Commissioner publishes PSLA 2013/3 on the treatment of input tax credits and s 105-65 of Schedule 1 to the TAA

Today the Commissioner published PSLA 2013/3 (GA) ‘Treatment of input tax credits claimed by a recipient of a non taxable supply where the Commissioner has a discretion to give a refund of the overpaid GST to the supplier due to the operation of section 105-65 of Schedule 1 to the TAA’.

The purpose of the Practice Statement is stated to be as follows:

To explain the circumstances in which the Commissioner will use his powers of general administration to allow a recipient to retain an input tax credit that is claimed where a transaction was incorrectly treated by a supplier as giving rise to a taxable supply.

The PSLA was originally issued as Draft PSLA 3521 – Treatment of input tax credits claimed by a recipient where the Commissioner does not give a refund to the supplier due to the operation of s 105-65 of Schedule 1 to the TAA.

The Practice Statement provides that a recipient will generally not be required to repay over-claimed input tax credits or pay any general interest charge related to the over-claimed credits where the following circumstances apply:

  • a supply has incorrectly been treated as taxable to any extent;
  • the supplier is registered for GST and has overpaid GST;
  • the supplier has issued a tax invoice to the recipient;
  • the recipient has over-claimed an input tax credit and would have been entitled to claim that input tax credit if the supply had been a taxable supply;
  • the recipient has treated the acquisition as a creditable acquisition when applying other taxation laws such as the income tax law and the fringe benefits law;
  • should the supplier request a refund, section 105-65 would apply such that the Commissioner need not refund the supplier the overpaid GST; and
  • the Commissioner has not given a refund of the overpaid GST to the supplier.

This approach is referred to as the ‘preserving the status quo approach’.

The status quo approach will not apply in the following cases (and the Commissioner will generally seek to recover the over-claimed input tax credits):

  • where the Commissioner exercises his discretion under s 105-65 to pay a refund
  • where the supplier reimburses the recipient for the GST incorrectly included in the price for the supply

As I noted in my discussion on the draft PSLA, the Practice Statement is interesting because it effectively operates as an administrative override of the provisions of the GST Act and the TAA, which cause the recipient to have a “GST shortfall” in  circumstances where input tax credits have been incorrectly claimed. The recipient is also exposed to recovery and the imposition of penalties and interest. The Commissioner considers that applying his general powers of general administration, “it is appropriate for the Commissioner not to take any compliance action to reverse a transaction” in the particular circumstances.

However, it should be noted that to the extent that the Commissioner does not (or chooses not to) follow the Practice Statement, the law will otherwise apply.  In this regard I not that the Practice Statement states that a recipient will “generally” not be required to repay input tax credits.

Where there is truly a “status quo”, in the sense that GST was paid and credits were claimed, one can see the administrative ease of such an approach and there would be appear to be no reason why the Commissioner should not follow the statement.  However, the matter may not be so clear where credits are claimed but for some reason the Commissioner is out of pocket (e.g., the supplier pays the GST and then goes into liquidation and the Commissioner is required to disgorge the payments as a preference claim).  In such circumstances the practice statement would afford the recipient no protection if Commissioner sought to recover the over claimed credits from the recipient.

Paper published on GST refunds and Division 142

As noted previously on this site, on 26 June 2013 the Tax Laws Amendment (2013 Measures No.4) Bill 2013 was introduced into the House of Representatives which would repeal s 105-65 of Schedule 1 to the TAA and introduce Division 142 into the GST Act.

Rather than restrict my analysis to Division 142, I have completed 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 is 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.

ATO ID published on GST refunds and offset of “administration fee”

On Friday the Commissioner published ATO ID 2013/40 ‘GST refund and offset of fee against reimbursed amount’ where the Commissioner would not exercise his discretion in s 105-65 of Schedule 1 to the TAA to refund overpaid GST to the extent that the customers paid an “administration fee”, which was paid prior to receiving the reimbursement or was offset against the reimbursement.

The entity had previously received a private ruling that certain products it had supplied were GST-free under s 38-45 of the GST Act. The entity intended to reimburse its unregistered customers an amount equal to the total overpaid GST, but only where the customer agreed to pay an administration fee. This fee could be paid prior to the reimbursement or by way of an offset against the reimbursement.

The basis upon which the Commissioner determined to restrict the refund to the net amount reimbursed was as follows:

As the entity will only reimburse the customer when it receives the administration fee, (either by direct payment or by offset against the amount which corresponds to the overpaid GST), the entity will not reimburse an amount equal to the overpaid GST to the customer. For the purposes of subparagraph 105-65(1)(c)(i) of the TAA, the amount reimbursed will be the full amount of overpaid GST less the administration fee. This net reimbursed amount will not be restricted by section 105-65 of the TAA.

The Commissioner need not give a refund of the overpaid GST under section 105-65 of the TAA, to the extent of the corresponding amount of the administration fee as the Commissioner is not satisfied this amount has been reimbursed.

GST refunds and s 105-65 continue to be a hot topic. One wonders what the outcome would have been if the customer had been paid the refund in full and, only after receiving the refund, paid the supplier an administration fee.

The issue of when an amount of overpaid GST is “reimbursed” to a customer will continue under the proposed introduction of Division 142.

Tribunal decision on s 105-65 and “claw back” of GST – also no jurisdiction to hear the issue

On Friday, the Tribunal handed down its decision in Naidoo and Commissioner of Taxation [2013] AATA 443 where the Tribunal confirmed the Commissioner’s decision that the applicant was not carrying on an enterprise and was therefore not entitled to input tax credits.

Of greater interest is that 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 Commissioner formed the view that the applicant was not carrying on an enterprise. Also, the Tribunal found that it had no jurisdiction to hear an application to review a decision of the Commissioner with respect to s 105-65. The Tribunal noted that the Tribunal had, in the past, proceeded on the basis that it had jurisdiction (eg, Luxottica), but observed that the jurisdiction issue appeared not to have been previously the subject of deliberation.

This decision involved a similar contention that was unsuccessfully raised by the Commissioner in The Private Tutor and Commissioner of Taxation [2013] AATA 136. The Tribunal in that case also made some adverse comments on the Commissioner’s conduct in issuing assessments to the taxpayer for a positive net amount in an attempt to “claw back” GST while maintaining that the  taxpayer was not entitled to be registered for GST. My post discussing that decision can be accessed here.

After that decision, the Commissioner released a decision impact statement stating that he “respectfully maintains his view” that he is entitled to rely on s 105-65 to retain refunds in such circumstances. The Commissioner also noted that the Tribunal had reserved a decision dealing with this question in another case and he would review his position generally once the Tribunal hands down its decision in that matter. That has now occurred and one would expect the Commissioner to review his position stated in the decision impact statement.

The decision

The relevant facts and issues can be shortly stated:

  • the applicant was a partnership and was registered for GST for the tax periods between 1 April 2007 and 31 March 2011 and lodged activity statements. The activity statements were mostly for negative net amounts, save for three small positive net amounts.
  • the Commissioner conducted an audit and determined that the applicant was not carrying on an enterprise during the relevant period and cancelled its GST registration.
  • The Commissioner also found that the applicant was not entitled to input tax credits but was still liable for GST. As noted by the Tribunal (at [4]): (emphasis added) “The Commissioner formed the view that the Naidoo Partnership was still liabile to pay GST in the relevant period relying on s 105-65 of Schedule 1 to the Taxation Administration Act 1953 (TAA). Peculiarly, even though the Commissioner formed the view that the Naidoo Partnership was not carrying on an enterprise, he assessed the Naidoo Partnership to positive net amounts for the relevant tax periods.

The operation of s 105-65

The Tribunal agreed that the applicant was not carrying on an enterprise and was not entitled to input tax credits. However, the Tribunal found disagreed with the Commissioner on the effect of s 105-65, and stated as follows (at [6]):

With respect to the issue of the application of s 105-65 of Schedule 1 to the TAA, I have decided that it does not apply in the way that the Commissioner argued and that the net amount for each tax period in the relevant period is zero, not a positive amount. As explained in the reasons below, this is because s 105-65 does not alter the net amount that is worked out under the GST Act.

The Tribunal noted that its reasons were substantially the same as those given recently in Re The Private Tutor and Commissioner of Taxation. The Tribunal also noted that it gave the parties an opportunity to file further written submissions addressing that decision and detailed submissions were filed. In the decision the Tribunal helpfully outlines the submissions of both parties, in particular those of the Commissioner.

The primary contention of the Commissioner appears to have been that s 105-65 of Schedule 1 to the TAA is not merely a procedural provision, it is a necessary step in establishing a taxpayer’s substantive liability in respect of GST. In particular, s 17-5 of the GST Act, which deals with the determination of “net amount”, is not self contained and should be construed with the more generic provisions of the TAA. The Tribunal rejected the Commissioner’s contention for the following reasons:

  • the GST Act provides for the working out of the net amount in a precise manner using clear and unambiguous language in s 17-5 of the GST Act.
  • the Commissioner’s contention that “net amount” means the amount that is arrived at after considering all the relevant provisions that bear on the taxpayer’s legal obligation or entitlements are taken into account (including s 105-65) has no basis in the statutory framework and leaves the issue at large creating uncertainty.
  • there is no disputing that the GST Act and the TAA are to be construed together, but it is difficult to see how s 105-65 can be worked into the statutory definition of net amount in circumstances where “GST” is also specifically defined in s 17-5(1) of the GST Act.
  • S 105-65 can only operate after the net amount has been calculated.

In conclusion (at [96]):

I conclude that, contrary to the Commissioner’s approach, s 105-65 of Schedule to the TAA is not a provision which allows the Commissioner to alter the net amount calculated under s 17-5(1) of the GST Act. There is nothing in the statutory provisions of either the GST Act or the TAA which produces the result that the Commissioner contends for, nor do any of the authorities to which he referred compel such a conclusion. Indeed, none of the cases expressly canvass the operation of s 105-65 with respect to the net amount. Accordingly, in the face of the statutory provisions, s 105-65 cannot be taken into account in the determination of the net amount for a tax period. I prefer the view that s 105-65 operates after the net amount for a tax period is calculated under the GST Act.

Jurisdiction to review decisions on s 105-65

The Tribunal observed that s 14ZZ of the TAA provided the Tribunal with jurisdiction to review a decision made by the Commissioner with respect to an objection. In the context of GST, that is an objection on the grounds that an assessment of net amount is excessive. Given the finding that s 105-65 did not alter the taxpayer’s net amount, the Tribunal therefore had no jurisdiction to review the Commissioner’s decision under s 105-65. This meant that the taxpayer’s recourse must be found in judicial review proceedings under s 39B of the Judiciary Act 1903 or the Administrative Decisions (Judicial Review) Act 1977.

The Tribunal also noted as follows:

Whether or not this was intended to be the case when the legislation was drafted is unclear. The Commissioner may be correct in his view (at paragraph [159] of MT 2010/1) that it would be desirable for taxpayers to be able to challenge such a decision under Part IVC of the TAA and also able to obtain merits review in the Tribunal. However, this is of no assistance in circumstances where the statutory framework does not provide for this outcome.

Exercise of the Commissioner’s discretion

The Tribunal also considered the question of whether the Commissioner should exercise his discretion in s 105-65 to refund the overpaid GST to the applicant. The Commissioner submitted that the discretion should not be exercised because the applicant would receive a “windfall gain” if a refund was paid.

The Commissioner appeared to contend that the entire of the GST paid by the applicant fell within s 105-65 (ie, including the entirety of the GST included in the activity statement). The Tribunal appeared to reject this contention and found that if it had jurisdiction to review the decision made under s 105-65, it would have only refused to refund the positive net amounts reported in the three activity statements lodged by the applicant.

Division 142

In the decision impact statement for The Private Tutor, the Commissioner noted that the draft legislation introducing division 142 into the GST Act  (and repealing section 105 – 65) would likely remove any uncertainty as to the correct approach in cases like this one. Last week legislation was introduced into the House of Representatives – my post can be accessed here.

Division 142 would appear to remedy the issue of jurisdiction as the effect is that the overpaid GST “is taken to have always been payable” and would appear to directly impact on the taxpayer’s net amount.

However, if the Commissioner is correct in his view that Division 142 would remove an uncertainty, this may illustrate a harsh application of the proposed division. By incorrectly registering for GST, a taxpayer is exposed to repaying input tax credits falsely claimed, but the full amount of GST that was incorrectly payable as a result of being incorrectly registered is “taken to” to have always been payable. For example, assume a taxpayer incorrectly registers for GST and claims input tax credits of $100,000 and pays GST of $100,000. That taxpayer would have a net amount of nil, but if the Commissioner subsequently determines that the entity was not carrying on an enterprise, the taxpayer will be required to repay the input tax credits in full but remain liable to pay the whole of the GST.

It will take time for the full implications of Division 142 to be realised, but this may be just a taste of its potential full force and effect.

News flash! Parliament introduces legislation on restricting GST refunds – Division 142 to replace S 105-65

Today the Tax Laws Amendment (2013 Measures No.4) Bill 2013 was introduced into the House of Representatives. The legislation proposes the introduction of Division 142 into the GST Act. The Division will replace s 105-65 of Schedule 1 to the Taxation Administration Act. The legislation is to take effect for tax periods starting on or after 17 August 2012.

The proposed legislation significantly changes the landscape for GST refunds. As noted at 3.1 of the Explanatory Memorandum, the amendments are intended to:

ensure that excess goods and services tax (GST) is only refundable in certain circumstances. The amendments apply to overpayments of GST as a result of a mischaracterisation of a supply or arrangement or miscalculation of the GST payable, or for any other reason, if the overpaid GST has been passed on.

The documents can be accessed below:

The legislation was issued as an exposure draft earlier this year. My post discussing the exposure draft can be accessed here. My analysis of the exposure draft can be accessed here.

9 Submissions were received in response to the exposure draft and they can be accessed here. It appears that some of these submissions had an effect as there were a number of changes made to the exposure draft.

Tribunal hands down decision on “Multiflex” amendments allowing retention of refunds

In Sanctuary Australasia Pty Ltd and Commissioner of Taxation [2013] AATA 371 the Tribunal has handed down what I believe to be the first decision relating to s 8AAZLGA of the TAA, which allows the Commissioner to retain refunds (including GST) pending an investigation.

Section 8AAZLGA was introduced in 2012 after the decision of the Full Federal Court in Commissioner of Taxation v Multiflex Pty Ltd [2011] FCAFC 142, where the taxpayer successfully applied for an order of mandamus requiring the Commissioner to pay a negative net amount reported in the taxpayer’s BAS. My analysis of that decision can be found here.

The facts of the case can be shortly stated. The taxpayer lodged an amended BAS which showed a refund entitlement. The Commissioner retained the refund and the taxpayer had applied to the Tribunal for a review of the Commissioner’s decision to disallow the objection against the decision to retain. However, before the application had been made, the Commissioner  issued an assessment to the taxpayer amending its net amount to “NIL”.

The Tribunal found that the taxpayer was not entitled to make the application because, upon the assessment being made, the taxpayer was no longer “a person dissatisfied” with a decision of the Commissioner. This was because once the assessment issued, there was no amount which the Commissioner was required to refund and so no “net amount” that the Commissioner was retaining under s 8AAZLGA. The proper course of action for the taxpayer was to object to the assessment.

The conclusion that the assessment overrides any refund entitlement by virtue of lodging a BAS is consistent with the view of the Full Federal Court in Multiflex where the Court observed as follows (at [26]):

The answer which the legislation provides to the Commissioner’s disquiet as to being obliged to make a refund based on a claimed net amount in a business activity statement which he knows to be wrong is straightforward. In such circumstances, he is entitled at any time to make an assessment of that net amount: s 105-5 of Sch 1 to the TAA. The net amount so assessed by the Commissioner necessarily supersedes whatever amount the entity earlier worked out on its approved form, if indeed it lodged such a form…Subject to the outcome of any subsequent objection or later appeal or review proceeding, the entity’s net amount will be the amount as assessed by the Commissioner.

That the taxpayer must now go to the time and expense of lodging a further objection (this time to the assessment) illustrates one of the difficulties of s 8AAZLGA. Also, the decision shows that the prospects of the Tribunal actually hearing an application to review a decision to retain a refund under s 8AAZLGA may be low, given that by the time the matter actually gets to hearing, the Commissioner will likely have completed his investigations and determined whether to issue an assessment or release the refund.

One matter which does raise some concern is the apparent contention of the applicant that the Commissioner did not give the applicant a notice of retention of refund as required by s 8AAZLGA(3). That sub-section states that the Commissioner “must inform the entity that he or she has retained the amount under this section”. The taxpayer lodged its amended BAS on 29 August 2012 and the Commissioner made a decision on 4 September 2012 to retain the refund. On 10 September 2012 the Commissioner informed the taxpayer that he was conducting an audit of its BAS for the relevant period – however, it is unclear whether the Commissioner expressly informed the applicant that it was retaining the refund pursuant to s 8AAZLGA. If the matter had proceeded to hearing, the Tribunal may have had to decide the difficult question of whether the failure to comply with the notice requirement invalidated the retention of refund.

Legislative determination on correcting GST errors, decision impact statement on Private Tutor case, ATO IDs on emission units

On Friday a range of things issued in relation to GST.

GST and correcting errors

Legislative determination GSTE 2013/1 was published by the Deputy Commissioner of Taxation. The determination specifies the circumstances in which you may, in working out your net amount for a tax period, correct errors that were made in working out your net amount for an earlier tax period. The Commissioner has published a guide on the application of the determination, which can be accessed here.

The determination  applies to errors relating to an amount of GST, input tax credit or adjustments. However, the determination does not apply if the error relates to a matter which is the subject of compliance activity by the ATO  or if the error was made in a tax period which  is the subject of compliance activity.  The determination also does not apply if the error was the result of recklessness or intentional disregard of a GST law and if the amount of the error exceeds the value limit. The value limit is tied to the GST turnover of the entity. For example, an entity with a turnover of less than 20 million  has a value limit of $10,000 and an entity with a turnover of $1 billion or more has a value limit of $450,000.

Decision Impact Statement on The Private Tutor and Commissioner of Taxation

The Commissioner has released a decision impact statement for the decision of the Tribunal in The Private Tutor and Commissioner of Taxation [2013] AATA 136 the Tribunal accepted that taxpayer’s contention that he was carrying on an enterprise of tutoring but the Tribunal found that it was not satisfied that the taxpayer was entitled to any of the input tax credits claimed. My post discussing that decision can be accessed here.

In my post I noted the Tribunal’s adverse comments on the Commissioner’s conduct in issuing assessments to the taxpayer for a positive net amount in an attempt to “claw back” GST while maintaining that the  taxpayer was not entitled to be registered for GST. Notwithstanding these adverse comments, the Commissioner “respectfully maintains his view” that he is entitled to rely on s 105-65 to retain refunds in such circumstances. The Commissioner also notes that the Tribunal has reserved a decision dealing with this question in another case and he will review his position generally once the Tribunal hands down its decision in that matter.

The Commissioner also notes that the draft legislation introducing division 142 into the GST Act  (and repealing section 105 – 65) would likely remove any uncertainty as to the correct approach in cases like this one.

ATO IDs

The Commissioner has issued the following IDs dealing with the supply of options over GST-free eligible emission units:

Federal Court finds that supply of tour packages to overseas tourists was taxable

The Federal Court yesterday handed down its decision in ATS Pacific Pty Ltd v Commissioner of Taxation [2013] FCA 341 where it agreed with the Commissioner that ATS made a taxable supply to overseas travel agents where the travel agents arranged tour packages for overseas tourists in Australia comprising Products (being accommodation, goods and services) acquired and paid for by the taxpayer. The Court rejected the taxpayer’s argument that the supply was of the “booking and arranging” of the Products (for use by the tourists) and was GST-free as those supplies were not consumed in Australia. The Court did agree with the taxpayer’s alternative argument that the “margin” charged to the travel agents over and above the cost of the Products was GST-free.

The Federal Court also rejected the taxpayer’s contention that the Commissioner’s discretion to refuse to pay refunds of GST in s 105-65 of Schedule 1 to the TAA (being the form that applied prior to 1 July 2008) did not apply because the section only applied to “an actual taxable supply”.

My analysis of the decision can be found here.

ATO releases internal training materials on retention of GST refunds; legislative instruments released on tax invoices

In a positive move, the ATO has released an internal training presentation on the retention of refunds. The presentation can be accessed here.

The presentation addresses the following issues:

  • the law and the ATO practices before the decision in Multiflex;
  • the decision in Multiflex and its consequences
  • the legislation introduced after the decision in Multiflex.

The ATO should be commended for providing access to this document. The retention of GST refunds by the ATO is a controversial and complex issue. Hopefully publishing this document will provide taxpayers and practitioners with a greater insight into the mind of the ATO then it acts to stop the payment of refunds.

Also, on Friday the following legislative instruments were released. The Instruments waive the requirements for recipients to comply with the requirements for tax invoices in certain circumstances:

The Legislative Instruments are made by the Deputy Commissioner of Taxation under s 29-10(3) of the GST Act. Each of the Legislative Instruments commence on 1 July 2010 and apply to net amounts for tax period commencing on or after 1 July 2010.

The Legislative Instrument dealing with the sale of a reversion in commercial premises is interesting. The Explanatory Statement at [17] states as follows:

The purchaser of a reversion in commercial premises (the current owner in the context of this instrument) makes a supply to the lessee under paragraph 9-10(2)(g) by way of entering into an obligation to honour the terms of the lease. Where the requirements of section 9-5 are satisfied, this supply is a taxable supply. [4].

[4] Westley Nominees Pty Ltd v Coles Supermarkets Australia Pty Ltd (2006) 152 FCR 461. See also Goods and Services Tax Determination GSTD 2012/2 Goods and services tax: what are the goods and services tax consequences following the sale of commercial premises that are subject to a lease? for the Commissioner’s views on the GST consequences following the sale of commercial premises that are subject to a lease.

This part of the Explanatory Statement appears to be in direct conflict with the decision of the Full Federal Court in South Steyne Hotel Pty Ltd v Commissioner of Taxation [2009] FCAFC 155, where each of the three judges found that the sale of three apartments subject to a lease did not constitute a new or a further supply (see Finn J at [3], Emmett J at [34], Edmonds J at [76]). Edmonds J was the only judge to refer to the early decision of the Full Federal Court in Westley Nominees (in which he sat). These findings were adopted by Griffiths J in MBI Properties Pty Ltd v Commissioner of Taxation [2013] FCA 56 which dealt with a subsidiary issue arising out of South Steyne (the taxpayer has appealed that decision to the Full Federal Court).

While this paragraph in the Explanatory Statement does not impact on the Legislative Instrument, it does appear to reflect the continued view  of the Commissioner that the view of the Full Federal Court in Westley Nominees reflects the legal position where an entity acquires a reversionary interest in commercial premises, notwithstanding the clear findings of three judges of the Full Federal Court in a later decision.

Tribunal finds private tutor carrying on enterprise but not entitled to input tax credits – also concludes the Commissioner’s actions in issuing assessments were unsatisfactory

Today, in The Private Tutor and Commissioner of Taxation [2013] AATA 136 the Tribunal accepted that taxpayer’s contention that he was carrying on an enterprise of tutoring but the Tribunal found that it was not satisfied that the taxpayer was entitled to any of the input tax credits claimed.

The taxpayer lodged BASs for each tax period whereby input tax credits exceeded GST. The Commissioner formed the view that the taxpayer was not carrying on an enterprise and had not done so during the previous four years – the Commissioner then cancelled the taxpayer’s GST registration. The Commissioner nevertheless issued assessments to the taxpayer showing a positive GST amount. For each tax period in question, the assessments reflected an adjustment of the taxpayer’s net amount from a negative to a positive tax position.

What is interesting about this case is the Tribunal’s adverse comments on the Commissioner’s conduct in issuing assessments to the taxpayer for a positive net amount.

Deputy President Frost observed that it was “surprising” that the Commissioner assessed the taxpayer to a positive net amount for each tax period in question, given that the Commissioner’s central proposition was that the taxpayer was not at any stage carrying on an enterprise. The Commissioner’s explanation for making the assessments was to give effect to the Commissioner’s discretion to withhold refunds pursuant to s 105-65 of Schedule 1 to the TAA – the Deputy President stated that the Commissioner’s approach and explanation were unsatisfactory. The comments of the Tribunal are reproduced below:

[15]. As mentioned above, s 17-5 of the GST Act defines the “net amount” for a tax period as the difference between the GST payable on taxable supplies and the ITCs available in respect of creditable acquisitions…

[16] Section 17-15 speaks directly to taxpayers. It does not speak for the Commissioner. It tells taxpayers that they may choose to work out their net amount in the way specified in an approved form, and if they make that choice, then the amount that they work out in that way is their net amount, no matter what the net amount might have been if it had been worked out under s 17-5.

[17] The taxpayer evidently chose, as virtually all taxpayers do, to work out his net amount in the way specified in an approved form – namely, the quarterly BASs that he lodged. To take his BAS for the April to June 2007 quarter as an example, the amount that he “worked out” by using the way specified in the BAS was minus $311. Because of s 17-15, that amount became his net amount. (It does not seem to matter that the “way” of working out the net amount as specified in the BAS and the “way” of working out the net amount as specified in s 17-5 are exactly identical, and it also does not seem to matter that the figures that the taxpayer used in that “working out” exercise may have been wrong: see Commissioner of Taxation v Multiflex Pty Ltd [2011] FCAFC 142 at [25].)

[18] Now, as the Full Court pointed out in Multiflex at [26], that amount of minus $311 can be “superseded” as the net amount if, for example, the Commissioner makes an assessment of the taxpayer’s net amount under the power that is available to him in s 105-5 in Schedule 1 to the TAA. That is what the Commissioner did here. But in arriving at the taxpayer’s net amount (under s 17-5, since s 17-15 has no relevance to the calculation of net amount by the Commissioner), the Commissioner used, as one of the integers in the calculation, the “GST payable” figures that the taxpayer reported in his BAS. The only apparent reason for doing so was that it was one of the integers that the taxpayer used when he worked out his net amount in the way that s 17-15 says he can. The Commissioner clearly did not think that was the correct amount of “GST payable”, because by the time of making the assessment, he had formed the view that the taxpayer was not carrying on an enterprise. The Commissioner was therefore bound to conclude, based on that view of the facts, that s 9-5(b) was not satisfied, and so the taxpayer could not have an amount of “GST payable”. The Commissioner should have applied the reasoning set out in [12]above, and assessed a net amount of zero.

[19] Instead, and for the presumed purpose of creating an opportunity to claw back the $79 declared by the taxpayer on what the taxpayer thought were taxable supplies, the Commissioner assessed the taxpayer for that amount, namely $79. In doing so, he committed at least two errors. First, he assessed a net amount which, on his view of the facts, cannot possibly satisfied the requirements of s 17-5 of the GST Act. And secondly, he sought to invoke s 105-65 (a provision dealing with restrictions on refunds to a taxpayer) as authority for recovering an amount from a taxpayer. Section 105-65 is neither designed nor drafted to play that role.

The above paragraphs appear to reflect an attempt by the Commissioner to utilise the provisions of s 105-65 of Schedule 1 of the TAA to underpin a recover of “over-recorded” GST in the taxpayer’s BAS (but not overpaid by reason of the taxpayer’s claim for input tax credits) – rather than “over-paid” GST. The words of s 105-65 are clear – the section applies if “you overpaid the amount”.