Today the Commissioner published a Decision Impact Statement for the decision of the Tribunal in Naidoo and Commissioner of Taxation  AATA 443 where the Tribunal:
- rejected the Commissioner’s contention that the applicant was still obliged to pay GST in the relevant period by relying on s 105-65 of Schedule 1 to the TAA and the issue of a GST assessment for a positive net amount – even though the applicant was not carrying on an enterprise;
- found that it had no jurisdiction to hear an application to review a decision of the Commissioner with respect to s 105-65
My post discussing the decision can be accessed here.
The Decision Impact Statement confirms that the Commissioner accepts the decision of the Tribunal, and also that:
- s 105-65 does not apply to extent that an additional amount of GST is included in a net amount, but the net amount itself is not overpaid (eg, where the additional GST is offset by overclaimed input tax credits); and
- the Tribunal has no jurisdiction to consider an application with respect of the Commissioner’s refusal to exercise his discretion under s 105-65 to refund overpaid GST.
The effect of the finding on jurisdiction is that taxpayers who are not happy with the Commissioner’s refusal to exercise the discretion in s 105-65 are not able to utilise the review procedures in Part IVC of the Taxation Administration Act (including objection rights), and taxpayers will be forced to initiate judicial review proceedings, for example in the Federal Court under s 39B of the Judiciary Act. The absence of review rights (in particular, the absence of any right to object) severely constrains the ability of taxpayers to dispute a decision of the Commissioner to refuse to refund overpaid GST and will force taxpayers into costly and time-consuming administrative law proceedings in the Federal Court.
The Decision Impact Statement outlines the Commissioner’s proposed administrative treatment going forward.
The first point to note is that where taxpayers have paid money to the Commissioner as a result of the application of s 105-65 in similar circumstances to the Naidoo case (ie, where the Commissioner found that the taxpayer was not carrying on an enterprise), refunds may be available.
The second is that the position re review rights is addressed as follows:
- where the Commissioner makes a decision refusing to exercise the discretion, he will advise the taxpayer that they have a right to seek judicial review of the decision – although the Commissioner states that, on request, he will conduct an informal review of decisions involving the exercise of the discretion
- where a taxpayer self assesses a refund on the presumption that the Commissioner will exercise the discretion in their favour, the Commissioner may recover any refund paid as an “administrative overpayment” under s 8AAZN of the TAA
The third point outlines how the Commissioner will administratively deal with the impact of the finding in Naidoo that s 105-65 does not impact on the “net amount” of the taxpayer. The approach is as follows (emphasis added):
Where a taxpayer is found to have overpaid GST in circumstances where section 105-65 applies, the taxpayer’s assessment of net amount for the relevant tax period will be amended to reflect the correct net amount for the tax period. However, unless the Commissioner exercises his discretion to pay a refund under section 105-65, an adjustment will be made to the taxpayer’s account to reflect the amount that is not being refunded because of the operation of section 105-65.
It appears that the Commissioner accepts that where the taxpayer’s assessment of net amount includes GST that was not payable, that net amount must be reduced accordingly. In the absence of s 105-65, that would trigger an obligation on the Commissioner to refund that excess net amount (under s 8AAZLF of the TAA to the extent that the taxpayer was in a positive tax position, and under s 35-5 of the GST Act to the extent that the taxpayer was in a negative tax position). This will be addressed by the taxpayer’s Running Balance Account being adjusted to cancel out the excess.