Commissioner publishes PSLA 2013/3 on the treatment of input tax credits and s 105-65 of Schedule 1 to the TAA

Today the Commissioner published PSLA 2013/3 (GA) ‘Treatment of input tax credits claimed by a recipient of a non taxable supply where the Commissioner has a discretion to give a refund of the overpaid GST to the supplier due to the operation of section 105-65 of Schedule 1 to the TAA’.

The purpose of the Practice Statement is stated to be as follows:

To explain the circumstances in which the Commissioner will use his powers of general administration to allow a recipient to retain an input tax credit that is claimed where a transaction was incorrectly treated by a supplier as giving rise to a taxable supply.

The PSLA was originally issued as Draft PSLA 3521 – Treatment of input tax credits claimed by a recipient where the Commissioner does not give a refund to the supplier due to the operation of s 105-65 of Schedule 1 to the TAA.

The Practice Statement provides that a recipient will generally not be required to repay over-claimed input tax credits or pay any general interest charge related to the over-claimed credits where the following circumstances apply:

  • a supply has incorrectly been treated as taxable to any extent;
  • the supplier is registered for GST and has overpaid GST;
  • the supplier has issued a tax invoice to the recipient;
  • the recipient has over-claimed an input tax credit and would have been entitled to claim that input tax credit if the supply had been a taxable supply;
  • the recipient has treated the acquisition as a creditable acquisition when applying other taxation laws such as the income tax law and the fringe benefits law;
  • should the supplier request a refund, section 105-65 would apply such that the Commissioner need not refund the supplier the overpaid GST; and
  • the Commissioner has not given a refund of the overpaid GST to the supplier.

This approach is referred to as the ‘preserving the status quo approach’.

The status quo approach will not apply in the following cases (and the Commissioner will generally seek to recover the over-claimed input tax credits):

  • where the Commissioner exercises his discretion under s 105-65 to pay a refund
  • where the supplier reimburses the recipient for the GST incorrectly included in the price for the supply

As I noted in my discussion on the draft PSLA, the Practice Statement is interesting because it effectively operates as an administrative override of the provisions of the GST Act and the TAA, which cause the recipient to have a “GST shortfall” in  circumstances where input tax credits have been incorrectly claimed. The recipient is also exposed to recovery and the imposition of penalties and interest. The Commissioner considers that applying his general powers of general administration, “it is appropriate for the Commissioner not to take any compliance action to reverse a transaction” in the particular circumstances.

However, it should be noted that to the extent that the Commissioner does not (or chooses not to) follow the Practice Statement, the law will otherwise apply.  In this regard I not that the Practice Statement states that a recipient will “generally” not be required to repay input tax credits.

Where there is truly a “status quo”, in the sense that GST was paid and credits were claimed, one can see the administrative ease of such an approach and there would be appear to be no reason why the Commissioner should not follow the statement.  However, the matter may not be so clear where credits are claimed but for some reason the Commissioner is out of pocket (e.g., the supplier pays the GST and then goes into liquidation and the Commissioner is required to disgorge the payments as a preference claim).  In such circumstances the practice statement would afford the recipient no protection if Commissioner sought to recover the over claimed credits from the recipient.

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