Assistant Treasurer releases new draft legislation on GST refunds for consultation – now Division 142?

Yesterday afternoon the Assistant Treasurer released new draft legislation dealing with refunds of overpaid GST for a second round of public consultation.  The previous draft legislation proposed to introduce Division 36 into the GST Act, whereas the current draft legislation proposes to introduce Division 142 into the GST Act. The amendments will apply to tax period commencing 17 August 2012.

The draft legislation can be accessed here and the Explanatory Memorandum here.

My initial analysis of the draft legislation can be found here.

The media release from Treasury acknowledged that the first round of consultation highlighted a number of concerns with the initial draft legislation, with the main issues being as follows:

  • the perceived inability to obtain a refund of overpaid GST would encourage taxpayers to shy away from adopting a conservative approach to their GST obligations;
  • a concern that rights to object to an assessment of GST would be removed as the relevant assessment would not be excessive as section 36-5 would deem the GST to have always been payable;
  • the restriction on refunds would override the operation of the adjustment provisions resulting in businesses not being able to get a refund in their dealings with other businesses;
  • the concept of passing-on was introduced without being adequately defined creating considerable uncertainty;
  • recipients that have excess GST passed on to them may not have an entitlement to an input tax credit on the excess GST as it may not be consideration for a taxable supply and therefore would not be a creditable acquisition for the purposes of Division 11; and
  • the Commissioner should be able to retain his discretion to pay refunds where appropriate e.g. where a taxpayer does not satisfy the requirements of Division 36 but there is no windfall gain to the taxpayer.

My analysis on the initial exposure draft of the legislation can be accessed here. Also, the submissions lodged by various professional bodies can be accessed here.

It appears that Treasury has listened and the new draft provisions try to address many of the concerns raised in the submissions. Nevertheless, this second raft of proposed amendments is likely to be controversial and one can expect significant comment from taxpayers and the profession as part of the consultancy program.  Comments are sought by 28 March 2013.

Summary of the new provisions

In summary:

  • S 105-65 of Schedule 1 is to be repealed
  • The restriction operates on two types of refunds, excess GST unrelated to adjustments (subdivision 142-A) and excess GST related to cancelled supplies (subdivision 142-B)
  • Subdivision 142-A only applies to restrict refunds of “extra GST” – the provisions do not cover input tax credits, GST correctly attributable to a different period or deceasing adjustments attrtibutable to a later tax period (save for the operation of subdivision 142-B)
  • Subdivision 142-B applies to decreasing adjustments attributable to a later tax period as the result of the cancellation of the supply.
  • The Explanatory Memorandum states that the provisions are to ensure that overpaid GST is only refundable in certain circumstances and that the provisions apply irrespective of whether the overpayment arises as a result of a mischaracteriation or miscalculation of the GST payable. Further, the taxpayer is allow to self-assess their entitlement to a refund and the Commissioner will have a discretion to refund excess GST in exceptional circumstances where it would be appropriate.

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