In March 2012 the ATO published over 70 private rulings dealing with GST issues. The full listing of the private rulings can be accessed here.
The highlights of the published rulings discussed below involve the perennial issue of GST refunds and the Commissioner’s discretion in s 105-65.
This ruling raises a central issue with the Commissioner’s current view on the application of his discretion in s 105-65 of Schedule 1 to the TAA. In this ruling, the Commissioner accepted that the applicant (a corporate advisory entity) had overpaid GST in respect of services provided to a client, who was not registered nor required to be registered for GST. The issue was that the applicant had not actually reimbursed the overpaid GST to the client, but rather had provided a written undertaking to do so, without delay, as soon as the refund was received. The applicant had not reimbursed the client because it was felt that the ATO may not pay the refund (thus leaving the applicant out of pocket) and also, there was a risk that the client may subsequently register for GST, thus giving the ATO a further ground not to pay the refund.
The ATO’s ruling was that no refund would be paid, because the amount of the overpaid GST had not been reimbursed to the recipient.
One might think this was a harsh result. Given the uncertainty around the Commissioner paying refunds of overpaid GST, it is not be surprising that taxpayers may seek to defer the actual reimbursement of customers the overpaid GST until some sort of comfort is provided by the ATO (e.g., a positive private ruling).
It also raises the interesting question of whether the word “reimbursement” in s 105-65 requires the actual payment of money, or simply the entry into a legal and binding obligation to do so.
This is another private ruling relating to GST refunds and this ruling arguably provides a better mechanism for the Commissioner to deal with the question of whether an applicant must first reimburse the recipient for the overpaid GST. In this case, GST was paid and recovered from the recipient, but the recipient’s claim for input tax credits was subsequently disallowed and the BAS was amended. The applicant informed the ATO that it would refund the GST to the recipient.
The private ruling deals with the reimbursement issue in the following manner:
As the other party (a registered recipient) is unable to claim the relevant ITC, the Commissioner would pay a refund to you provided that you first reimbursed the other party. The mechanism of how to reimburse the other party (cash remittance, book entries etc) can be arranged between you and the other party as long as the reimbursement is to be completed prior to the refund claim as required under paragraph 105-65(1)(c) and paragraph 115 of MT 2010/1.
One would think that a similar paragraph could have dealt with the issue in the first ruling considered above, rather than the ruling being simply denied.
This private ruling is of interest because it provides an example of where the ATO accepts that the refund should be paid, even though there has been no reimbursement of the overpaid GST to the recipient.
Over 5 years, the applicant’s software treated supplies of its product as taxable supplies, which resulted in transactions being documented as taxable supplies even though no GST was included in the price. The mistakes were not detected but were having an adverse effect on the profitability of the business.
The ruling states that the Commissioner will pay the refunds, even though the taxpayer had not reimbursed the overpaid GST to the recipients. The basis of the decision was that it was fair and reasonable to refund the overpaid GST, because the overpayment was due to a mistake in the accounting software. In my experience, this is one of the few circumstances where the Commissioner has accepted that the taxpayer has not (at least indirectly) passed on the cost of the overpaid GST.