Today the Commissioner published ATO ID 2013/56 ‘GST refund and reimbursement by a journal entry’ where the Commissioner takes the view that he will not be satisfied that an amount of overpaid GST has been reimbursed to a recipient when a supplier merely makes a journal entry in its accounts acknowledging a debt owed to the recipient.
The ATO ID addresses the operation of s 105-65 of Schedule 1 to the TAA, which he says gives him a discretion to refuse to pay refunds of overpaid GST, save in certain circumstances. However, the discretion will not apply where the entity has overpaid GST and “the Commissioner is satisfied that you have reimbursed a corresponding amount to the recipient”.
The Commissioner considers that the concept of “reimbursement” takes its ordinary meaning, and refers to the definitions in the Macquarie Dictionary of “to make repayment to for expense or loss incurred” or “to pay back; refund; repay”. The Commissioner considers that where a journal entry is made, he is not satisfied that the reimbursement has actually been made. However, if the recipient has a pre-existing liability owed to the entity, the Commissioner states that he would be satisfied that a reimbursement has occurred if a journal entry is made. While not expressly saying so, the Commissioner appears to accept that in such circumstances there would be a “set-off” of liabilities between the parties.
The concept of “reimbursement” is a difficult one. A mere journal entry may be at one end of the spectrum and the payment of cash at the other. The Commissioner appears to accept that a “set off” of liabilities will be sufficient. However, based on some private rulings issued by the Commissioner, his does not appear to accept that the following circumstances are sufficient:
- where the entity proposes to reimburse recipients by way of a face value voucher (FFV) redeemable through your website or a credit note which may be applied as a discount against future purchases – click here for the private ruling
- where the parties enter into an arrangement where the entity pays any refund into a trust account for the benefit of the recipient and those funds would be paid to the recipient (save for an administration fee charged by the entity) – click here for the private ruling
The Commissioner appears to require that the supplier actually reimburse the overpaid GST to the recipient before any refund can be claimed. This of course exposes the entity to the commercial difficulties of having to effectively fund the repayment of the GST to the recipient before getting any certainty that a refund will ultimately flow from the Commissioner. In contrast, if the Commissioner pays out GST refunds on the basis that the refunds will ultimately flow to the recipient, it appears that the Commissioner has some concerns about whether that will occur – these concerns are disclosed in the second private ruling referred to above. There is no easy answer.