This is yet another decision of the Tribunal dealing with the interaction between the GST Act and the recovery provisions in Schedule 1 to the TAA. Interestingly, the decision appeared to result in a partial win to both parties although it is likely that the taxpayer will be ultimately required to pay back the refund under the mistaken payment provisions in s 8AAZN of the TAA.
The decision illustrates the application of the 4 year limitation on claiming refunds by taxpayers, and also the implications for the Commissioner where he pays out on a refund claim made beyond that four year period. In such circumstances, it appears that the Commissioner cannot recover that refund by the issue of an assessment, but may be able to do so under the “mistaken payment” provisions in s 8AAZN of the TAA.
The Facts and the issues before the Tribunal
The facts were not in dispute, and were stated by the Tribunal as follows (at -):
- On 28 July 2008, the applicant lodged a GST return in the form of a Business Activity Statement (BAS) for the quarterly tax period from 1 April 2008 to 30 June 2008 (the June 2008 quarter), reporting GST on sales of $32,098 in respect of its supply of services to a non-resident company
- After more than four years, on 24 August 2012, the applicant sought and obtained a binding private ruling that the supply of those services is GST-free. On 28 October 2012, the applicant lodged a revised BAS for the June 2008 quarter, reporting nil GST on sales.
- On 2 November 2012, the amount of $32,098 was refunded into the applicant’s bank account by the Commissioner.
- On 7 November 2012, the Commissioner wrote to the applicant, notifying it that it was not entitled to the refund. On 13 November 2012, the Commissioner issued an amending assessment for the June 2008 quarter, in which the $32,098 refund was included as an integer in the calculation of the ‘net amount’ for the period, being recorded as GST on sales – the net amount in respect of GST was amended from $328Cr to $31,770Dr
- The applicant objected to this assessment and an objection decision was subsequently made, prompting the applicant to apply for review.
The Tribunal considered the following central issues:
- Was the applicant entitled to a refund of GST paid in respect of the 2008 quarter?
- Was the Commissioner’s assessment of 13 November 2012 excessive?
- Was the payment of the refund by the Commissioner an administrative overpayment?
Was the applicant entitled to a refund of GST?
The Commissioner argued that the four year limitation period in s 105-55 of Schedule 1 to the TAA operates with a preclusionary and substantive effect – accordingly, the applicant was not entitled to the refund. Further, the Commissioner’s assessment of 13 November 2012 reflected this and restored the applicant’s net amount for the June 2008 quarter to amount applied by the applicant in its initial BAS.
The applicant’s argument contained a number of limbs, each of which was rejected by the Tribunal.
- The Tribunal found that the applicant’s entitlement to a refund was subject to the amended terms of s 105-55 that commenced on 1 July 2008 – the entitlement to be treated under the provisions that applied before the amendment could only be preserved if a notification was lodged prior to 1 July 2008.
- The revised BAS lodged by the applicant on 28 October 2012 (being an assessment under the self assessment regime that commenced on 1 July 2012) did not stop or reset the clock in respect of the four year limitation under s 105-55.
- The argument that the GST paid by the applicant was never payable did not assist the applicant – when the applicant lodged its BAS for the June 2008 quarter on 28 July 2008 the four year entitlement on its entitlement to a refund extended to payments exceeding indirect tax liabilities – including payment of GST on supplies that are GST-free.
- The limitation period in s 105-55 has a substantive effect – curtailing the rights of a taxpayer to a refund or payment within four years of the end of the tax period. Unless one of the exceptions apply – there is no discretion to extend the period
The Tribunal found that the applicant’s entitlement to the refund of overpaid GST was curtailed by the operation of s 105-55 when the four year limit was reached. This also exhausted the Commissioner’s obligation to pay a refund under s 35-5 of the GST Act or s 8AAZLF of the TAA.
Was the Commissioner’s assessment of 13 November 2012 excessive?
As outlined above, the Commissioner issued the assessment on 13 November 2012 to correct the activity statement which was amended by the applicant on 28 October 2012. The Tribunal found that the assessment was excessive.
The first point made by the Commissioner was that, in making the assessment, the Commissioner could not properly ignore or step around the binding ruling issued on 19 October 2012 that the applicant’s supplies were GST-free – an assessment of the actual net amount under s 17-5 of the GST Act was required. The Tribunal referred to the decision in Re The Private Tutor and Commissioner of Taxation and noted that it is not permissible to adopt an entity’s assessment of GST at first instance when this is known to be wrong. It followed that the GST component of the applicant’s activity statement must be zero.
The Tribunal also considered that the Commissioner could not issue an amended assessment to restate the original position in the applicant’s BAS as lodged. This was because the Commissioner cannot issue an assessment that is contrary to known facts. The Tribunal observed as follows:
Even if the Company’s action lodging a revised BAS for the June 2008 quarter was out of time, the action gives rise to a deemed assessment that cannot be overcome by the Commissioner issuing an amending assessment to reinstate the net amount originally calculated by the Company on the basis of assumptions in the past that are not correct
Was the payment of the refund by the Commissioner an administrative overpayment?
The final issue addressed by the Tribunal was whether the refund amount might be included in the assessment as an administrative overpayment under s 8AAN of the TAA. While the issue was not directly before the Tribunal, it nevertheless considered the issue.
The applicant contended that there was no evidence that the refund was a “mistake”. The private ruling confirmed that GST was not payable and the correct GST assessment for the tax period was zero. The Tribunal observed that the flaw in the applicant’s argument was that it was not entitled to the payment and that the payment of the refund may well be a mistake within the meaning of ‘administrative overpayment’.
However, the Tribunal found that the refund paid to the applicant was not an “assessable tax liability” and therefore the refund amount could not be properly included in the applicant’s assessment issued on 13 November 2012. As noted by the Tribunal:
- An administrative overpayment under s 8AAZN does not necessarily form part of an ‘assessment’ for the purposes of the GST Act. There are two reasons for this. Firstly, the payment to the Company on 2 November 2013 is ancillary to or a consequence of a deemed assessment, but it does not form part of the process of assessment. If there is a mistake, it is not in the calculation of the assessment, which appears to be correct on the known facts, but in the payment of a refund to an entity without entitlement to receive it.
- Secondly, s 8AAZN of the TAA establishes an administrative overpayment as a debt to the Commonwealth, recoverable in a competent court for which the recipient of the payment is liable, and it provides for notice to be given before accrual of the general interest charge. It is a liability provision that does not expressly provide for the ‘assessment of the amount of the liability’, such that review rights under Part IVC would apply
The Tribunal found that the correct approach would be for the Commissioner to issue a notice under s 8AAZN(2) of the TAA, specifying a due date for payment of the refund.