Exposure Draft Legislation released to allow Commissioner to retain GST refunds

Yesterday the Treasury released Exposure Draft Legislation to allow the Commissioner to retain refunds pending verification.  The legislation follows an announcement by the Assistant Treasurer on the same day that the Government would amend the legislation.  Submissions are due by 21 February 2012.

The Exposure Draft Legislation can be accessed here.  The Explanatory Memorandum can be accessed here.

My analysis of the Draft Legislation can be accessed here.  The proposed legislation gives the Commissioner broad powers to retain refunds for at least 120 days before the taxpayer can take any action, which appears to be limited to lodging an objection against the decision of the Commissioner to retain the refund.

The amendments are to commence on the day that the Act receives Royal Assent. The legislation is not retrospective.

The amendments appear to be aimed at addressing the decision of the Full Federal Court in Commissioner of Taxation v Multiflex Pty Ltd [2011] FCAFC 142 (the Commissioner’s special leave application was refused) – my analysis of that decision can be accessed here.

The Explanatory Memorandum outlines the context of the amendments as follows:

1.2 The amendment is intended to address the outcome in Commissioner of Taxation v Multiflex Pty Ltd [2011] FCAFC 142 (Multiflex). The issue central to the Multiflex case was whether, under section 35-5 of the A New Tax System (Goods and Services Tax) Act 1999 and section 8AAZLF of the TAA 1953, the Commissioner had an implied reasonable time in which to refund a net amount, including such time as reasonably necessary to determine whether the amount was truly payable.

1.3 The Commissioner’s administrative practice with respect to GST amounts has been to retain certain refunds pending verification checks on the basis that the ability to do so was implied by those Acts.

1.4 The Full Federal Court found that the Commissioner is required to pay a GST refund within the time it takes to undertake the necessary administrative steps to process the taxpayer’s return and make the payment, and that the law provides no additional time for checking the validity of the claim, even if the Commissioner suspects it might be incorrect.

1.5 On 9 December 2011, the High Court of Australia dismissed the Commissioner’s application for special leave to appeal against the decision. As a result, in the absence of a legislative amendment, the Commissioner would be required to pay out GST refunds claimed by a taxpayer on their return once it had been processed, and then seek to recover the amounts if subsequent checks showed the amounts claimed to be excessive.


1.6 As there will be circumstances where the amount claimed in a return or other notification is incorrect, including due to carelessness, recklessness or fraud, it is a necessary integrity requirement that the Commissioner has the ability to delay refunding amounts in certain circumstances.

1.7 Consistent with the rest of Division 3 and Division 3A, the new provision will potentially apply to all payments and credits that exceed a primary tax debt allocated to the taxpayer’s running balance account (RBA).”

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