Tribunal hands down decision on “Multiflex” amendments allowing retention of refunds

In Sanctuary Australasia Pty Ltd and Commissioner of Taxation [2013] AATA 371 the Tribunal has handed down what I believe to be the first decision relating to s 8AAZLGA of the TAA, which allows the Commissioner to retain refunds (including GST) pending an investigation.

Section 8AAZLGA was introduced in 2012 after the decision of the Full Federal Court in Commissioner of Taxation v Multiflex Pty Ltd [2011] FCAFC 142, where the taxpayer successfully applied for an order of mandamus requiring the Commissioner to pay a negative net amount reported in the taxpayer’s BAS. My analysis of that decision can be found here.

The facts of the case can be shortly stated. The taxpayer lodged an amended BAS which showed a refund entitlement. The Commissioner retained the refund and the taxpayer had applied to the Tribunal for a review of the Commissioner’s decision to disallow the objection against the decision to retain. However, before the application had been made, the Commissioner  issued an assessment to the taxpayer amending its net amount to “NIL”.

The Tribunal found that the taxpayer was not entitled to make the application because, upon the assessment being made, the taxpayer was no longer “a person dissatisfied” with a decision of the Commissioner. This was because once the assessment issued, there was no amount which the Commissioner was required to refund and so no “net amount” that the Commissioner was retaining under s 8AAZLGA. The proper course of action for the taxpayer was to object to the assessment.

The conclusion that the assessment overrides any refund entitlement by virtue of lodging a BAS is consistent with the view of the Full Federal Court in Multiflex where the Court observed as follows (at [26]):

The answer which the legislation provides to the Commissioner’s disquiet as to being obliged to make a refund based on a claimed net amount in a business activity statement which he knows to be wrong is straightforward. In such circumstances, he is entitled at any time to make an assessment of that net amount: s 105-5 of Sch 1 to the TAA. The net amount so assessed by the Commissioner necessarily supersedes whatever amount the entity earlier worked out on its approved form, if indeed it lodged such a form…Subject to the outcome of any subsequent objection or later appeal or review proceeding, the entity’s net amount will be the amount as assessed by the Commissioner.

That the taxpayer must now go to the time and expense of lodging a further objection (this time to the assessment) illustrates one of the difficulties of s 8AAZLGA. Also, the decision shows that the prospects of the Tribunal actually hearing an application to review a decision to retain a refund under s 8AAZLGA may be low, given that by the time the matter actually gets to hearing, the Commissioner will likely have completed his investigations and determined whether to issue an assessment or release the refund.

One matter which does raise some concern is the apparent contention of the applicant that the Commissioner did not give the applicant a notice of retention of refund as required by s 8AAZLGA(3). That sub-section states that the Commissioner “must inform the entity that he or she has retained the amount under this section”. The taxpayer lodged its amended BAS on 29 August 2012 and the Commissioner made a decision on 4 September 2012 to retain the refund. On 10 September 2012 the Commissioner informed the taxpayer that he was conducting an audit of its BAS for the relevant period – however, it is unclear whether the Commissioner expressly informed the applicant that it was retaining the refund pursuant to s 8AAZLGA. If the matter had proceeded to hearing, the Tribunal may have had to decide the difficult question of whether the failure to comply with the notice requirement invalidated the retention of refund.

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