in the previous parargraph, the Taxation Office will now accept that, if the wholesaler refunds the amount of the tax overpaid to the retailer, the passing on requirements of section 26 are satisfied and that a refund may be paid to the wholesaler of the overpaid tax.
Statutory Time Limits Imposed on Refunds
16. Section 12C of the Sales Tax Procedure Act provides a limitation of three years on the making of refunds of sales tax overpaid. The effect of this section is that no refund of sales tax shall be made unless the overpayment is found by the Commissioner within three years of the date on which the overpayment was made (paragraph 12C(1)(a)) or unless the overpayment is found by the Commissioner on consideration of a claim in writing lodged with the Commissioner within three years from the date on which the overpayment was made (paragraph 12C(1)(b)). The date of the overpayment is the date on which the tax was paid to the Taxation Office.
Objection and Appeal Rights Against Refund Decisions
17. Since 1 July 1986 applicants for refunds of tax have a right to object against the Commissioner's decision on an application for refund.
18. Subsections 40(2) and 40(3) of Sales Tax Assessment Act (No. 1) provide:
"40(2) An applicant for a refund decision who is dissatisfied with a decision made on the application may, within 60 days after service on the applicant of notice of the decision, lodge with the Commissioner an objection in writing against the decision.
40(3) Subsection (2) does not apply in relation to a refund decision unless the application for the refund or payment to which the decision relates was lodged with the Commissioner within 60 days after the transaction, act or operation (not being the payment of tax) that is claimed to entitle the applicant to the refund or payment or within such further time as the Commissioner allows."
Income Tax Consequences on Receiving Sales Tax Refunds
19. The receipt of a sales tax refund has income tax consequences. Where the receipt constitutes income in the hands of the recipient it must be included in the recipient's assessable income for income tax purposes. Broadly speaking, a sales tax refund received by a manufacturer, wholesaler, retailer or final user as proceeds of a business or as a normal incident of carrying on a business would constitute income.
COMMISSIONER OF TAXATION
5 October 1989
References
ATO references:
NO 87/672-1
Date of effect:
Immediate
Date original memo issued:
7 June 1989
Related Rulings/Determinations:
ST 2394
ST 2419
Subject References:
REFUND POLICY
REFUNDS OF SALES TAX
Legislative References:
SALES TAX ASSESSMENT ACT (NO. 1); SUBSECTIONS 26(1) AND,
26(1A).
SALES TAX PROCEDURE ACT; SECTION 12C
Case References:
- National Pari - Mutuel Association Limited v The King
(1930) 47 TLR 110
-Werrin v The Commonwealth
(1938) 59 CLR 150