Commissioner issues draft Determination on the operation of the 4 year limitation period to claim an input tax credit or fuel tax credit

On Friday the Commissioner issued Draft Miscellaneous Taxation Ruling MT 2018/D1 ‘Miscellaneous tax: time limits for claiming and input tax or fuel tax credit’. This is an important (and somewhat controversial) publication as it seeks to clarify the operation of the 4 year limitation period on claiming input tax credits in s 93-5 of the GST Act and on claiming fuel tax credits in s 47-5 of the Fuel Tax Act. Essentially, the Commissioner adopts a literal approach to the words of these sections, with the effect that if you do not claim input tax credits or fuel tax credits in your activity statement within 4 years – that entitlement expires – period. It does not matter if you have requested the Commissioner to amend your assessment, applied for a private ruling or objected to an assessment – if you have not actually claimed the credit, your entitlement to those credits expires.

Under this approach, taxpayers who discover that they may have an entitlement to recover input tax credits face the choice of claiming those credits in their activity statement (and becoming exposed to penalties and interest if the claim is incorrect) and engaging with the Commissioner to recover those credits through requesting an amendment to an assessment, applying for a private ruling or objecting to an assessment. If the second path is chosen, taxpayers must hope that this process will be completed within the 4 year period. If not – even if the delay is the fault of the Commissioner – or the delay is as the result of various appeal processes through the Courts (which turn out to be successful for the taxpayer) –  the taxpayer’s entitlement to input tax credits will be extinguished.

Comments are invited on the ruling by 25 January 2019.

In anticipation of the publication of this draft determination, at the Taxation Institute of Australia’s GST Intensive in September of this year I presented a paper which included a discussion of the operation of s 93-5 of the GST Act, as part of a general discussion about refunds and limitation periods in the context of GST. That paper can be accessed here. The discussion about s 93-5 is contained in the second part of the paper. The first part of the paper deals with s 8AAZLGA of the TAA and the Commissioner’s entitlement to withhold refunds pending verification.

Set out below is a summary of the draft determination, with some comments which are taken from my paper. For a more detailed analysis of the issues that may arise, including constitutional implications of the Commissioner’s draft position, please refer to my paper.

The legislation

Section 93-5 of the GST Act states as follows:

You cease to be entitled to an input tax credit for a creditable acquisition to the extent that the input tax credit has not been taken into account, in an assessment of a net amount of yours, during the period of 4 years after the day on which you were required to give to the Commissioner a GST return for the tax period to which the input tax credit would be attributable under subsection 29-10(1) or (2).

Section 47-5(1) of the Fuel Tax Act states as follows:

You cease to be entitled to a fuel tax credit to the extent that it has not been taken into account, in an assessment of a net fuel amount of yours, during the period of 4 years after the day on which you were required to give to the Commissioner a return for the tax period or fuel tax return period to which the fuel tax credit would be attributable under subsection 65-5(1), (2) or (3).

Meaning of “taken into account”

The Commissioner takes the view that the words “taken into account in an assessment” mean that the entity must include the claim for input tax credits or fuel tax credits in the calculation of the net amount or fuel tax amount. If you do not do so, after the expiration of 4 years the entitlement to that input tax credit or fuel tax credit is extinguished.

In this context, the Commissioner considers that you do not “take into account” unclaimed input tax credits by:

  • lodging an objection to an assessment;
  • requesting an amendment to an assessment; or
  • applying for a private ruling in respect to the entitlement o an input tax credit.

One question is whether an alternative construction of the expression is available, having regard is had to the broader context of the provisions. Once the GST or fuel tax credit return is lodged, it becomes a deemed assessment of the reported net amount or fuel tax amount. The taxpayer does not have the power to change that assessment to take account of additional input tax credits. Only the Commissioner has that power, whether as the result of an application to amend the assessment or an objection to the assessment. In this context, there does appear to be an argument that by engaging its statutory rights under the TAA to recover the unclaimed input tax credits for a particular tax period, it “taken into account” those input tax credits in the relevant assessment. If so, once the taxpayer has engaged those statutory rights, the time period in s 93-5 ceases to apply.

Support for this alternate construction may be found in the Commissioner’s approach to the operation of s 29-10 of the GST Act where an entity identifies unclaimed input tax credits. The entity can elect to claim those credits in its current Activity Statement (pursuant to s 29-10(4) of the GST Act) or to apply to the Commissioner to amend the assessment for the tax period in which the credits were to be attributed (pursuant to s 29-10(1) or (2)) or to object to the assessment for that tax period. This was the view of the Commissioner in ATO ID 2011/76 which related to the pre-self assessment regime in place before 1 July 2012 and I understand that the Commissioner remains of this view under the self-assessment regime. This is reflected in examples 2 and 3 in the draft Determination where the entity lodged an objection to an assessment in respect of unclaimed input tax credits. If it is open to a taxpayer to recover unclaimed input tax credits by requesting the Commissioner to amend the assessment in which those credits were attributable or to object to that assessment – and there is some doubt as to whether this path is open – it does appear arguable that in doing so the taxpayer has “taken into account” those input tax credits in the assessment. There is nothing else the taxpayer can do in the context of that assessment.

The effect of the Commissioner’s position

The effect of the position taken by the Commissioner in the draft Determination is that unless the entity claims input tax credits or fuel tax credits in an activity statement, upon the expiry of 4 years the entity’s entitlement to the credits expires. This is the outcome irrespective of the following matters:

  • the entity requested the Commissioner to amend the assessment before the 4 year period expires and the Commissioner has not processed the request by the end of the 4 year period;
  • the entity applied for a private ruling before the 4 year period expires and the Commissioner has not made a decision on the private ruling by the end of the 4 year period;
  • the entity objected to the assessment before 4 year period expires and the Commissioner has not made a decision on the objection by the end of the 4 year period;
  • the Commissioner made a decision on the private ruling or the objection before the 4 year period expires, the entity issued review proceedings under Part IVC of the TAA but the 4 year period expires before those proceedings were completed – including if the proceedings are currently before a Court or a Tribunal (and the taxpayer is ultimately successful in those proceedings).

The only way an entity can protect its entitlement to an unclaimed input tax credits or fuel tax credits is by actually claiming those credits in an activity statement and being exposed to penalties and interest if the claim is incorrect. This is a fundamentally different position to the pre-self assessment regime in place prior to 1 July 2012, where an entity could lodge a “stop the clock” notification under s 105-55 of Schedule 1 to the TAA to protect its entitlement on claim input tax credits without being exposed to penalties and interest.

The draft determination contains a number of examples which illustrate the effect of the Commissioner’s draft position.

Does “may” mean “must”?

There is a tension between s 93-5 of the GST Act and s 47-5 of the Fuel Tax Act and the provisions dealing with the amendment of assessments in Subdivision 155-B of Schedule 1 to the TAA and the operation of the review procedure in Part IVC of the TAA. The view of the Commissioner is that s 93-5 and s 47-5 override any rights that may accrue to a taxpayer under the TAA. This may well be the most controversial aspect of the draft determination – in particular if a taxpayer has validly engaged its review rights under Part IVC of the TAA and the 4 year period expires.

Subdivision 155-B of Schedule 1 to the TAA was introduced as part of the self-assessment regime for GST and Fuel Tax and provides for the amendment of assessments in a number of circumstances:

  • Section 155-35 provides that the Commissioner may amend an assessment within the “period of review”, being 4 years unless the period is extended under subsection (3) or (4). An extension may occur where the Commissioner has started to examine the affairs of the taxpayer in relation to the assessment, that examination has not completed and either the Federal Court orders an extension (subsection (3)) or the taxpayer consents to an extension (subsection (4)).
  • Section 155-45 provides that the Commissioner may amend an assessment at any time, if the taxpayer applies for the amendment during the period of review for the assessment.
  • Section 155-50 provides that the Commissioner may amend an assessment at any time to give effect to a private ruling if the taxpayer applies for a private ruling during the period of review and the Commissioner makes the private ruling.
  • Section 155-60 provides that, despite anything in the Subdivision, the Commissioner may amend an assessment at any time:
    • to give effect to a decision on a review or appeal; or
    • as a result of an objection made by you, or pending a review or appeal.

In the draft determination, the Commissioner takes the view that s 93-5 of the GST Act and s 47-5 of the Fuel Tax Act overrides these provisions and at [59] states as follows:

The Commissioner is bound to apply the law and can only assess a taxpayer in accordance with the law. The Commissioner cannot amend a taxpayer’s assessment to include a tax credit if and because of the limiting provisions, the taxpayer no longer has any legal entitlement to the credit. This is the case regardless of whether the Commissioner may still be able to make other amendments to the assessment as the period of review has not expired.

The difficulty I have with this approach with respect to the paths available to a taxpayer under section 155-45 (application for amendment) and section 155-50 (application for private ruling), is that the words of these provisions arguably support the view that the rights that accrue to the taxpayer are intended to survive the limitation period in s 93-5 of the GST Act and s 47-5 of the Fuel Tax Act. Provided the respective application is lodged before the end of the period of review, the Commissioner “may” amend an assessment “at any time”. It appears to be implicit in these words that the amendment may take place after the end of the review period – which would be after the expiry of the four year period. In the context of these provisions, there would appear to be an argument that “may” is to be construed as “must”. This was the approach of the High Court in Commissioner of State Revenue (Vic) v Royal Insurance Australia Ltd (1994) 182 CLR 51 in the context of the obligation on the Commissioner to refund overpaid stamp duty under the Stamps Act 1958 (Vic).

I have a greater difficulty with the Commissioner’s approach where the taxpayer has validly engaged the review procedure in Part IVC of the TAA. That review procedure can be described as follows:

  • The Commissioner must decide whether to allow the objection, wholly or in part, or to disallow the objection: s 14ZY.
  • If the taxpayer is dissatisfied with the Commissioner’s objection decision the taxpayer may apply to the Tribunal for review of the decision or to appeal to the Federal Court against the decision: s 14ZZ.
  • If the taxpayer applies to the Tribunal for review, when the decision of the Tribunal becomes final “the Commissioner must, within 60 days, take such action, including amending any assessment or determination concerned, as is necessary to give effect to the decision”: s 14ZZL.
  • If the taxpayer appeals to the Federal Court, when the order of the Court becomes final “the Commissioner must, within 60 days, take such action, including amending any assessment or determination concerned, as is necessary to give effect to the decision”: s 14ZZQ.

As can be seen by the consistent use of the word “must”, the provisions use mandatory language. Once a taxpayer has lodged a valid objection and Part IVC of the TAA is engaged, rights accrue to the taxpayer and obligations are imposed on the Commissioner. Where the ground of objection is that the taxpayer is entitled to input tax credits that have not been claimed and the objection is allowed, the Commissioner will be obliged to amend the assessment and pay the input tax credits to the taxpayer. Similarly, if, on a review or appeal of the objection decision, the Tribunal or the Federal Court determines that the assessment of the taxpayer is excessive because it was entitled to the input tax credits, the Commissioner “must” take action to give effect to that decision – in this case amending the taxpayer’s assessment to allow the taxpayer to recover the input tax credits. These matters arguably support the conclusion that Part IVC of the TAA provides taxpayers with an independent and important review procedure that operates outside the provisions of the GST Act.

My paper referred to an example based upon the Full Federal Court in Rio Tinto Services Ltd v Commissioner of Taxation [2015] FCAFC 117; (2015) 235 FCR 159. That case arose under the pre-self-assessment regime and Rio Tinto issued proceedings in the Federal Court seeking declarations that it was entitled to input tax credits for the October 2010 tax period and that it was entitled to amend its GST return for that tax period. Assume that in December 2017 another mining company decided to re-agitate the issue with the aim of ultimately bringing the matter before the High Court and arguing that the decision of the Full Federal Court in Rio Tinto was incorrect. The company wishes to protect its entitlement to input tax credits while the matter proceeds but is not prepared to claim input tax credits for the last four years in its December 2017 activity statement and be exposed to penalties and interest if the claim is ultimately unsuccessful. Rather, it decided to lodge an objection to the assessments for the monthly tax periods from December 2013 pursuant to s 155-90 of Schedule 1 to the TAA.

Assume then that the Commissioner’s objection decision disallowing the objection is appealed to the Federal Court and then to the Full Federal Court – both find in favour of the Commissioner. In December 2020, five years after the objection was lodged, the High Court (after granting special leave) finds that the decision of the Full Federal Court in Rio Tinto was incorrect and that the objection decision was to be set aside on the basis that the company was entitled to the input tax credits. Section 14ZZQ of the TAA would then be engaged and the Commissioner would be required to “take such action, including amending any assessment or determination concerned, as is necessary to give effect to the decision”. However, in the five year period during with the matter proceeded through the courts, all of the tax periods in the objection fell outside the 4 year period in s 93-5 of the GST Act. On the basis of the Commissioner’s approach, s 93-5 would override the Commissioner’s obligations under s 14ZZQ of the TAA and the company will be deprived of the fruits of successfully engaging its review rights under Part IVC of the TAA.

My paper discusses the potential constitutional difficulties with such an outcome.

Conclusion

As noted in my paper, this is a difficult issue and there is a clear tension between s 93-5 of the GST Act and s 47-5 of the Fuel Tax Act and the provisions dealing with the amendment of assessments in Subdivision 155-B of Schedule 1 to the TAA and the review procedures in Part IVC of the TAA. While there is support for the Commissioner’s view in the words of the provisions, it may be questioned wither Parliament intended that those provisions were to deprive taxpayers of their rights to seek judicial process to challenge assessments nugatory.

 

Commissioner issues final GST ruling on GST refunds and Division 142

The Commissioner has finalised his ruling on the operation of Division 142 of the GST Act . In GSTR 2015/1 ‘Goods and services tax: the meaning of the terms ‘passed on’ and ‘reimburse’ for the purposes of Division 142 of the A New Tax System (Goods and Services Tax) Act 1999 the Commissioner provides his detailed view on the terms “passed on” and “reimburse” which are fundamental to the operation of Division 142 of the GST Act and a taxpayer’s entitlement to a refund of overpaid GST

The ruling was issued in draft as GSTR 2014/D4 ‘Goods and services tax: the meaning of the terms ‘passed on’ and ‘reimburse’ for the purposes of Division 142 of the GST Act’. My analysis of the draft ruling can be accessed here. The Commissioner does not appear to have made any substantive changes to the draft ruling.

For further discussion of Division 142 and the question of when GST may be “passed on”, in December 2014 my article “Division 142 and refunds of GST – when is GST passed on?” was published in the Australian GST Journal.

Commissioner issues ATO ID 2014/36 on operation of time limit in s 105-50 of Schedule 1 to the TAA

The Commissioner has published ATO ID 2014/36 ‘GST and changes in net amount where an entity has notified the Commissioner of an entitlement to a refund’ where he takes the view that the four year time limit in s 105-50 of Schedule 1 to the TAA does not apply to prevent unpaid GST from being taken into account in determining an entity’s entitlement to a refund under s 105-55. The ATO ID replaces ATO ID 2008/94 which took a similar view.

The issue arises in the following factual scenario:

  • an entity lodges and pays a net amount on its activity statement for a tax period
  • within 4 years of the end of that tax period, the entity realises that it omitted to claim an input tax credit and lodges a notification under s 105-55 of Schedule 1 to the TAA, thus preserving its entitlement to “a refund in relation to a net amount” for that tax period
  • at the time of revising its activity statement to record the unclaimed credit, the entity realises that it omitted to include an amount of GST for that tax period – the Commissioner did not given the entity a notification under s 105-50(3)(a) requiring payment of an “unpaid net amount” within 4 years

The Commissioner’s view is that the 4 year time limit in s 105-50 does not apply in the above circumstances, to the extent that the unpaid GST is less than the input tax credit, and that the unpaid GST is to be set off against the input tax credit.

The basis for the Commissioner’s view is that s 105-50 applies to an “unpaid net amount” and not to individual amounts of GST. While not expressly stated in the ATO ID, it also appears that the Commissioner considers that in determining an entity’s entitlement to a refund “in relation to a net amount” for a particular tax period under s 105-55, any amount of unpaid GST is to be taken into account in determining the extent of that refund.

Interestingly, the approach does not appear to work the other way, so that where an entity receives a notification under 105-50 in respect of unpaid GST, it is not entitled to offset any unclaimed input tax credits against that unpaid GST. This is because the 4 year time limit in s 105-55 expressly refers to an input tax credit that is attributable to particular tax period.

Commissioner publishes draft ruling on “passing on” and final ruling on motor vehicle incentives

Over the last few days the Commissioner published two GST Rulings.

The first is draft GSTR 2014/D4 ‘Goods and services tax: the meaning of the terms ‘passed on’ and ‘reimburse’ for the purposes of Division 142 of the A New Tax System (Goods and Services Tax) Act 1999′. The draft ruling seeks to explain the Commissioner’s view on the meaning of the terms “passed on” and “reimburse” for the purposes of Division 142 of the GST Act, being terms which are fundamental to the operation of that Division and the entitlement of taxpayers to refunds of overpaid GST. My discussion of the ruling can be found here. My thoughts generally on the issue of “passing on” can be found in the following article published on this site in June of this year.

The second is GSTR 2014/1 ‘Goods and Services tax: motor vehicle incentive payments’ which explains the Commissioner’s view on the GST consequences of incentive payments made by motor vehicle manufacturers, importers and distributors to motor vehicle dealers and to provide practical guidance to the motor vehicle industry following the decision of the Full Federal Court in AP Group Limited v Federal Commissioner of Taxation [2013] FCAFC 105. The Commissioner acknowledges that as a result of the decision, the previous ATO view concerning the GST consequences of motor vehicle incentive payments can no longer be maintained.

New paper – “Division 142 and refunds of overpaid GST – when is GST passed on?”

I have prepared a paper looking at the concept of “passing on” in the context of Division 142, which was recently introduced into the GST Act.

Division 142 replaces s 105-65 of Schedule 1 to the TAA and effectively creates a deeming regime, whereby overpaid GST that has been “passed on” to another entity is taken to have always been payable until that other entity is reimbursed for the passed on GST. The Commissioner retains a discretion to pay refunds, but it is expected to have a narrow operation.

Determining whether GST has been “passed on” is therefore a critical matter as it provides the trigger for the operation of the new regime. If no part of overpaid GST has been passed on, taxpayers will be entitled to a refund as a matter of right. However, to the extent that the overpaid GST has been passed on, taxpayers must reimburse the other entity or undertake the difficult task of convincing the Commissioner to exercise his discretion.

The paper can be accessed here. It can also be accessed from the “My Articles” part of the site.

 

 

Legislation introducing Division 142 into the GST Act receives Royal Assent

On Friday 30 May 2014 the the Tax Laws Amendment (2014 Measures No.1) Bill 2014 received royal assent. The Act repeals the current regime dealing with refunds of GST found in s 105-65 of Schedule 1 to the TAA and replaces it with a totally new regime in Division 142 in the GST Act.

The date of royal assent is important because the new regime applies to tax periods starting on or after that day. For monthly taxpayers that means tax periods starting 1 June 2014 and for quarterly taxpayers that means tax periods starting 1 July 2014.

Division 142 effectively creates a deeming regime, whereby overpaid GST that has been passed on to another entity is taken to have always been payable until that other entity is reimbursed for the passed on GST. Taxpayers can self assess their entitlement to GST refunds, where the GST has not been passed on or the GST has been reimbursed. The Commissioner retains a discretion to pay refunds, but it is expected to have a narrow operation.

The Bill can be accessed here.  The Explanatory Memorandum can be accessed here. The Bill passed through Parliament without amendment.

 

Commissioner issues Interim Decision Impact Statement for ATS Pacific; taxpayer applies for special leave

Today the Commissioner issued an Interim Decision Impact Statement for the decision of the Full Federal Court in ATS Pacific Pty Ltd v Commissioner of Taxation [2014] FCAFC 33. I also note that on 23 April 2014 the taxpayer lodged an application to the High Court for Special Leave against the decision.

The case involved the proper characterisation of the supply by Australian travel agents or tour operators to non-resident travel agents or tour operators in booking or arranging accommodation, goods and services for the customers of the non-resident travel agents or tour operators, namely the non-resident tourists. My analysis of the decision of the Full Federal Court can be accessed here. I published an analysis of the decision of the primary judge at the time of judgment and I have extended that analysis to include the appeal.

The Full Federal Court allowed the Commissioner’s cross-appeal against the finding of the primary judge that there were two supplies, the supply of a promise to ensure that the products would be supplied to the tourists (taxable) and the supply of arranging or booking services (GST-free), and found that the taxpayer made only one supply which was wholly taxable.

In the Decision Impact Statement the Commissioner notes that some taxpayer have lodged GST returns based on the primary judge’s decision (i.e., not paying GST on the margin) and confirms that he will only seek to recover under paid GST if, after finalisation of the High Court proceedings, the decision of the Full Court stands. The Commissioner does note that taxpayers have the option to self-revise their GST returns now and voluntarily paying GST, pending the High Court appeals – and if this is done, any GIC will be fully remitted.

The Commissioner also states that he will cease to consider taxpayers’ requests to exercise the discretion under s 105-65 of Schedule 1 to the TAA for refunds of GST paid in previous tax periods pending the outcome of the High Court appeal.

The issue of s 105-65 and refunds may also be relevant if a taxpayer elects to take up the Commissioner’s offer and amends their GST returns and voluntary pays GST. The Decision Impact Statement is unclear as to whether the Commissioner would seek to apply s 105-65 to restrict the refund of those voluntary payments if the High Court allows the taxpayers appeal.

Comments on the Interim Decision Impact Statement are due by 30 May 2014.

 

 

UK Court awards taxpayer compound interest on refund of overpaid VAT

Claiming refunds of overpaid GST is a controversial issue in Australia. However, it pales in comparison to the UK, where VAT refund claims are being made going all the way back to 1973. The battle ground has now expanded, with the Chancery Court awarding compound interest, which the claimant contends is the staggering sum of approximately 1.2 billion pounds.

It all started with the decision of the House of Lords in Fleming (t/a Bodycraft) v HMRC [2008] 1 WLR 195 which involved a claim for a refund of VAT as far back as 1973, the date the VAT was introduced in the UK. The House of Lords ruled that UK legislation providing for a retrospective limitation on claiming VAT refunds, which did not include a transitional regime to allow taxpayers with accrued rights to bring proceedings, breached the EU principles of effectiveness and legal expectation.  As a result of the decision, legislation was introduced to ensure that repayments would be subject to a four-year cap, but traders had a period to submit refund claims for periods as far back as 1973 (known as “Fleming Claims”).

To rub salt into the wound, earlier this week the Chancery Court handed down its decision in Littlewoods Retail Ltd v HM Revenue & Customs [2014] EWHC 868 where the Court found that in addition to the refund of VAT paid from 1973 to 2004 and the payment of simple interest on those amounts, the claimant was entitled to a further amount on account of compound interest from the dates of the payment until 31 October 2013.

The case is also noteworthy because at the first hearing of the matter and upon the initial reference of questions to the European Court of Justice, the Revenue expressly admitted that the claimant had overpaid VAT because of a mistake of law. The Revenue sought to withdraw that admission before the Chancery Court because of a subsequent decision of the ECJ in another matter. That the Revenue would seek to make such a contention appears to reflect the gravity of the issues (and sums) in dispute.

The decision is very lengthy, running to some 450 paragraphs. But the salient points appear to be as follows:

  • it was not open to the Revenue to re-open the underlying tax issues, because to do so would be an abuse of process;
  • European law entitles the claimants the receive an adequate indemnity for the loss occasioned to them by the overpayment of VAT – that indemnity required the payment of an amount of interest which is broadly commensurate with the loss of use of value of the overpaid tax, running from the dates of payment of the tax until the dates when the loss of use value is fully restored to them;
  • as a matter of English law, the correct approach to quantification of the claims is to ascertain the objective use value of the overpaid tax, which is properly reflected in an award of compound interest.

The case will be of interest to restitution lawyers as well as tax lawyers, given that the fundamental basis of the claim lay in restitution. The decision may only be of academic issue to refunds of GST in Australia as our legal system does not have the overlay of EU law and the rights of claimants to recover GST under the common law (including rights of restitution) appear to have been replaced by the statutory regime in the Taxation Administration Act. So much appears to have been confirmed by the very recent decision of the High Court in Thiess v Collector of Customs [2014] HCA 12 which was discussed in my post published yesterday.

Commissioner issues draft Determination on when the supply of a credit card is GST-free; High Court decision on refunds

Yesterday the Commissioner issued draft GST Determination GSTD 2014/D1 ‘Goods and services tax: in what circumstances is the supply of a credit card GST-free under paragraph (a) of Item 4 in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999?

The Commissioner takes the view that the supply of a credit card facility is a “supply made in relation to “rights within paragraph (a) of Item 4 in ss 38-190(1) as it is a supply of a thing comprising a bundle of rights that derives its value exclusively, or almost exclusively, from those rights.

The Commissioner considers that the supply will be GST-free under Item 4 to the extent that the cardholder will use the facility when he or she physically outside Australia and provided that the cardholder’s location outside Australia is integral to the use of the card.

The Determination acknowledges the following alternative views which are not supported by the Commissioner:

  • the relevant right is the right to tender the credit card and this right is used where the payment obligation is discharged (i.e., the location of the merchant) – the physical location of the cardholder is irrelevant
  • the relevant right is the ongoing use of the right to credit over time – the extent to which the cardholder is outside Australia  over the period of time will determine the relevant GST-free component.

Comments on the draft determination are due by 2 May 2014.

High Court decision

Yesterday the High Court handed down its decision in Thiess v Collector of Customs [2014] HCA 12. The Court agreed with the Supreme Court of Queensland that the taxpayer was statutorily barred from a claim to recover overpaid customs duty and GST.

The taxpayer imported a yacht and his customs agent mistakenly believed the yacht was 108 tonnes (it was actually 160 tonnes) and ascribed the wrong tariff classification which resulted in customs duty of $494,472 and GST of $49,447 being paid. The true position was that no customs duty or GST was payable.

After the prescribed period in the Customs Act, the taxpayer discovered the mistake and brought an action in the Supreme Court for the recovery of the customs duty and the GST. The claim was framed principally as one for one for money had and received, relying on the money having been paid under a mistake of fact, and in the alternative as one for restitution in equity or for equitable compensation.

The Court of Appeal determined that the Commonwealth had lawful defences to the claim: s 167(4) of the Act provided a defence in so far as the claim was to recover the amount of $494,472 paid as customs duty; s 36 of the Taxation Administration Act 1953 (Cth) provided a defence in so far as the claim was to recover the additional amount of $49,447 paid as GST. I should note that s 36 to the TAA was the predecessor to s 105-55 of Schedule 1 to the TAA.

The High Court unanimously agreed. The Court did not discuss s 36 of the TAA, noting that the taxpayer conceded that he cannot recover the amount paid as GST if he is prevented by s 167(4) from recovering the amount paid as customs duty.

Section 167(4) of the Customs Act provides as follow:

(4) No action shall lie for the recovery of any sum paid to the Customs as the duty payable in respect of any goods, unless the payment is made under protest in pursuance of this section and the action is commenced within the following times:

(a) In case the sum is paid as the duty payable under any Customs Tariff, within 6 months after the date of the payment; or

(b) In case the sum is paid as the duty payable under a Customs Tariff or Customs Tariff alteration proposed in the Parliament, within 6 months after the Act, by which the Customs Tariff or Customs Tariff alteration proposed in the Parliament is made law, is assented to.

The section provides a time limit on recover of overpaid customs duty and effects a statutory bar to recovery in similar terms to s 105-55 of Schedule 1 to the TAA for GST, although taxpayers have 4 years under that section.

The High Court also observed that the section removed any right at common law to recover overpaid customs duty and to introduce “a statutory action” for the refund of overpaid duty. Section 105-55 would appear to have the same effect, through its interaction with s 8AAZLF of the TAA and s 35-5 of the GST Act. If the taxpayer is barred from taking that statutory action (e.g., because of the passage of time), then no other action is available to the taxpayer to recover.

News flash! – Treasury introduces Bill to replace s 105-65 of Schedule 1 to the TAA with Division 142 of the GST Act

Today the Tax Laws Amendment (2014 Measures No.1) Bill 2014 was introduced into the House of Representatives. The Bill proposes to repeal the current regime dealing with refunds of GST found in s 105-65 of Schedule 1 to the TAA and replace it with a totally new regime in Division 142 in the GST Act.

Division 142 effectively creates a deeming regime, whereby overpaid GST that has been passed on to another entity is taken to have always been payable until that other entity is reimbursed for the passed on GST. Taxpayers can self assess their entitlement to GST refunds, where the GST has not been passed on or the GST has been reimbursed. The Commissioner retains a discretion to pay refunds, but it is expected to have a narrow operation.

The Bill can be accessed here.  The Explanatory Memorandum can be accessed here.

The legislation was published as an exposure draft in February 2014. My post discussing the exposure draft can be accessed here.

Legislation was previously introduced into the House of Representatives on 26 June 2013 but the bill lapsed upon the calling of the election. At around that time I prepared a a paper entitled “Refunds of overpaid GST: from s 105-65 to Division 142 – where did we come from, how did we get here and where are we going?” which takes a detailed look at the troubled history of s 105-65 and also provides an analysis of the proposed provisions in Division 142. The aim of the paper was to outline the historical context in which Division 142 has been introduced as well as my views on the provisions themselves. My paper can be accessed here.

A more detailed analysis of the new provisions will be posted shortly. In the meantime, the key changes to the legislation introduced before the election appear to be as follows:

  • The amendments will apply to tax periods starting on or after the day the legislation receives royal assent. This is a significant change as the legislation introduced before the election was to apply retrospectively, with application to tax periods commencing on or after 17 August 2012 (the date of the original announcement of the measures). This means that the current regime under s 105-65 of Schedule 1 to the TAA continues to apply. This is good news for those taxpayers who may have claims where GST was overpaid by reason of a miscalculation of GST (as opposed to a misclassification of GST) – for example under the margin scheme.
  • The amendments clarify that taxpayers have objection rights under Part IVC of the TAA with respect to decisions by the Commissioner in respect of s 105-65. This addresses the decision of the Tribunal in Naidoo that there were no rights of objection for such decisions. The amendments also validate objections purportedly made by taxpayers in respect of s 105-65, and also any decisions of the Tribunal or a Court purportedly made under the jurisdiction given by Part IVC of the TAA. A example is the decision of the Tribunal in the Luxottica case to exercise the discretion in s 105-65 to pay refunds of overpaid GST to the taxpayer. The amendments also give taxpayers affected by the Naidoo decision an extension of time to lodge an objection. That extension would appear to be effectively 60 days after the commencement of the provisions (i.e., 60 days after royal assent).