ATO issues decision impact statement for International All Sports decision – another nail in the coffin of s 105-65?

On 30 September 2011 the ATO issues a Decision Impact Statement for the decision of Jessup J in International All Sports v Commissioner of Taxation [2011] FCA 824.

While the decision relates to gambling supplies and Division 126 of the GST Act, the real impact of the Decision Impact Statement is the apparent concession that the application of the Commissioner’s “discretion” to refund refunds in s 105-65 of Schedule 1 of the Taxation Administration Act 1999 is limited to cases where a supply or arrangement was wrongly treated as a taxable supply.  In the All Sports case, and in a number of cases involving the margin scheme, the Commissioner was arguing that the discretion extended to where a taxpayer treated a supply as taxable, but nevertheless paid too much tax (eg, because of using an incorrect valuation methodology under the margin scheme).

The basis for the Commissioner’s view was set out in MT 2010/1.  In essence, the Commissioner argued that the words “treated as a taxable supply…to any extent” in s 105-65(1)(a) were broad enough to capture circumstances where a taxpayer correctly treated a supply as taxable, but paid too much GST on that taxable supply.  The Commissioner now accepts that MT 2010/1 must be amended.  I would contend that that the majority of that ruling should be amended.

I have always regarded the view of the Commissioner as “ambitious”, to say the least.  Further, the view appears to be founded upon the belief that the Commissioner’s discretion to refuse to pay refunds under s 105-65 is to be given a broad scope of operation.  The decision of Jessup J in AllSports is arguably another nail in the coffin of that view.  As noted by Emmett J in KAP Motors Pty Ltd v Commissioner of Taxation [2008] FCA 159 (at [33]): “Section 105-65 should not be given an expansive construction.  While its object may be commendable, in seeking to avoid windfall gains for taxpayers, it is, in a sense, a paternalistic interference with the rights of taxpayers.  It proceeds on the basis that GST that should not have been paid has been paid by a taxpayer.  It operates to ensure that the Commissioner receives a windfall rather than a taxpayer.”

These sentiments were approved of by the Tribunal in Luxottica Retail Australia Pty Limited and Commissioner of Taxation [2010] AATA 22 (at [59), a case where the Tribunal found it appropriate that the refund be paid.  While the Commissioner did appeal that case ([2011] FCAFC 20), it is unfortunate that he did not feel the need to appeal the issue relating to s 105-65, notwithstanding his statement in the Decision Impact Statement for the Tribunal decision that it “respectfully disagreed” with the reasoning of the Tribunal.

The checkered history of s 105-65 continues.  So far it is taxpayer 3, Commissioner nil.

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