Category Archives: Refunds

ATO GST private rulings – February 2012

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During February 2012, the ATO published nearly 40 private rulings dealing with GST.  These rulings can be accessed here.

An interesting highlight from this month’s list is the number of private rulings addressing claims for GST refunds.  There were 5 such rulings. Unfortunately, in each case the rulings register provides no guidance as to the nature of these applications – this is because in each case, in order to protect confidentiality, only the following summary is provided “this ruling concerned GST and the refund of overpayments as a result of a change in the ATO view.  The Commissioner has rules on each of the specific questions“.

Given the current uncertainty surrounding GST refunds, particularly in the context of Division 105-65 of Schedule 1 of the TAA and the application by the Commissioner of his views in MT 2010/1, it would have been helpful if some details were disclosed in the rulings register.

Exposure Draft Legislation released to allow Commissioner to retain GST refunds

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Yesterday the Treasury released Exposure Draft Legislation to allow the Commissioner to retain refunds pending verification.  The legislation follows an announcement by the Assistant Treasurer on the same day that the Government would amend the legislation.  Submissions are due by 21 February 2012.

The Exposure Draft Legislation can be accessed here.  The Explanatory Memorandum can be accessed here.

My analysis of the Draft Legislation can be accessed here.  The proposed legislation gives the Commissioner broad powers to retain refunds for at least 120 days before the taxpayer can take any action, which appears to be limited to lodging an objection against the decision of the Commissioner to retain the refund.

The amendments are to commence on the day that the Act receives Royal Assent. The legislation is not retrospective.

The amendments appear to be aimed at addressing the decision of the Full Federal Court in Commissioner of Taxation v Multiflex Pty Ltd [2011] FCAFC 142 (the Commissioner’s special leave application was refused) – my analysis of that decision can be accessed here.

The Explanatory Memorandum outlines the context of the amendments as follows:

“1.2 The amendment is intended to address the outcome in Commissioner of Taxation v Multiflex Pty Ltd [2011] FCAFC 142 (Multiflex). The issue central to the Multiflex case was whether, under section 35-5 of the A New Tax System (Goods and Services Tax) Act 1999 and section 8AAZLF of the TAA 1953, the Commissioner had an implied reasonable time in which to refund a net amount, including such time as reasonably necessary to determine whether the amount was truly payable.

1.3 The Commissioner’s administrative practice with respect to GST amounts has been to retain certain refunds pending verification checks on the basis that the ability to do so was implied by those Acts.

1.4 The Full Federal Court found that the Commissioner is required to pay a GST refund within the time it takes to undertake the necessary administrative steps to process the taxpayer’s return and make the payment, and that the law provides no additional time for checking the validity of the claim, even if the Commissioner suspects it might be incorrect.

1.5 On 9 December 2011, the High Court of Australia dismissed the Commissioner’s application for special leave to appeal against the decision. As a result, in the absence of a legislative amendment, the Commissioner would be required to pay out GST refunds claimed by a taxpayer on their return once it had been processed, and then seek to recover the amounts if subsequent checks showed the amounts claimed to be excessive.

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1.6 As there will be circumstances where the amount claimed in a return or other notification is incorrect, including due to carelessness, recklessness or fraud, it is a necessary integrity requirement that the Commissioner has the ability to delay refunding amounts in certain circumstances.

1.7 Consistent with the rest of Division 3 and Division 3A, the new provision will potentially apply to all payments and credits that exceed a primary tax debt allocated to the taxpayer’s running balance account (RBA).”

Welcome to 2012 – parties agree on consent orders in Centrebet refund case – ATO private rulings and International Cases update for December 2011

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Welcome to my first post for 2012.  This promises to be another big year for GST.

To start the year off, on 20 December 2011 the Commissioner and Centrebet Pty Limited agreed on consent orders for the dismissal of the Federal Court proceeding.  I understand that the proceeding was similar to that considered by the Federal Court in International All Sports v Commissioner of Taxation [2011] FCA 824 regarding the GST treatment of gambling supplies, where the Federal Court found that refunds of GST should be paid to the applicant.  A copy of the orders can be found here.

ATO Private Rulings for December 2011

In December 2011 the ATO published more than 50 private rulings dealing with GST.  The rulings can be accessed from the drop-down menu and also here.

Some of the more interesting rulings are discussed below, dealing with bare trusts and refunds.

GST and charitable property trusts – Ruling no 1011991811094

  • this private ruling request was made by a State Trustee (being an unincorporated association that acts as the State arm of the organisation) -the functions of the State Trustee included providing trustee services to local branches in regard to real property.  In such circumstances, charitable property trusts were established for the benefit of local branches whereby the State Trustee, or a specific purpose corporate trustee, acts as trustee
  • the facts relevant to the arrangements can be stated as follows:
  1. the State Trustee enters into contracts to acquire real property as trustee to hold the property for the public charitable purposes of the local branch
  2. the terms of the trust usually oblige the State Trustee to act on the direction of the local branch (the controller)
  3. the State Trustee is normally passive in the trust arrangement with the costs and management of the real property being met and carried out by the local branch
  • the issue sought to be addressed in the ruling was whether the relevant entity for the purposes of GST was the State Trustee or the beneficiaries (with the State Trustee acting as bare trustee).  In finding that the State Trustee was not acting as a bare trustee, the ATO accepted that the terms of the trust deed required the State Trustee to deal with the property in accordance with the instructions of the local branch, the trust deed conferred considerable powers on the State Trustee to act independently of the local branch and, in certain circumstances, was required to act in accordance with the direction of the State Executive.
  • In taking this view, the ATO relied on GSTR 2008/3 dealing with bare trusts,and referred to the following paragraphs:
37. The activities of a bare trustee are essentially passive in nature.  A trustee of the type of trust considered in this Ruling has either no active duties to perform or only minor active duties.  A bare trust as that term is used in this Ruling does not carry on an enterprise for GST purposes by virtue of its dealings in the trust property.
39. If the asset is sold, the transaction will involve a transfer of the legal title to the property to a third party by the trustee at the direction of the beneficiary.
  • Without having an opportunity to review the terms of the trust deed, but having regard to the terms of the trust deed outlined in the private ruling, I have some concerns with the ATO view.
  • The judicial approach to “bare trust” focuses on the absence of any duties of management on the trustee and the ability of the beneficiary to compel the trustee to transfer the trust estate to them: see Christie v Ovington (1975) 1 Ch D 279 at 281; Morgan v Swansea Urban Sanitary Authority (1878) 9 Ch D 582 at 585; Schalit v Nadler [1933] 2 KB 79; Herdegen v FCT (1988) 84 ALR 271 at 282. The “powers” of the State Trustee relied on by the ATO (which include powers to sell, lease and mortgage the property) could arguably be seen to be administrative mechanisms whereby the directions of the local branch can be given effect to, rather than facilitating the lawful independent action of the State Trustee.
  • While it is true that, taken literally, some of the powers relied on by the ATO may give the State Trustee the “power”, or the capacity, to act independently of the local branch (for example in selling the property) – one must always consider whether such a power would be a lawful act of the trustee.  As noted at paragraph 12 of GSTR 2008/3, “the key point is that the trustee only acts at the direction of the beneficiary in respect of the relevant dealings win the trust property and has no independent role in respect of the trust property” – in this ruling application, one may have cause to question whether the State Trustee did have the lawful capacity to undertake an independent role in respect of the trust property.
  • the issues in this private ruling application were whether the supply of online content by an overseas company (OSCo) to Australian consumers was subject to GST free, and if not, whether the ATO would pay the GST refund to OSCo in light of s 105-65 of Schedule 1 to the TAA – the private ruling found that the services were not subject to GST, but that no refund would be paid because the discretion in s 105-65
  • in support of the refund application, given that the Australian consumers were not registered for GST and the consumers had not been reimbursed for the overpaid GST, the matters relied on included:
  1. the RRP for the price was the same, regardless of whether the customers were located in territories that imposed GST/VAT;
  2. the GST/VAT was not factored into the RRP
  3. OSCo sets its RRP and then recognises its revenue after any applicable GST or VAT was deducted
  4. the consumer pays the RRP, whether or not GST applies to the transaction, and does not bear the cost of the GST
  5. giving a refund to costumers would be a windfall gain to an ‘undeserving consumer’ as referred to by the Tribunal in Luxottica Retail Australia Pty Ltd v Commissioner of Taxation [2010] AATA 22
  • In finding that the refund should not be paid, the first point to note is that the ATO characterised the discretion in s 105-65 as effectively relieving the Commissioner from any obligation to refund the overpaid GST, but nevertheless  giving the Commissioner a residual discretion to pay the refund.  That approach appears to be contrary with the recently stated view of the President of the Tribunal (sitting with Senior Member O’Loughlin), that the discretion  is to “not pay” the refund: see MTAA Superannuation Fund (RG Casey Building) Property Pty Ltd and Commissioner of Taxation [2011] AATA 769 at [65] and National Jet Systems Pty Ltd and Commissioner of Taxation [2010] AATA 766 at [79].
  • The second point to note is that the private ruling gives an insight into the limited circumstances in which the ATO will allow refunds to be paid, where the transactions involve consumers who are not registered for GST – in this regard, the presumption is that the cost of GST is a foreseeable cost that is passed on as part of the cost recovery and pricing structure of the supplier and it would appear that only in very limited circumstances will a supplier be able to satisfy the Commissioner that the overpaid GST has not been passed on.

International cases update 

December 2011 saw a number of cases handed down in the UK, NZ and Canada relating to VAT and GST.

United Kingdom

Court of Appeal

Tax Tribunal

New Zealand (High Court)

  • FB Duvall Limited v Commissioner of Inland Revenue [2011] NZHC 1783 – application for judicial review of Commissioner’s refusal to accept late objections to GST assessments – whether open to Commissioner, having determined for income tax purposes that no services are supplied in return for the payment assess for GST on the basis that the payment is made in return for a supply of services – scope of ‘supply’

Canada (Tax Court of Canada)

Transcript of Commissioner’s Special Leave application in Multiflex available here

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The transcript of the Commisisoner’s application to the High Court from the decision of the Full Federal Court in Commissioner of Taxation v Multiflex Pty Ltd is still not available on Austlii.  For those of you who are interested in what the High Court had to say, I have been able to source a copy of the transcript and it is available here.

In dismissing the application, Chief Justice French said as follows:

The Commissioner seeks special leave to appeal against the decision of the Full Federal Court upholding a decision of Jessup J to issue mandamus to the Commissioner in relation to the performance of the duty under sections 35‑5 and 35‑10.  That decision was based upon his Honour’s view that the Commissioner’s obligation to pay is not subject to an implied qualification that he has a reasonable time before making the payment to investigate the correctness of the GST return.  There is a reasonable time qualification limited to the time necessary to process the return.  The implication for which the Commissioner contended was one which, in the view of both the primary judge and the Full Court, the statute does not bear.

The obligation, when it crystallises, gives rise to a debt:  see Pape v Commissioner of Taxation, but by operation of section 105-15 of the Taxation Administration Act, the obligation to pay and the time by which a net amount must be paid is not affected by the making of an assessment.  It may be that there is a statutory lacuna which gives rise to inconvenience and to risk to the revenue.  If statutory change is necessary, and it has, in fact, been foreshadowed, that is a matter for the Parliament. 

In our opinion, the decision of the Full Federal Court is not attended with sufficient doubt to warrant the grant of special leave.  Special leave will be refused with costs 

 

Taxpayers file Appeals in GST refund cases

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The Federal Court Portal shows that on 28 November 2011 the taxpayers filed appeals against the decisions of the Tribunal (constituted by President Downes and Senior Member O’Loughlin) in MTAA Superannuation Fund (RG Casey Building) Property Pty Ltd and Commissioner of Taxation [2011] AATA 769 and National Jet Systems Pty Ltd and Commissioner of Taxation [2011] AATA 766 which were handed down on 31 October 2011.

The callover for both appeals is scheduled for 7 February 2012 before Justice Gray.

Given that Justice Downes was a member of the Tribunal, the appeal will be heard by the Full Court (s 44(3) of the Administrative Appeals Act).

Both matters concerned a claim for a refund of GST overpaid in respect of agreements which the applicant contended were GST-free pursuant to s 13 of the GST Transition Act.  In each case the Commissioner contended that:

  • the agreements were taxable
  • the notification lodged by the applicant was not a valid notification for the purposes of s 105-55 of Schedule 1 to the TAA
  • if a refund was available, the discretion in s 105-65 of Schedule 1 to the TAA entitled the Commissioner to refuse to pay the refunds
In the National Jet matter, there was also an application for an extension of time to object to a number of tax periods.  The Commissioner refused to grant the extension of time.

In both decisions the Tribunal found that:

  • the notifications lodged by the applicants were valid
  • the agreements were not GST-free pursuant to s 13 of the GST Transition Act
  • if a refund was available, no refund should be paid because this would give rise to a windfall gain to either the applicant or the recipient of the supply
  • for the National Jet matter, the extension of time should not be granted

One would expect that the Commissioner will file a Notice of Contention in both matters contending that the notifications were not valid.  This would be consistent with the approach taken in the appeal by the taxpayer of the decision in Central Equity Limited v Commissioner of Taxation [2011] FCA 908 where Justice Gordon found that a notification lodged in similar form was valid.

High Court grants Commissioner’s application for expedited Special Leave application in Multiflex

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On 21 November 2011 Justice Gummow of the High Court granted the Commissioner’s application for an expedited timetable for the hearing of the Application for Special Leave to appeal from the decision of the Full Court in Commissioner of Taxation v Multiflex Pty Ltd [2011] FCAFC 142.  The transcript from the application can be accessed here and my analysis of the decision of the Full Federal Court can be accessed here.

The application for special leave will be heard in Sydney on Friday 9 December 2011.

On 19 November 2011 Justice Edmonds of the Federal Court granted a stay of the judgment of the Full Federal Court until 13 December 2011.  If the Commissioner is successful in the application for special leave, he will no doubt ask the High Court to extend the stay.  My post on the decision to grant the stay can be accessed here.

Federal Court grants stay in Multiflex pending special leave application – expedition hearing on Monday

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In Commissioner of Taxation v Multiflex Pty Ltd [2011] FCA 1316, Justice Edmonds granted the Commissioner’s application that the orders of the Full Court in Commissioner of Taxation v Multiflex Pty Ltd [2011] FCAFC 142 be stayed pending an application by the Commissioner for special leave to appeal to the High Court. A discussion of the decision of the Full Court can be found here.

The stay did not come cheap for the Commissioner, who was required to pay half of the refunds in issue as a condition of the stay being extended to 13 December 2011 (with the hope that the application for special leave can be heard at the sitting on 9 December 2011 – the judgment states that the Commissioner filed an application for special leave was filed on 15 November 2011 and that an application for expedition of the application would also be filed).  The High Court list shows that the expedition application will be heard before Gummow J on Monday 21 November 2011 at 9.30am at High Court in Melbourne (by video link with Sydney).

The decision of Edmonds J is interesting.  His Honour appeared to take the view that the threshold for the Federal Court granting a stay was lower than for the High Court.  His Honour referred to the following statement of Brennan J in Jennings Construction Limited v Burgundy Royale Investments Pty Ltd (1986) 161 CLR 681 at 684:

A stay to preserve the subject-matter of litigation pending an application for special leave to appeal is an extraordinary jurisdiction and exceptional circumstances must be shown before its exercise is warranted. [emphasis added]

Nevertheless, his honour found that the threshold in the Federal Court would not seem to require ‘exceptional’ or ‘special’ reasons for the stay, merely a requirement on the part of the applicant for a stay pending the determination of an appeal to demonstrate ‘a reason or an appropriate case to warrant the exercise of discretion in his favour’.

His Honour made the following findings:

  • he was far from satisfied on the evidence that a stay was required to preserve the subject matter of the litigation;
  • there was a real prospect that the High Court would conclude that it was not appropriate to grant special leave;
  • the refusal of the Commissioner to pay the refunds would cause loss to Multiflex.

Notwithstanding the above matters, his Honour found that, marginally, the balance of convenience lay in favour of granting the stay on the conditions set out in the orders.

The Court also noted that if the High Court does not grant the Commissioner’s application for expedition, or if it is granted and special leave is given, it would be open to the Commissioner to apply for a further stay of the Full Court’s orders.  Given the statement of Brennan J referred to above, one might think that the Commissioner would face significant difficulties in such an application.

Case Analysis in Multiflex – off to the High Court?

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The decision of the Full Court in Commissioner of Taxation v Multiflex Pty Ltd [2011] FCAFC 142 has real implications for the Commissioner and how he administers the GST Act.  My analysis of the decision can be accessed here.

Also, colleagues who attended the judgment inform me that Counsel for the Commissioner informed the Court that the Commissioner would look to bring an urgent application for special leave to appeal before the High Court.  The Commissioner has also made an application to stay the judgment (i.e. to stay the order to pay the refund) and this application is to be heard by Justice Edmonds next week.

If the Commissioner does bring an application for special leave, along with the Qantas application, he will have two applications for special leave regarding GST.  So much for GST being a “practical business tax”.

Full Court to hand down judgment in Multiflex tomorrow at 2.15pm

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The Full Federal Court is to hand down judgment in the Commissioner’s appeal of the judgment of Jessup J in the Multiflex case at 2.15pm on Friday 11 November 2011.  Judgment will be handed down in Sydney in Court Room 22A.

The urgency of the matter is reflected by the matter that Federal Court only handed down its judgment on 30 September 2011 and we have a judgment on appeal some six weeks later.

See here for my brief discussion of the decision at first instance.