In March 2012 the ATO published over 70 private rulings dealing with GST issues.

The highlights of the published rulings discussed below involve the perennial issue of GST refunds and the Commissioner’s discretion in s 105-65.

GST refunds

Ruling No.1012063484502

This ruling raises a central issue with the Commissioner’s current view on the application of his discretion in s 105-65 of Schedule 1 to the TAA. In this ruling, the Commissioner accepted that the applicant (a corporate advisory entity) had overpaid GST in respect of services provided to a client, who was not registered nor required to be registered for GST.  The issue was that the applicant had not actually reimbursed the overpaid GST to the client, but rather had provided a written undertaking to do so, without delay, as soon as the refund was received.  The applicant had not reimbursed the client because it was felt that the ATO may not pay the refund (thus leaving the applicant out of pocket) and also, there was a risk that the client may subsequently register for GST, thus giving the ATO a further ground not to pay the refund.

The ATO’s ruling was that no refund would be paid, because the amount of the overpaid GST had not been reimbursed to the recipient.

One might think this was a harsh result. Given the uncertainty around the Commissioner paying refunds of overpaid GST, it is not be surprising that taxpayers may seek to defer the actual reimbursement of customers the overpaid GST until some sort of comfort is provided by the ATO (e.g., a positive private ruling).

It also raises the interesting question of whether the word “reimbursement” in s 105-65 requires the actual payment of money, or simply the entry into a legal and binding obligation to do so.

Ruling No.102071100659

This is another private ruling relating to GST refunds and this ruling arguably provides a better mechanism for the Commissioner to deal with the question of whether an applicant must first reimburse the recipient for the overpaid GST.  In this case, GST was paid and recovered from the recipient, but the recipient’s claim for input tax credits was subsequently disallowed and the BAS was amended. The applicant informed the ATO that it would refund the GST to the recipient.

The private ruling deals with the reimbursement issue in the following manner:

As the other party (a registered recipient) is unable to claim the relevant ITC, the Commissioner would pay a refund to you provided that you first reimbursed the other party.  The mechanism of how to reimburse the other party (cash remittance, book entries etc) can be arranged between you and the other party as long as the reimbursement is to be completed prior to the refund claim as required under paragraph 105-65(1)(c) and paragraph 115 of MT 2010/1.

One would think that a similar paragraph could have dealt with the issue in the first ruling considered above, rather than the ruling being simply denied.

Ruling No.1012077683062

This private ruling is of interest because it provides an example of where the ATO accepts that the refund should be paid, even though there has been no reimbursement of the overpaid GST to the recipient.

Over 5 years, the applicant’s software treated supplies of its product as taxable supplies, which resulted in transactions being documented as taxable supplies even though no GST was included in the price.  The mistakes were not detected but were having an adverse effect on the profitability of the business.

The ruling states that the Commissioner will pay the refunds, even though the taxpayer had not reimbursed the overpaid GST to the recipients. The basis of the decision was that it was fair and reasonable to refund the overpaid GST, because the overpayment was due to a mistake  in the accounting software. In my experience, this is one of the few circumstances where the Commissioner has accepted that the taxpayer has not (at least indirectly) passed on the cost of the overpaid GST.

LIST OF RULINGS

Taxable supplies

• GST payable on a Prize – whether GST payable in relation to a monetary prize received through winning an art competition – whether supply made by participating in event – whether sufficient nexus between supply of participation in event and prize
• GST and financial assistance payments – whether financial contribution by Club to Council towards a project which will be used by the Club subject to GST – effect of absence of contractual obligation to make contribution
• GST and international services – whether applicant required to register for GST and whether supplies by IT consultant to overseas company taxable
• GST and agency relationships – whether applicant liable to remit GST on payments received from purchasers for items sold as agent
• GST and compensation payment – whether amount received as compensation received from state government for damages in relation to enterprise activities subject to GST
• GST and out of court settlements – whether payments made under a deed of settlement for building litigation consideration for a taxable supply
• GST and supplies – whether GST payable on receipt of money by a Government entity pursuant to legislation after 30 June 2012 -whether government entity makes a supply
• GST and services of Receivers – whether GST payable on payments to be received in discharge of Receivers’ indemnity – whether assignment by Receivers of their interest in Receivers’ indemnity a input taxed supply
• GST: damages – whether making a taxable supply when restoring something to previous condition
• GST and fee rebates – whether management fee rebate payment by A to investor consideration for a separate supply by Investor
• GST and migration services – whether GST is payable on supply of migration services to non-resident where agreement entered into outside Australia – whether GST payable on supply of migration services to Australian based entity where the agreement entered into in Australia
• GST and out of court settlements – whether payments page under deed of settlement for proceedings issued for breach of contract and breach of duty of care taxable
• GST and out of court settlements – whether payments received under out of court settlement for flood damage against insurance broker who incorrectly advised that it was covered for flood damage taxable
• GST and Grants of Financial Assistance – whether the grant of financial assistance by the State Government in accordance with the Grant Deed is consideration for a taxable supply
• GST and supply of small scale technology certificates – whether GST should be charged on the supply made when aggregators pay solar retailers for small scale technology certificates that have been assigned by home owners to aggregators
• GST and the classification of water meter reading services – whether making a taxable supply when you provide services to Owners Corporation to read the individual water meter of each unit in a strata complex

GST-free supplies

• GST and the supply of services and accommodation – whether the supply of services and accommodation to Qualifying Residents of a retirement village GST-free under s 38-25 of the GST Act
• GST and pureed food – whether the supply of frozen pureed food, that would normally attract GST, is GST-free on the basis that it supplied to people who have trouble swallowing – whether pureed food retains character as a prepared meal
• GST classification of a food item – whether supply of product for human consumption GST free or taxable
• GST and supply of legal services – whether supply of legal services to individual in relation to a personal injuries claim who is not a citizen of Australia who was in and out of Australia at the time the services were provided – apportionment
• GST treatment of supplies of waterproof mattress protectors – whether importation and sale of waterproof mattress protectors GST-free under s 38-45 as a medical aid and appliance
• GST and food – whether the supply of food produce and associated packaging GST-free or taxable
• GST and the supply and installation of hoists – whether the supply and installation of hoists for disabled people GST free under s 38-45(1) of the GST Act
• GST and food products – whether supply of deep fried then frozen product taxable or GST-free
• GST and food – whether supply of uncooked and frozen product GST-free or taxable
• GST and food – whether sale of product is GST-free or taxable as the supply of confectionary
• GST and precious metal – whether supply of precious metal, after refinement, the first supply of precious metal within paragraph 38-385(a) of the GST Act
• GST and education – whether the supply of short courses a GST-free supply
• GST and supply of services to a non-resident – whether supplies of computer software services to non-resident GST-free or a taxable supply
• GST and food – whether supply of half-cooked product (requiring finishing by microwave or oven cooking) GST-free or taxable
• GST and supplies of takeaway salads – whether the sale of takeaway coleslaw, potato salad and seafood salad GST-free
• GST and supply made to recipient not in Australia – whether supply of auction service to a buyer out of Australia GST free
• GST and food snack – whether product marketed as health/nutrition food snack GST-free
• GST classification of needles and syringes – whether the supply of needles and syringes to pharmacies and health professionals GST-free under s 38-45(1) of the GST Act

Creditable acquisitions

• GST and brokerage services to a non-resident individual – whether non-resident Australian citizen entitled to claim an input tax credit in relation to the acquisition of brokerage services
• GST and entitlement to input tax credit – whether applicant entitled to input tax credit for purchase of motor vehicle used for business purpose
• GST and supply of going concern – whether entity entitled to claim input tax credits in respect of acquisition of a supply of a going concern
• GST and creditable purpose – whether A entitled to a full input tax credit for acquisition of services from C where A proposes to acquire shares in B from non-resident Scheme Participants – whether A entitled to reduced input tax credits to the extent that A proposes to acquire shares in B from a resident Scheme Participant
• GST and purchase of excavator – whether entitled to an input tax credit on purchase of excavator for use in constructing trench on residential property also used for commercial purposes – apportionment
• GST and acquisition of a going concern – whether entitled to an input tax credit for the acquisition of commercial units
• GST and entitlement to input tax credits – whether entitled to claim input tax credits for payments made to operators under a subsidy scheme

Other issues

• GST and agreement – whether applicant (an authorised representative of a group of peoples living in Australia holding land under a native title claim) “representing an entity” for the purposes of s 184-1 of the GST Act, whether there is an entity required to be registered for the purposes of s 23-5 of the GST Act – no
• GST and Simplified Accounting Method – Whether applicant eligible to apply the business norms accounting method to calculate GST in take-away store
• GST and recipient created tax invoices – whether you can issue a recipient created tax invoice under the Standard Services Agreement provided to ATO
• GST and recipient created tax invoice – whether the Commissioner will make a determination to permit a seller to issue RCTI to suppliers from whom they receive acquisitions
• GST and annual administration fee – whether annual administration fee subject to GST during Division 81 transitional provision period 1 July 2011 to 30 June 2012