This paper was presented in September 2018 at the TIA National GST Intensive.

CONTENTS

1    Introduction

1.1    Refunds

1.2    Limitation periods

2    Refunds and s 8AAZLGA of the TAA

2.1    Multiflex – where it all began

2.2    The legislation

2.2.1    Stage 1 – The Commissioner may retain an amount

2.2.2    Stage 2 – Informing the entity of the retention of the amount

2.2.3    Stage 3 – How long the amount may be retained

2.2.4    Stage 4 – Objecting to the decision to retain the amount

2.2.5    What if the Commissioner issues an assessment?

2.3    The operation of the legislation in practice

2.3.1    The IGOT Report – an overview

2.3.2    Refund verification in the precious metals industry – is s 8AAZLGA effective as a fraud prevention measure?

2.3.3    The precious metals industry and the operation of s 8AAZLGA – a case study

3    Limitation periods on claiming refunds and credits – a historical review

3.1    Period 1 – from 1 July 2000 to 30 June 2008

3.2    Period 2 – 1 July 2008 to 12 May 2009

3.2.1    The transitional period

3.3    Period 3 – from 13 May 2009 to 30 June 2012

3.3.1    Section 93-5 of the GST Act

3.3.2    Section 93-15

3.4    Period 4 – From 1 July 2012 (the self-assessment regime)

3.4.1    Division 155 of Schedule 1 to the TAA

3.4.2    Section 93-5 of the GST Act

3.4.3    Section 93-15

4    Claiming refunds and credits and limitation periods under the self-assessment regime – can you “stop the clock”?

4.1    Introduction

4.2    Unclaimed input tax credits and s 29-10(4) of the GST Act

4.2.1    Path 1 – Application to amend the earlier assessment

4.2.2    Path 2 – Objection to the earlier assessment

4.2.3    Path 3 – Objection to current GST return/assessment

4.3    What is the effect of s 93-5 of the GST Act?

4.3.1    Path 1 – Application for an amendment of assessment under s 155-45 of Schedule 1 to the TAA

4.3.2    Paths 2 and 3 – Objection to an assessment (whether for earlier or current tax period)

4.4    Are the input tax credits “taken into account” by the taxpayer upon making the objection?

4.4.1    Do you need to quantify the claim for input tax credits?

5    Conclusion

1    Introduction

1.1    Refunds

That a taxpayer may be entitled to a refund is a fundamental part of the GST regime.

I am not referring to taxpayers claiming a refund of overpaid GST, or to taxpayers who discover that they failed to claim certain input tax credits for a previous tax period. I am referring to those taxpayers who have reported a negative net amount in their activity statement and are entitled to be paid a refund by the Commissioner. The negative net amount arises from the taxpayer’s reported entitlement to input tax credits exceeding its reported liability for GST. This may arise in any number of circumstances, including:

• The taxpayer is commencing an enterprise and incurs significant start-up costs.
• The taxpayer makes a significant capital acquisition, such as the acquisition of a warehouse, office building or plant and equipment.
• The taxpayer is property developer who incurs costs during the construction period but no taxable supplies will be made until the developed lots are sold and settlement takes place.
• The taxpayer supplies goods or services that are wholly, or partially, GST-free, such as an exporter, a fresh food wholesaler or retailer, a school or university, or a refiner of precious metals.

In these circumstances, the taxpayer has a statutory entitlement to receive the refund. In some cases the taxpayer may be reliant on this refund to assist in financing its ongoing business operations. This may be particularly the case for high volume, low margin businesses.

This statutory entitlement to be paid a refund can be exploited, particularly by those engaged in fraud or non-compliance. Whether it is mobile phones, gold, or other activities, the input tax credit regime can be taken advantage of. As an example, in 2002 a UK newspaper reported that Customs officially estimated the size of fraud through the international trade of mobile phones at 2.6 billion pounds in the 2001 financial year.[1]

Australia is not immune. On 31 March 2017, the “The Australian” reported that an elaborate GST scam involving gold had so far cost taxpayers more than $700 million in lost tax revenues.[2] It was then announced that a “reverse charge” regime would be introduced to address the issue.

In seeking to address the issue of fraudulent refunds, a balance needs to be struck between protecting the revenue and recognising the statutory entitlement of taxpayers to be paid a refund. In an attempt to strike such a balance, section 8AAZLGA of the Taxation Administration Act 1953 (TAA) was introduced to give the Commissioner the right to retain and verify refunds in certain circumstances. The operation of those provisions has been somewhat controversial, with the Inspector General of Taxation (IGOT)being asked to prepare a report in the administration of those provisions by the Commissioner. The IGOT’s report was provided to the Minister on 16 March 2018 and was released to the public on 16 August 2018[3], shortly before this paper was finalised. The IGOT found that overall the provisions were working well, but that problems were identified where the Commissioner sought to apply the provisions to address non-compliance and fraudulent activities of taxpayers.

1.2    Limitation periods

Limitation periods are also a fundamental part of the GST regime. They give finality and certainty to taxpayers and to the Commissioner. The general position has always been that taxpayers have four years to recover unclaimed input tax credits and the Commissioner has four years to recover unpaid GST (in the absence of fraud or evasion).

The Australian GST regime has had its share of difficulties with regards to imposing a time limit on the ability of taxpayers to recover refunds. Such problems are not unknown in the context of a value added tax. A striking example is the United Kingdom where the House of Lords in Fleming v Revenue and Customs [2008] UKHL 2 found that the limitation periods introduced by Parliament were not effective and taxpayers were able to seek refunds back to the introduction of VAT in 1973. An article in “The Telegraph” in July 2009 reported that Revenue and Customs received 13,000 claims for backdated overpaid VAT and that so far it had paid 1.5 billion pounds and had set aside a further 4.8 billion pounds for repayments.[4]

Australia’s problems have not been to that scale, however there have been significant issues – including one drafting omission which allowed taxpayers to claim certain refunds back to the commencement of GST in July 2000.

This paper considers the history of the statutory limitation periods in the context of refunds and seeks to identify the various issues that arose. The paper also considers the current position under the “self assessment” regime that has been in place since 1 July 2012, and identifies a number of matters that appear to be problematic, including:

• What options are available to a taxpayer who discovers that they may be entitled to input tax credits that were not claimed in the tax period in which they were attributable?
• What is the effect of the four year limitation period on claiming input tax credits in s 93-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
• Is it possible for a taxpayer to “stop the clock” under the current regime and preserve their entitlement to refunds beyond the four year limitation period in s 93-5 of the GST Act – including by an application to amend an assessment or lodging an objection to an assessment?
• If an objection does preserve the taxpayer’s rights, is it necessary to quantify the objection?

These matters have been brought into focus by the Commissioner’s forthcoming draft GST Determination dealing with the operation and effect of s 93-5 of the GST Act. I understand that the current timetable for the publication of the draft is October 2018.

2    Refunds and s 8AAZLGA of the TAA

2.1    Multiflex – where it all began

In Commissioner of Taxation v Multiflex Pty Ltd[2011] FCAFC 142 the Full Federal Court upheld a decision of the Federal Court[5] to make an order of mandamus directing the Commissioner to comply with s 35-5 of the GST Act and s 8AAZLF of the TAA by “forthwith paying to the applicant the net amount notified to the respondent in the applicant’s GST return for each of the tax periods January, February, March, April and May 2011”.[6]

At the time, s 35-5(1) of the GST Act provided as follows:

(1) If the *net amount for a tax period is less than zero, the Commissioner must, on behalf of the Commonwealth, pay that amount (expressed as a positive amount) to you.

And s 8AAZLF(1) of the TAA provided as follows:

(1) The Commissioner must refund to an entity so much of:

(a) an RBA surplus of the entity; or

(b) a credit (including an excess or non-RBA credit) in the entity’s favour;

     as the Commissioner does not allocate or apply under Division 3.

The primary judge and the Full Court rejected the Commissioner’s contention that, despite the otherwise imperative language of s 35-5, it was implicit that he was allowed a reasonable time to pay the refund, including such time as was reasonably necessary to determine by investigation whether the net amount was truly payable to the taxpayer. The Courts were unable to draw such an implication and the Full Court observed (at [1]) that “[i]f that be a defect in the scheme of taxation, the defect is one for Parliament to address”.

The Full Court found (at [21]) that the general scheme of the GST Act was that Parliament consigned to the registered entity concerned the task of working out its “net amount” using the formula in s 17-5 of the GST Act (essentially “GST – input tax credits”). Further, (at [25) the net amount worked out by the entity was to be treated as the entity’s net amount and the obligation on the Commissioner to refund a net amount to the entity did not, in any way, depend on the Commissioner first having made an assessment. The net amount reported by the taxpayer reflected the entity’s obligation to pay GST, or the Commissioner’s obligation to pay a refund – until such time as the net amount was “superseded” by the issue of an assessment by the Commissioner.

The decision of the Full Court was addressed in 2012 by the insertion of s 8AAZLGA into the TAA.[7] The Explanatory Memorandum to the amending Bill described the context of the amendments in the following terms:

A taxpayer’s entitlement to be paid an amount is generally provided for in the relevant taxation law. These credits may be offset against other debts of the taxpayer, or refunded. For example, section 35-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that the Commissioner is required to refund a negative net amount. Section 35-10 of the GST provides that the taxpayer’s entitlement to be paid that refund arises when he or she lodges their goods and services tax (GST) return with the Commissioner.

Section 8AAZLF of the TAA 1953 requires the Commissioner to refund a running balance account surplus or other credit.

Prior to the Full Federal Court’s decision in Commissioner of Taxation v Multiflex Pty Ltd [2011] FCAFC 142 (Multiflex), the Commissioner’s administrative practice with respect to negative net amounts was to retain certain refunds in exceptional circumstances pending verification checks on the basis that the ability to do so was implied by the TAA 1953 and the GST Act, and within the Commissioner’s general powers of administration.

…

These amendments are intended to address the outcome in Multiflex, and ensure that the Commissioner has the ability to verify refund claims before paying them to a taxpayer.

…

These amendments seek to restore the Commissioner’s previous administrative practice of retaining certain refunds for verification prior to payment to protect the integrity of the tax system.  At the same time, the provision seeks to strike a balance between this need to preserve the integrity of the tax system and curtailing the opportunities for refund fraud on the one hand; and the principles of self assessment and like systems and a taxpayer’s expectation of a prompt refund on the other.

The question addressed in this paper is whether the provisions have succeeded in the goal identified in the last paragraph. Have the provisions struck an appropriate balance between the need to preserve the integrity of the tax system and the expectations of taxpayers to promptly receive a refund?

In his report, the IGOT concluded that overall, the ATO’s approach to GST refund verification was operating well. The review also examined the ATO’s current approach to using refund retention as part of a broader project to address fraud within the precious metals industry and identified a number of difficulties associated with that approach. The IGOT recommended that the Government consider possible amendments to the legislation to better empower the ATO to address serious risks of fraud.

2.2    The legislation

Section 8AAZLGA of the TAA includes four sub-headings, reflecting the four stages of operation of the provision. Each stage is considered below.

2.2.1     Stage 1 – The Commissioner may retain an amount

Section 8AAZLGA(1) gives the Commissioner the power to retain a refund in the following circumstances:

(1)     The Commissioner may retain an amount that he or she otherwise would have to refund to an entity under section 8AAZLF, if the entity has given the Commissioner a notification that affects or may affect the amount that the Commissioner refunds to the entity, and:

(a)   it would be reasonable to require verification of information (the notified information) that:

(i)    is contained in the notification; and

(ii)    relates to the amount that the Commissioner would have to refund; or

(b)   the entity has requested the Commissioner to retain the amount for verification of the notified information, and the request has not been withdrawn.

The first requirement is that the entity has given the Commissioner a notification that affects or may affect the amount that the Commissioner refunds to the entity. The Explanatory Memorandum states as follows:

This could be a GST return, or another document which has resulted in a running balance account surplus or credit that the Commissioner must refund under section 8AZLF.

Accordingly, it would appear that the provisions are intended to apply broadly – not just to GST returns that report a negative net amount, but also to other information provided to the Commissioner that results in a running balance account surplus.

The second requirement is that it must be reasonable to require verification of information contained in the notification (eg, the GST return or BAS) that relates to the amount of the refund.

In determining whether it is reasonable to require verification of the information (and to withhold the refund), s 8AAZLGA(2) requires the Commissioner to have regard to a number of matters, as far as the information available to him at the time reasonably allows. Requiring the Commissioner to have regard to each of these factors is to ensure a balance between the risks to the revenue and the taxpayer’s entitlement to be paid the amount.[8] The factors are as follows:

• the likely accuracy of the information;
• the likelihood that the information was affected by fraud or evasion, intentional disregard of a taxation law or recklessness as to the operation of a taxation law;
• the impact of retaining the amount on the entity’s financial position;
• the possible impact on the revenue;
• the complexity that would be involved in verifying the information;
• whether the Commissioner has sufficient information on which to make an assessment relating to the amount;
• whether the information provided by the taxpayer is consistent with information previously provided by the taxpayer; and
• any other relevant matter.

The ATO provides guidance to its officers on the operation of these provisions in PSLA 2012/6 ‘Exercise of Commissioner’s discretion to retain a refund’. The practice statement states as follows:

In some circumstances, and particularly where there is little information available to you, one factor alone might be sufficient to support a decision to retain the amount. However, in all cases you must consider each of the factors, and determine whether there is information available relevant to each one. You should then objectively consider each factor and determine whether it is reasonable in all the circumstances to retain the amount.

2.2.2     Stage 2 – Informing the entity of the retention of the amount

Section 8AAZLGA(3) requires the Commissioner to inform the entity “by serving a document on the entity or by other means” that he has retained the refund. Where paragraph 8AAZLF(1)(a) applies (there is a RBA surplus in the entity’s running balance account), this must be done by the end of the “RBA interest day” within the meaning of s 12AF of the Taxation (Interest on Overpayments and Early Payments) Act 1983 (Overpayments Act) for that RBA surplus. This is the day delayed refund interest would become payable if the refund was not otherwise paid to the entity.

In other cases, this must be done by the 30^thday after the notification is given by the entity to the Commissioner.

Section 8AAZLGA(4) entitles the Commissioner to request information as part of informing the entity that the refund is retained.

2.2.3     Stage 3 – How long the amount may be retained

Section 8AAZLGA(5) sets out how long the Commissioner is entitled to retain the refund. The section provides as follows:

(5)     The Commissioner may retain the amount under this section only until:

(a)   if paragraph (1)(a) applies – it would no longer be reasonable to require verification of the information; or

(b)   if the Commissioner fails to inform the entity, in accordance with subsection (3), that he or she has retained the amount under this section – the end of the day after the time by which, under that subsection, the Commissioner is required to inform the entity; or

(c)   in any case – there is a change of how much the Commissioner is required to refund, as a result of:

(i)  the Commissioner amending an assessment relating to the amount or

(ii)the Commissioner making or amending an assessment, under Division 105 in Schedule 1, relating to the amount;

whichever happens first.

Effectively, this sub-section operates as follows:

• If the Commissioner does not notify the entity that he is retaining the refund within the time specified in s 8AAZLGA(3), the provisions are not engaged and the Commissioner must pay the refund – unless he issues an assessment within the notification period.
• If the Commissioner notifies the entity that he is retaining the refund within the specified time, he is entitled to retain the refund until “it would no longer be reasonable to require verification of the information” or the Commissioner issues an assessment.

The “reasonableness” test imposed on the Commissioner is an ongoing one and it is not open to the Commissioner to simply make a decision to withhold the refund and to maintain that decision until he completes his investigation and concludes that the entity is entitled to the refund (refund is paid) or it is not entitlement to the refund (assessment or amended assessment is issued). In this context, the provisions operate differently to an audit of an assessment, where the Commissioner will come to a final view on the taxation obligations (or entitlements) of a taxpayer at the completion of the investigation. The Commissioner is required to continually re-visit his decision to retain the refund, regardless of whether he has completed his investigations. The provisions envisage that circumstances may dictate that the refund should be paid, notwithstanding that the Commissioner’s investigations ultimately reveal that the entity was not entitled to the refund. In that case, the Commissioner would need to issue an assessment to the entity and recover the refund in the usual way.

2.2.4     Stage 4 – Objecting to the decision to retain the amount

Section 8AAZLGA(6) gives the entity a right to object under Part IVC of the TAA to the Commissioner’s decision to retain the refund. Section 14ZW(1)(aad) of the TAA sets out the time period in which an objection can be lodged:

(aad)     if the taxation objection is made under subsection 8AAZLGA(6) of this Act (retaining refunds while Commissioner verifies information) – the period:

(i) Starting at the end of the 60 day period after the end of the day before which, under subsection 8AAZLGA(3), the Commissioner is required to inform the entity mentioned in section 8AAZLGA that the Commissioner has retained an amount under that section; and

(ii) Ending on the day (if any) on which there is a change, of a kind mentioned in paragraph 8AAZLGA(5)(c), to how much the Commissioner is required to refund in relation to the amount.

The objection period therefore starts 60 days from the last date on which the Commissioner was required to notify the entity that the refund was being retained. Section 8AAZLGA(7) provides that before the end of 7 days after the start of this period, the Commissioner must inform the entity of its objection rights.

However, there is a sting in the tail – s 14ZW(4) of the TAA provides as follows:

(4)     The 60 day period mentioned in subparagraph (1)(aad)(i) (including the period as extended by a previous application of this subsection) is extended by the number of days during that period in relation to which the following paragraphs apply:

(a)      on or before the day, but during the period, the Commissioner requests information from the entity for the purposes of verifying the notified information mentioned in section 8AAZLGA;

(b)      the Commissioner does not receive the requested information before the day.

Accordingly, the 60 day period to object to the refund decision stops each time the Commissioner requests information and does not start again until that information is provided. This can happen repeatedly – there is no limit on the number of information requests that can be made. This can be contrasted with s 14ZYA(1)(b) of the TAA which extends the 60 day period in which an objection will be deemed to be disallowed where an information request is given – however it appears that only one such extension is allowed.

2.2.5     What if the Commissioner issues an assessment?

If an entity’s objection rights have been engaged, it appears that those objection rights are extinguished if the Commissioner issues an assessment. This also appears to be the case if the objection had been disallowed and even if the entity has brought proceedings before the Tribunal or the Federal Court with respect to the disallowance of the objection.

This issue arose in Sanctuary Australasia Pty Ltd and Commissioner of Taxation [2013] AATA 371. In that case, the entity objected to the Commissioner’s decision to retain the refund and the objection was disallowed. The entity lodged an application for review with the Tribunal. However, between the date of the objection decision and the application, the Commissioner issued an amended assessment for the tax period in question whereby the negative net amount reported in the original GST return was reduced to nil. The entity wished to proceed with the review proceedings but the Tribunal agreed with the Commissioner that the proceedings could not be brought because the amended assessment had issued. The Tribunal’s reasons can be found at [36] which are as follows:

36. In this scheme, the decision to retain an amount while information is verified is merely a holding decision, as it were. It is not a decision relating to an entity’s substantive liabilities or entitlements. The decision enables the Commissioner to hold the money but only for so long as s 8AAZLGA(5) permits. An entity may object to the Commissioner’s retention decision but only for so long as there is no change of the sort mentioned in s 8AAZLGA(5)(c) i.e. there has been no assessment or amended assessment relating to how much the Commissioner must refund in relation to the amount. That is the effect of s 14W(1)(aad) of the TAA. It is clear that the right to object to the decision to retain an amount must come to an end at that time because the amount, if any, that the Commissioner must refund to the entity is not then determined under s 8AAZLGA(5)(a) or (b) but by the assessment or amended assessment. That is the decision to which the entity must object and which determines its liability to pay or entitlement to receive a refund.

The avenue left to the applicant was to object to the amended assessment of net amount issued by the Commissioner.

In reality, it may be expected that a decision of the Commissioner to retain a refund may never get to be judicially determined. This is because the Commissioner will likely have completed his “verification” of the refund (and either paid the refund or issued an assessment) before the Tribunal or the Federal Court has the opportunity to hear and determine a review of the decision to the refund.

2.3    The operation of the legislation in practice

It is fair to say that the provisions have given rise to controversy and the Inspector General of Taxation (IGOT) was asked to prepare a report on the operation of s 8AAZLGA of the TAA. The background to the Terms of Reference to the report includes the following statement by way of background:

Stakeholders have indicated to the Inspector-General of Taxation (IGT) that, generally, the administration of the GST refund process works well. However, concerns have been raised with the GST refund verification process through the IGT’s complaints handling service and in submissions to his current work program. These concerns include:

– a lack of clarity on the scope and nature of verification activities, including information requests;

– inadequate engagement with taxpayers and their representatives;

– inaccurate risk identification processes and inappropriate administration of the retention provisions including unexpected offsetting of GST refunds against future liabilities; and

– the adverse financial and emotional impact on taxpayers, particularly where the ATO does not fully appreciate their commercial arrangements as well as cash flow, working capital and profit margin implications.

This IGT review will consider the GST refund verification process, in particular the above concerns, in order to identify improvement opportunities which minimise adverse impact on taxpayers whilst ensuring that the ATO has sufficient time to adequately address risks to government revenue.

The report was provided to the Minister on 16 March 2018 and was released to the public shortly before this paper was completed.

2.3.1     The IGOT Report – an overview

After engaging with a number stakeholders including taxpayers, tax practitioners and their representative bodies as well as senior staff in other government departments, the IGOT observed that the concerns raised could be broken down into three broad themes:[9]

• the accuracy of the ATO’s risk assessment tools to detect incorrect or potentially fraudulent GST refunds;
• the adequacy of the ATO’s engagement with taxpayers and their representatives during the GST refund verification process; and
• the adverse impacts that delayed GST refunds may have on taxpayers.

The IGOT also noted that he had been approached by a number of businesses operating within the precious metals industry (as well as their representatives). Their concerns mainly related to the intensity of the ATO’s actions in the industry, the significant delays in issuing refunds and the corresponding financial and personal impacts on affected taxpayers.

The IGOT recognised that the prompt processing and issuing of GST refunds was critical in alleviating cash flow pressures, particularly for small businesses or those business operating in industries with low margins. However, the IGOT also noted that the ATO was tasked with the responsibility of upholding the integrity of the GST system which it may carry out by verification processes prior to paying GST Refunds.[10]

The IGOT concluded that overall, the administration of GST refunds was operating efficiently, with the vast majority of refunds processed and released promptly. Less than 1 per cent of activity statements claiming refunds were stopped for verification, representing less than 6 per cent of total GST refunds claimed.[11]

2.3.2     Refund verification in the precious metals industry – is s 8AAZLGA effective as a fraud prevention measure?

The Report contains an entire chapter dealing with the operation of the GST refund verification process in the precious metals industry. The IGOT included this chapter to illustrate how the ATO addresses heightened risks and suspicions of GST refund fraud.

The IGOT acknowledged, as did all stakeholders, that there was non-compliant behaviour and serious risk of tax fraud in the precious metals industry and that these risks have to be addressed without impacting compliant taxpayers. The IGOT also considered that in the audits and objections examined in relation to retention of refunds in the precious metal industry, the ATO had adhered to its obligations under s 8AALGA of the TAA. It appeared to the IGOT that the fundamental problem was a mismatch between the expectations of both parties regarding the administration of these provisions. The report stated as follows:[12]

• On the one hand, the ATO has to conduct reviews and audits to fully explore, and where necessary prosecute, the issues under investigation, including undertaking enquiries of other parties in the supply chain which invariably requires significant time.
• On the other hand, taxpayers are expecting prompt processing of refunds based on their understanding of section 8AAZLGA of TAA 1953

From my own experience in advising a number of gold refiner clients, I agree with this observation. The major difficulties have centred on the delay (or repeated delays) in the ability of the taxpayer to engage its statutory rights, in circumstances where they believe that the Commissioner is holding onto a refund that they consider is rightfully theirs. Further, being in a high volume – low margin business, they were financially reliant on the GST refund as a substantial part of their working capital. This resulted in a significant level of frustration for those taxpayers.

The IGOT also observed that the underlying cause for the lack of understanding appeared to be the meaning of the word ‘verification’ in s 8AAZLGA of the TAA. The IGT noted that the Tax Institute and the Law Council of Australia, in their joint submission to Treasury on the initial drafting of this section, warned that the use of the word ‘verification’ could be read as setting a high forensic threshold. They submitted that a lower threshold should be set.[13]

I agree. From my involvement with gold refining clients, the Commissioner does appear to be applying a high forensic threshold to the “verification” of refunds where he suspects fraud or non-compliance. By this I mean adopting an “audit” approach whereby – once a decision has been made to retain a refund, that refund will be retained until such time that a firm decision is made, one way or another, on the entitlement to the refund. The difficulty with applying such an approach is that it may fail to properly take into account the Commissioner’s ongoing obligation to re-visit the reasonableness of his decision to retain the refund. For example, as time goes on, it may be expected that the financial impact on the taxpayer of not paying the refund will grow as they are left without funds. Also, as the Commissioner receives further information, either from the taxpayer or third parties, he may not be able to finally determine the taxpayer’s entitlement to the refund (ie, to complete the audit), but he may have sufficient information before him to determine that it is no longer reasonable to retain the refund and that he should pay the refund. If, upon completion of the audit, he forms the view that the taxpayer is not entitled to the refund, an amended assessment can be issued and the money recovered in the ordinary way.

Noting that the meaning of “verification” is ultimately a matter for the Tribunal and Courts to determine, the IGOT considered that it was clear that there would be benefits in amending s 8AAZLGA “to allow the Commissioner to effectively investigate and address serious risk of fraud such as those currently in the precious metal industry”, but that these exceptions should only be triggered where serious risks of fraud are clearly established. The IGOT outlined a number of options:

• Requiring the ATO to seek a Federal Court order before it could classify a case as posing a serious risk of non-compliance.
• An approach akin to the ATO’s General Anti-Avoidance Rules (GAAR) Panel in which the ATO seeks advice from a panel comprising senior ATO staff as well as members from the private sector.

The ATO’s response to this recommendation to consider amending s 8AAZLGA was a matter for the Government. In its response, the Government stated that it would consider options that would balance the integrity of the GST system and the prompt issuing of GST refunds and that careful consideration will be given to any impact on the ability of the ATO to conduct covert taxpayer reviewed in cases of deliberate or egregious taxpayer fraud.[14]

2.3.3     The precious metals industry and the operation of s 8AAZLGA – a case study

The IGOT observed that:[15]

• The audit timeframes for the ATO’s precious metal refund verification actions were more than 10 times longer on average; and
• The consideration of objections has taken longer than the ATO’s prior service standards of 56 days.

By way of illustration of the delays that can arise where the ATO retains a refund under s 8AAZLF and follows the statutory procedures prescribed by that provision, the following example based on a matter that is currently before the Tribunal. The matter involves a gold refiner taxpayer who contends that it:

• Acquired a significant amount of gold that was not “precious metals” as defined in the GST Act. It acquired that gold as a taxable supply and for a price that was grossed up by 10% on account of GST.
• Refined the gold into “precious metal” as defined in the GST Act and sold that gold to a bullion dealer. That supply was GST-free pursuant to s 38-385 of the GST Act as the first supply of “precious metal” after its refining.
• Was entitled to claim input tax credits in respect of the gold it acquired on the basis that the gold was acquired for a creditable purpose under s 11-15 of the GST Act.

The chronology of events can be relevantly summarised as follows:

• 5 August 2016: the taxpayer lodged its activity statement for the July 2016 tax period claiming a refund of approximately $1.5m. The activity statement recorded total sales of approximately $19.4m which included taxable supplies of approximately $8.1m and GST-free supplies of approximately $11.3m.
• 5 September 2016: the Commissioner informed the taxpayer of his decision to decision to retain the July refund.
• 7 September 2016: the taxpayer lodged its activity statement for the August 2016 tax period claiming a refund of approximately $750,000. The activity statement recorded total sales of approximately $13.8m which included taxable supplies of approximately $3.4m and GST-free supplies of approximately $10.4m.
• September 2016: the Commissioner commenced an audit of both refunds. During the audit, various requests for information were made by the Commissioner and were responded to by the taxpayer. The period between each of these information requests and the provision of a response deferred the date upon which the taxpayer could object to the decision to withhold the refunds.
• 22 December 2016: the Commissioner notified the taxpayer of its right to object to decision to retain the refunds. This was 108 days after being informed of the decision to withhold the July refund.
• 23 December 2016: the taxpayer objected to the decisions to withhold the refund.
• 24 February 2017: the taxpayer lodged a notice under s 14ZYA of the TAA.
• 21 April 2017: the Commissioner made a decision disallowing the taxpayer’s objection, thereby engaging the taxpayer’s rights to make an application for review to the Tribunal or an appeal to the Federal Court. This was more than 7 months after informing the taxpayer of the decision to withhold the refund.
• 25 May 2017: the taxpayer lodged an application with Tribunal for a review of the objection decision.
• 1 June 2017: orders were made by the Tribunal for the filing of “T” documents and other documents.
• 7 July 2017: the Commissioner provided a letter to the taxpayer notifying it of the completion of the audit and the Commissioner issued amended assessments and penalty assessments. This had the effect of extinguishing the review proceedings lodged by the taxpayer with the Tribunal. The taxpayer withdrew the Tribunal proceedings.
• 31 July 2017: the taxpayer lodged an objection to the amended assessments and penalty assessments.
• 28 September 2017: the Commissioner requested further information from the taxpayer. The request for information was made on day 59 of the 60 day period before a notice under s 14ZYA could be lodged by the taxpayer. This re-freshed the 60 day period for the lodgement of such a notice until after the requested information was provided.
• 16 October 2017: the information request was responded to.
• 18 December 2017 – the taxpayer lodged a notice under s 14ZYA of the TAA.
• 14 February 2018 – the Commissioner made the objection decision, thereby engaging the taxpayer’s rights to lodge an application for review to the Tribunal or an appeal to the Federal Court. These rights were engaged more than 17 months after the Commissioner informed the taxpayer that he had decided to withhold the refund.

Throughout this period there were a number of very difficult discussions with the taxpayer about how these provisions could operate in such a way. In particular, why the client had to wait so long before being entitled to object to the refund decision and then, after finally getting to the Tribunal whereby the decision to retain the refund could be reviewed, having to start all over again by objecting to the assessments, only to be faced with further delays before being able to lodge proceedings with the Tribunal.

3    Limitation periods on claiming refunds and credits – a historical review

To ensure a level of finality and certainty, from the commencement of the GST regime the intention of Parliament was to impose a four year limitation period on the ability of taxpayers to recover refunds, whether of overpaid GST or under claimed input tax credits. A similar four year period was imposed on the Commissioner’s ability to recover underpaid GST – save where there was fraud or evasion on the part of the taxpayer.

However, the legislators have not been particularly successful in achieving this aim. The position may arguably be clearer under the “self-assessment regime” which has been in place since 1 July 2012, but there are still potential areas of difficulty – particularly with respect to the interaction between the GST Act and the TAA.

To understand the current position, it is useful to review the statutory regime as it developed over time. Four periods can be identified, ending with the self-assessment regime which commenced on 1 July 2012.

3.1    Period 1 – from 1 July 2000 to 30 June 2008

When the GST commenced, the limitation period was found in s 36 of the TAA, which relevantly provided as follows:

(1) You are not entitled to:

(a)   a refund under section 35-5 of the GST Act in respect of a particular tax period; or

(b)   an input tax credit that is attributable to a particular tax period…

unless:

(c)   within 4 years after the end of the tax period…you notify the Commissioner (in a GST return or otherwise) that you are entitled to the refund or credit…

As part of the introduction of the Fuel Tax regime in 2006, the limitation provision was removed from the body of the TAA and inserted into s 105-55 of Schedule 1 of the TAA (s 105-55). With effect from 1 July 2006, s 105-55 relevantly provided as follows:

(1) You are not entitled to a refund or credit to which this subsection applies in respect of a *tax period or importation unless:

(a) within 4 years after:

(i) the end of the tax period; or

(ii) the importation;

as the case requires, you notify the Commissioner (in a *GST return or otherwise) that you are entitled to the refund or credit.

…

(2) Subsection (1) applies to:

(a) a refund under section 35-5 of the *GST Act or section 61-5 of the Fuel Tax Act 2000in respect of a particular *tax period; or

(b) an *input tax credit or *fuel tax credit that is attributable to a particular tax period…

Section 36 of the TAA and s 105-55 were substantially in the same form and the initial operation of the limitation period for refunds can be described in the following terms:

You are not entitled to a refund under section 35-5 of the GST Act in respect of a particular tax period unless you notify the Commissioner that you are entitled to the refund or credit within four years after the end of the tax period.

The limitation period was substantive in operation. Unless the taxpayer lodged a notification with the Commissioner (commonly described as a “stop the clock” notification), once the four year period expired any entitlement of a taxpayer to a refund was extinguished.[16]The Commissioner accepted that a notification under s 105-55 did not need to quantify the amount of the refund – it was sufficient if it notified the Commissioner of the entitlement to the refund and it was possible to ascertain that the subsequent claim was covered by the notification.[17]

The decision of the Federal Court in KAP Motors Pty Ltd v Commissioner of Taxation [2008] FCA 159 highlighted a problem with the drafting of s 105-55. The limitation period was restricted to refunds under s 35-5 of the GST Act, being where the taxpayer’s net amount was negative. The limitation period did not apply where the taxpayer sought to recover a refund where the net amount was positive (for example because of an overpayment of GST) and the refund claimed did not take the net amount below zero.[18]For those claims, there was no limitation period and my understanding is that some taxpayers successfully made claims for these types of refunds going as far back as July 2000.

3.2    Period 2 – 1 July 2008 to 12 May 2009

To address the issue with the drafting, s 105-55 was amended with application to tax periods starting on or after 1 July 2008.[19]After the amendments, s 105-55 relevantly provided as follows (the amendments are marked):

(1) You are not entitled to a refund, other payment or credit to which this subsection applies in respect of a *tax period or importation unless:

(a) within 4 years after:

(i) the end of the tax period; or

(ii) the importation;

as the case requires, you notifythe Commissioner (in a *GST return or otherwise) that you are entitled to the refund, other payment or credit;…

(2) Subsection (1) applies to:

(a) a refund under section 35-5 of the *GST Act or section 61-5 of the Fuel Tax Act 2000in relationto a *net amount or *net fuel amountin respect of a particular *tax period; or

…

(b) an *input tax credit or *fuel tax credit that is attributable to a particular tax period…

The amendments were to ensure that the four year limitation period applied to refunds irrespective of whether the refund resulted from a reduction of liability (the reduction of a positive net amount due to overpaid tax or under-claimed credits) or the increase in a refund entitlement (the increase of a negative net amount). This statutory intention is reflected in the Explanatory Memorandum which states as follows under the heading “Detailed explanation of new law”:[20]

Four year time limit on refunds due to taxpayers

2.21 Under the indirect tax law there is also a four-year time limit, starting from the end of the relevant period, on the entitlement of a taxpayer to refunds and credits, unless before the end of the four-year time limit the taxpayer notifies the Commissioner of their entitlement to a refund or credit or the Commissioner notifies taxpayers of their entitlement.

…

2.24 The four year limit in the payment of refunds to taxpayers applies irrespective of how the entitlement to the refund arises. Therefore the four year-time limit on refunds applies, for example, where there is a reduction in the taxpayer’s liability.  These amendments achieve this by ensuring that the time limit applies to any refund of a net amount or net fuel amount or other amount or payment that was overpaid as indirect tax. [Schedule 2, Part 1, items 7 and 8, 10 to 12 and 15, paragraphs 105-55(2)(a), (2)(aa) and (3)(c)]

The effect of the amendments was to apply the four year limitation period universally to refund claims by taxpayers, unless those taxpayers lodged a notification under s 105-55 – which operated to preserve the claims identified in the notification. Where a notification was lodged, no statutory time period applied to when a claim was to be made.

3.2.1     The transitional period

The amended s 105-55 was to apply to all entitlements, including those arising in respect of previous tax periods. However, the amendments included transitional provisions which gave taxpayers a six-week window in which to preserve their entitlements to refunds by lodging a notification under s 105-55 before 1 July 2008. The effect of lodging a valid notification was to preserve a taxpayer’s entitlement to seek refunds (to the extent the taxpayer was in a tax positive position) potentially back to the commencement of GST.

This led to a flood of “notifications” being lodged in that time frame and to a number of disputes about the validity of the notifications. Many of these “notifications” were quite short on detail and the Commissioner formed the view that a notification was required to specifically identify the refund to which the taxpayer was said to be entitled. Otherwise, it was invalid and the taxpayer’s entitlement to the refund was extinguished.

The first dispute was heard by Justice Gordon of the Federal Court (as her Honour then was) in Central Equity Limited v Commissioner of Taxation [2011] FCA 908. In that case the notification was in the following terms:

The entity noted above has mistakenly paid GST in error in relation to the supply of real property transactions where the contract was entered into prior to 1 July 2000, and has overpaid GST on supplies made where the GST was calculated under the margin scheme as the acquisition price was used rather than a 1 July 2000 valuation.

The entity is currently in the process of quantifying the amount by which it has overstated its net amount and will notify the ATO of the precise amount of the GST refund it will be seeking in due course.

Her Honour observed (at [75]) that it was not in dispute that the legislation did not provide for a specific form of notification and found (at [77]) that the specificity sought by the Commissioner was unnecessary. The notification achieved its objectives, it identified the period of the claim and it identified the circumstances under which the refund arose.

Other disputes followed.[21]Perhaps the high-water mark is the decision of the Tribunal in North Sydney Developments Pty Ltd and Commissioner of Taxation [2014] AATA 363 where the Tribunal found that a notification in the following terms was sufficient to preserve the entitlement to a refund (at [3(h)]):

3 September 2009 North Sydney wrote to the Commissioner. The letter reported the receiver’s appointment on 8 March 2006 and stated that “ASIC and the receivers” had taken possession of all North Sydney’s books and records, and refused to either return them or provide access to them. The letter continued with statements to the effect that

(i)    North Sydney was unable to complete the lodgement of Business Activity Statements for December 2005 and January 2006

(ii)    The letter was to “provide notice that substantial GST refunds are due for these months”.

(iii)   North Sydney would be unable to lodge Business Activity Statements for those months until it gained access to the necessary books and records.

3.3    Period 3 – from 13 May 2009 to 30 June 2012

An addition to the four your limitation on refunds generally imposed by s 105-55, an express limitation on taxpayers claiming input tax credits was imposed by the introduction of Division 93 into the GST Act.[22]  The amendments applied to GST returns given after 12 May 2009. The operation of Division 93 is outlined below.

3.3.1     Section 93-5 of the GST Act

Section 93-5 provided as follows:

93-5 Time limit on entitlements to input tax credits

(1) You cease to be entitled to an input tax credit for a *creditable acquisition to the extent that you have not taken it into account in working out your *net amount for:

(a) the tax period to which the input tax credit would be attributable under subsection 29-10(1) or (2); or

(b) any other tax period for which you give to the Commissioner a *GST return 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 referred to in paragraph (a).

Note: Section 93-10 sets out circumstances in which your entitlement to the input tax credits does not cease under this section.

(2) This section has effect despite section 11-20 (which is about who is entitled to input tax credits for creditable acquisitions).

Section 93-10(3) of the GST Act provided that the entitlement to input tax credits did not cease under s 93-5 to the extent that a notification under s 105-55(1) was lodged within 4 years.

The amending legislation also introduced the following note under s 105-55(1):

Note: Division 93 of the GST Act puts a time limit on your entitlement to an input tax credit. Division 47 of the Fuel Tax Act puts a time limit on your entitlement to a fuel tax credit.

The effect of s 93-5 and s 93-10 was to impose a four year limitation period on the ability of a taxpayer to claim input tax credits. However, the limitation period did notapply if a notification under s 105-55 was lodged in time. Consequently, the effect of giving a notification under s 105-55 was now to exclude the operation of the limitation periods in s 105-55 and s 93-5 of the GST Act. As under the previous legislative regime, there was no statutory limitation period for claims covered by the notification.

3.3.2     Section 93-15

An additional limitation on the ability of a taxpayer to protect its entitlement to input tax credits was imposed by s 93-15 which provided as follows:

93-15 GST ceasing to be payable on the related supply

(1) Section 93-10 does not apply if:

(a) GST has ceased to be payable (other than as a result of its payment) on the supply that is related to the *creditable acquisition for which you would be entitled to an input tax credit but for this section; and

(b) at the time of the cessation, you did not hold a *tax invoice for the creditable acquisition.

The effect of this sub-section was that even if a notification was lodged by the taxpayer under s 105-55 within the four year period, unless the taxpayer held a tax invoice, that protection fell away if the GST payable on the corresponding taxable supply ceased to be payable – other than as a result of payment.

3.4    Period 4 – From 1 July 2012 (the self-assessment regime)

In 2012 a self-assessment regime was introduced for the GST.[23]To give effect to this new regime, amendments were made to the TAA and the GST Act.

3.4.1     Division 155 of Schedule 1 to the TAA

Division 155 of Schedule 1 to the TAA was introduced to give effect to the self-assessment regime for GST. The structure of the Division can be relevantly summarised as follows.

Subdivision 155-A provides for the making of assessments. GST returns lodged by taxpayers are treated as an assessment of the net amount disclosed in the GST return: s 155-15.

Subdivision 155-B 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:
  • togiveeffecttoadecisiononarevieworappeal; or
  • as a result of an objection made by you, or pending a review or appeal.

Subdivision 155-C provides for the review of assessments. A taxpayer can object in the matter set out in Part IVC of the TAA against an assessment if it is dissatisfied with the assessment: s 155-90.

3.4.2     Section 93-5 of the GST Act

Section 93-5 of the GST Act was repealed and replaced with the following:

(1) 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).

Note: Section 93-10 sets out circumstances in which your entitlement to the input tax credit does not cease under this section.

(2) This section has effect despite section 11-20 (which is about entitlement to input tax credits).

Note: You must hold a valid tax invoice relating to a creditable acquisition to be entitled to have an input tax credit for that acquisition taken into account in working out your assessed net amount for a tax period: see subsection 29-10(3).

The new form of s 93-5 maintained the four year limitation period on an entitlement to an input tax credit, but the amendment updated the language to reflect the self-assessment regime.

Section 93-10(3) was amended by the introduction of two additional notes, so that the notes under that section now stated as follows (the amendments are marked):

Note 1:      Section 105-55 in Schedule 1 to the Taxation Administration Act 1953 deals with the time limit within which you can claim amounts relating to indirect tax.

Note 2:      Section 93-15 of this Act may preclude this subsection from applying to the input tax credit, in which case section 93-5 of this Act will apply.

Note 3:      Section 105‑55 in Schedule 1 to the Taxation Administration Act 1953 only applies in relation to tax periods starting before 1 July 2012.

Note 3:      This subsectionwill be repealed on 1 January 2017: see Part 2 of Schedule 1 to the Indirect Tax Laws Amendment (Assessment) Act 2012.

The additional notes reflect the effect of the amendments on the interaction between 105-55 of Schedule 1 to the TAA and the four year limitation period in s 93-5 of the GST Act. The protection of lodging a notification under s 105-55 could only be engaged in relation to tax periods prior to 1 July 2012. This effect is illustrated by the following parts of the amending legislation:

• Section 105-3 of Schedule 1 of the TAA was introduced into Subdivision 105-A (which contains s 105-55):

105-3 Application of Subdivision

This Subdivision applies to:

(a) *tax periods, and *fuel tax periods, starting before 1 July 2012; and

(b) *indirect tax payable by you on an importation of goods, if:

(i) the indirect tax does not relate to any indirect tax periods; and

(ii) the liability to pay the indirect tax arose before 1 July 2012.

Note: This Subdivision will be repealed on 1 January 2017: see part 2 of Schedule 1 to the Indirect Tax Laws Amendment (Assessment) Act 2012.

• The following sun-setting provision was introduced into s 105-55:

(6)   This section applies in relation to payments and refunds that:

(a) relate to *tax periods, and *fuel tax periods, that start before 1 July 2012; or

(b) do not relate to any tax periods, or fuel tax return periods, but relate to liabilities that arose before 1 July 2012

Note: This Subdivision will be repealed on 1 January 2017: see part 2 of Schedule 1 to the Indirect Tax Laws Amendment (Assessment) Act 2012.

• The amendments were stated to apply “in relation to payments and refunds that relate to tax periods, and fuel tax return periods, starting on or after 1 July 2012”.[24]

As a consequence of the amendments, lodging a notification under s 105-55 did not (and could not) preserve refund claims for tax periods after 30 June 2012. The four year limitation in s 93-5 of the GST Act applied to those claims and after four years those claims were extinguished.

3.4.3     Section 93-15

Section 93-15 of the GST Act was also amended, with the amendments marked:

93-15 GST ceasing to be payable on the related supply

You are not entitled to an input tax credit for a *creditable acquisition Section 93-10 does not applyif:

(a) GST has ceased to be payable (other than as a result of its payment) on the supply that is related to the creditable acquisition*creditable acquisition for which you would be entitled to an input tax creditbut for this section; and

(b) at the time of the cessation, you did not hold a *tax invoice for the creditable acquisition.

The effect of the amendment was that if the GST payable on the corresponding taxable supply ceased to be payable, the acquirer’s entitlement to an input tax credit automatically ceased – unless the taxpayer held a tax invoice at that time. In this context, the entitlement of the acquirer to an input tax credit arguably ceased not just at the time when the Commissioner could no longer recover the GST, but also where the supplier’s liability for GST ceased for other reasons, such as entering into a Deed of Settlement with the Commissioner or on winding up.

In 2015, section 93-15 of the GST Act was repealed and replaced with the following:[25]

93-15 GST no longer able to be taken into account

You are not entitled to an input tax credit for a *creditable acquisition to the extent that GST on the related supply has not been taken into account in the *assessment of the supplier’s *net amount for the tax period to which that GST is attributable if:

(a) the period of review (within the meaning of section 155-35 in Schedule 1 to the Taxation Administration Act 1953) for that assessment has ended; and

(b) when the period of review ended, you did not hold a *tax invoice for the creditable acquisition.

Under this new section, the entitlement to an input tax credit no longer automatically expired at the time the GST on the corresponding taxable supply ceased to be payable, but rather at the end of the period of review for the supplier’s assessment. Accordingly, where the supplier had not paid the GST, the entitlement of the acquirer to an input tax credit now remained alive until the end of the period of review, regardless of whether that GST ceased to be payable during that period.

 

4    Claiming refunds and credits and limitation periods under the self-assessment regime – can you “stop the clock”?

4.1    Introduction

Under the self-assessment regime that has been in place since 1 July 2012, the position can be summarised as follows:

• Activity statements are deemed to be assessments of the reported net amount.
• The assessments can be amended (whether unilaterally by the Commissioner or in response to an application by the taxpayer) within the “period of review” (generally four years).
• The assessments can also be amended to give effect to a private ruling, providing the application is made during the period of review, and to give effect to a decision on a review or appeal or as the result of an objection.
• Pursuant to s 93-5 of the GST Act, the taxpayer’s entitlement to an input tax credit ceases to the extent that it has not been taken into account in an assessment within 4 years.
• There is no express provision which entitles a taxpayer to “stop the clock” and to preserve its entitlement to input tax credits.

There is a tension between s 93-5 and the provisions dealing with the amendment of assessments in Subdivision 155-B of Schedule 1 to the TAA. Taken literally, the words of s 93-5 appear clear. After 4 years your entitlement to an input tax credits for a creditable acquisition expires “to the extent that the input tax credit has not been taken into account, in an assessment of a net amount of yours” within 4 years.

But what is the impact of s 93-5 on the operation of the TAA? Does it extinguish the entitlement to input tax credits for all purposes? I understand that the Commissioner is of the view that this is the case and is preparing a draft Determination which is to be published in October.

4.2    Unclaimed input tax credits and s 29-10(4) of the GST Act

Where a taxpayer forms the view that it is entitled to input tax credits which have not previously been claimed, the taxpayer may claim those input tax credits (for the previous four years) in its current activity statement: s 29-10(4) of the GST Act. This sub-section provides as follows:

If the *GST return for a tax period does not take into account an input tax credit attributable to that tax period:

(a)        the input tax credit is not attributable to that tax period; and

(b)        the input tax credit is attributable to the first tax period for which you give the Commissioner a GST return that does take it into account.

Note: Section 93-5 or 93-15 may provide a time limit on your entitlement to an input tax credit.

The difficulty with this approach is that if the claim for input tax credits turns out to be incorrect, the taxpayer will be exposed to administrative penalties for making a false or misleading statement and to interest on any shortfall.

This raises the question of whether any alternative paths are available to a taxpayer, whereby the claim for input tax credits can be claimed without being exposed to penalties and interest. I have identified three potential paths, although there is some doubt as to whether any of them are viable.

4.2.1     Path 1 – Application to amend the earlier assessment

The Commissioner appears to accept that a taxpayer may make an application to the Commissioner to amend its assessments for earlier tax periods under s 155-45 of Schedule 1 to the TAA. In ATO ID 2011/76, which related to the pre-self assessment regime, the Commissioner concluded that s 29-10(4) of the GST Act did not prevent an entity revising an earlier GST return to claim an input tax credit that the entity was otherwise entitled to claim. The basis for this view is that if the entity did so, s 29-10(4) no longer applied because the requirement in s 29-10(4) that a “…GST return for a tax period states a net amount that does not take into account an input tax credit attributable to that tax period…”, was no longer satisfied. That view would appear to also apply to the self-assessment regime, whereby instead of revising a GST return, a taxpayer can apply to the Commissioner for an amendment to the deemed assessment constituted by the GST return.

However, in Trustee for SBM Trust v FCT [2015] AATA 174 DP Frost raised doubts about whether it was open to a taxpayer to revise an earlier GST return to claim input tax credits. At [38] the Deputy President observed as follows:

In any event, as s 29-10(4) makes clear, once the original BASs were lodged without taking into account the creditable acquisitions that couldhave been included in them, the ITCs were no longer attributable to those tax periods. As a result, the “revisions” of the BASs in late 2012, in an attempt to claim ITCs not included in the original BASs, would not have been effective…

In a Decision Impact Statement for the decision, the Commissioner stated that he respectfully noted that the Tribunal’s comments were not necessary to resolution of the issues in dispute and that submissions were not made by either party on that issue. The Commissioner stated that he proposed to maintain his existing view until a suitable opportunity arose for the matter to be further considered by a Tribunal or Court.

4.2.2     Path 2 – Objection to the earlier assessment

Applying the same reasoning that underpins the view of the Commissioner in ATO ID 2011/76, it would appear open to a taxpayer to lodge an objection under Part IVC of the TAA contending that the assessment of the tax period is excessive and should be reduced. By doing so, the taxpayer could be said to be taking the input tax credits into account for the tax period in whey they were attributable and the requirement in s 29-10(4) would no longer apply.

However, this view appears to conflict with the observations of Edmonds J in Professional Admin Service Centres Pty Ltd v Commissioner of Taxation [2013] FCA 1123. That case involved the pre-self assessment regime. The Commissioner issued assessments to reflect the amounts reported in the applicant’s activity statements for a number of tax periods. The applicant objected to those assessments and for the first two tax periods the input tax credits claimed in the objection were higher than those initially reported. His Honour addressed this issue in the following terms (at [7]-[8]):

7. Save for the first two, in each of the relevant periods, the input tax credit claimed in the relevant BAS (col B) is greater than the aggregate GST component in the invoices in evidence for the same relevant period (col C). The difficulty for the applicant is that in respect of each of those relevant periods it has not discharged the onus in respect of the excess claimed. Moreover, in respect of the first two relevant periods, a taxpayer will not succeed in demonstrating that an assessment of GST net amount for a period is excessive by showing that it made acquisitions which were not taken into account in preparing its BAS for that period. That is because those acquisitions (assuming them otherwise to be creditable acquisitions) are not attributable to that period: s 29-10(4) of the GST Act.

8. The consequence of this is that even if the applicant is successful on all of the grounds contested in these proceedings, it will only be entitled to the lesser of the amounts appearing in cols B and C in the table in [6] above for each of the relevant periods.

It is unclear whether submissions were made by the parties on this issue and his Honour did not provide any detailed consideration of the issue. Further, as his Honour found that the applicant had failed to establish its entitlement to input tax credits, the issue did not directly arise and the observations can be said to be obiter. Nevertheless, it does raise questions about the ability of a taxpayer to object to an earlier assessment to claim input tax credits and also adds weight to the observations of DP Frost in SBM Trustthat a taxpayer cannot amend an assessment for an earlier tax period to claim input tax credits.

4.2.3     Path 3 – Objection to current GST return/assessment

If paths 1 and 2 are not open, a taxpayer is faced with limited (if any) options other than risking penalties and interest by claiming the input tax credits in its current GST return. This would arguably be a harsh result, particularly if there is some doubt about the validity of those input tax credit claims and the issue may need to be judicially determined by a Court or Tribunal.

Looking at the words of s 29-10(4), an available alternative may be for a taxpayer to lodge its current GST return and, at the same time, object to the deemed assessment constituted by that GST return on the basis that the taxpayer is entitled to input tax credits for that tax period and for previous tax periods up to four years. Those input tax credits would then be attributed to the current tax period as the taxpayer has given to the Commissioner a GST return that takes the input tax credits into account.

Whether such an approach satisfies the requirement that the input tax credit is “taken into account”, for the purposes of s29-10(4) and s 93-5, is addressed later in this paper.

4.3    What is the effect of s 93-5 of the GST Act?

Does s 93-5 of the GST Act impact the alternate paths available to the taxpayer under the TAA (assuming they are available), each of which has its own particular limitation period? If so, the rights of a taxpayer properly engaged under the TAA will be subsequently removed by the operation of s 93-5 of the GST Act.

This is a difficult question. On one view, the words of s 93-5 are clear. After four years, your rights to claim an input tax credit expire until you claim it in a GST return. On another view, if the intended effect of the expiry of the limitation period in s 93-5 of the GST Act was to override the statutory rights of taxpayers engaged under the TAA, one would expect that to be clearly expressed – either in a statutory note under the relevant sections or as an express statement in s 93-5. There is no reference to s 93-5 in Division 155 of Schedule 1 to the TAA.

If s 93-5 of the GST Act does not impact the statutory rights of a taxpayer under the TAA, the engagement of those rights (whether as an application to amend an assessment or an objection to an assessment) will arguably operate as a “stop the clock” which will preserve the taxpayer’s entitlement to input tax credits beyond the 4 year period in s 93-5.

Each of the potential alternate paths available under the TAA is considered below.

4.3.1     Path 1 – Application for an amendment of assessment under s 155-45 of Schedule 1 to the TAA

Section 155-45 of Schedule 1 to the TAA provides as follows:

The Commissioner may amend an assessment of an *assessable amount of yours at any time, if you apply for an amendment in the *approved form during the *period of review for the assessment. The Commissioner may amend the assessment to give effect to his or her decision on the application.

A four year limitation period therefore applies to the second path through s 155-45 of Schedule 1 to the TAA and the adoption of the “period of review” in s 155-35 of Schedule 1 to the TAA. That 4 year period may be extended in the circumstances set out in subsections (3) or (4).

On its face, the words arguably support the view that the provision is intended to survive the limitation period in s 93-5 of the GST Act. Provided the 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 s 93-5 of the GST Act.

The provision uses the word “may”, which arguably gives the Commissioner an element of discretion as to whether or not to make the amendment to give effect to a decision that the taxpayer is entitled to an input tax credit. However, in the context of these provisions, there would appear to be a good 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).[26]

Of course, the Commissioner may simply refuse to make a decision on the application to amend the assessment on the basis that the period in s 93-5 of the GST Act has expired and the entitlement to input tax credits has ceased. Such a course would appear to be open to the Commissioner, although it could arguably give rise to harsh outcomes for taxpayers, particularly if there is delay on the part of the Commissioner in making a decision on the application.

4.3.2     Paths 2 and 3 – Objection to an assessment (whether for earlier or current tax period)

Section 155-90 of Schedule 1 to the TAA provides as follows:

You may object, in the manner set out in Part IVC of this Act, against an assessment of an *assessable amount of yours if you are dissatisfied with the assessment.

Section 14ZW(1)(bg) of the TAA requires that an objection under Subdivision 155-C be lodged within the “period of review” in s 155-35. Accordingly, the objection path has the same limitation period as path 1.

Once the taxpayer has engaged the review procedure in Part IVC of the TAA, the process can be described as follows:

• The Commissioner mustdecide 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.

In Commissioner of Taxation v Futuris Corporation Limited [2008] HCA 32 Gummow, Hayne, Heydon and Crennan JJ described Part IVC of the TAA in the follow terms: (footnotes omitted)

6. Part IVC of the Taxation Administration Act 1953 (Cth) (the “Administration Act”) contains provisions for the making of taxation objections and their disposition by the Commissioner, for review by the Administrative Appeals Tribunal (“the AAT”) and for “appeals” to the Federal Court against decisions by the Commissioner upon certain taxation objections. Further, s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) (“the AAT Act”) provides an “appeal” to the Federal Court, on a question of law, from a decision of the AAT.

7. With respect to a decision of the AAT, the Commissioner is obliged by the Administration Act to take such action, including amendment of any assessment concerned, as is necessary to give effect of the decision (s 14ZZL). The Commissioner is required also to implement orders of the Federal Court by steps which include the amendment of assessments (s 14ZZQ). Neither the AAT nor the Federal Court itself is empowered by Pt IVC to vary assessments.

…

9. The recourse to the Federal Court (and thereafter by special leave, to this Court) which is provided by Pt IVC of the Administration Act meets the requirement of the Constitution that a tax may not be made incontestable because to do so would place beyond examination the limits upon legislative power.

Once a taxpayer has lodged an 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 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.

If the expiry of the four year period in s 93-5 of the GST Act does extinguish the entitlement of a taxpayer to an input tax credit in circumstances where Part IVC of the TAA has been engaged through the lodgement of an objection, the rights of the taxpayer under Part IVC will be effectively removed. This is illustrated by the decision of the Tribunal in Sanctuary Australasia Pty Ltd and Commissioner of Taxation [2013] AATA 371, albeit in the context of review rights engaged with respect to a decision by the Commissioner to retain a refund under s 8AAZLGA of the TAA. The entity objected to the Commissioner’s decision to retain the refund, the decision was disallowed the entity lodged an application for review with the Tribunal. However, between the date of the objection decision and the application, the Commissioner had issued an amended assessment for the tax period in question whereby the negative net amount was reduced to nil. The Tribunal found that the taxpayer had no right to apply to the Tribunal for review because it was no longer a person who was “dissatisfied” with the objection decision as the decision of the Tribunal had no practical or legal consequence. At [39] the Tribunal referred to the following statement of Hill J in CTC Resources NL v Federal Commissioner of Taxation [1994] FCA 947; (1994) 48 FCR 397 at [57]:

A case having no practical or legal consequences between the parties will obviously be of mere academic interest only and on any view of the matter hypothetical.

In the context of an objection lodged under Part IVC of the TAA, the decision of the Full Federal Court in Rio Tinto Services Ltd v Commissioner of Taxation [2015] FCAFC 117; (2015) 235 FCR 159 can be used as an example. 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 pursuant to s 29-10(4) 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.

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 Tintowas 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. If s 93-5 of the GST Act operates for all purposes, the Commissioner’s obligations under s 14ZZQ of the TAA fall away and the company will be deprived of the fruits of successfully engaging its review rights under Part IVC of the TAA.

In considering the operation of s 93-5 of the GST Act, it is also relevant to consider the following observation of Logan J in Russell v Commissioner of Taxation [2008] FCA 343 at [13]:

In Deputy Commissioner of Taxation v Brown [1958] HCA 2; (1957-1958) 100 CLR 32, at 40-41 Dixon CJ noted, albeit as he acknowledged without at the time a judicial decision to that effect, that it was generally assumed that “under the Constitution liability for tax could not be imposed upon a subject without leaving open to him some judicial process by which he could show that he was not taxable or not taxable in the sum assessed”.  As Dawson J later noted in Deputy Commissioner of Taxation v Richard Walter Pty Ltd [1995] HCA 23; (1994-1995) 183 CLR 168, at 222, the general assumption to which Sir Owen Dixon referred did receive later judicial recognition: (His Honour referred to MacCormick v Federal Commissioner of Taxation [1984] HCA 20; (1984) 158 CLR 622; Deputy Commissioner of Taxation v Truhold Benefit Pty Ltd [1985] HCA 36; (1985) 158 CLR 678 at 684; Air Caledonie International v The Commonwealth (1988) 165 CLR 462 at 467). Section 14ZZN of the TAA therefore serves the important constitutional end of expressly providing for recourse by the person affected to the judicial power of the Commonwealth for a challenge to an administratively assessed taxation liability. Section 15A of the Acts Interpretation Act 1901(Cth) counsels that Acts should be read and construed subject to the Constitutionand so as not to exceed Commonwealth legislative power. Section 14ZZN provides a fixed time limit within which to engage this constitutionally necessary right of challenge.

In the absence of express words to that effect, it would appear unlikely that Parliament intended that the 4 year rule in s 93-5 of the GST Act would deprive a taxpayer of his rights to seek judicial process to challenge an assessment and to render the important constitutional end of s 14ZZN of the TAA nugatory. In this context, in Lee v New South Wales Crime Commission [2013] HCA 39; (2013) 251 CLR 196 Gageler and Keane JJ (at [307]) referred to the following statement of Marshall CJ in the Supreme Court of the United States in United States v Fischer [1805] USSC 18; 6 US 358 at 390 (1805):

Where rights are infringed, where fundamental principles are overthrown, where the general system of the laws is departed from, the legislative intention must be expressed with irresistible clearness, to induce a court to suppose a design to effect such objects.

Their Honours then stated as follows (at [313]-[314]): (footnotes omitted)

313 Application of the principle of construction is not confined to the protection of rights, freedoms or immunities that are hard-edged, of long standing or recognised and enforceable or otherwise protected at common law. The principle extends to the protection of fundamental principles and systemic values. The principle ought not, however, to be extended beyond its rationale: it exists to protect from inadvertent and collateral alteration rights, freedoms, immunities, principles and values that are important within our system of representative and responsible government under the rule of law; it does not exist to shield those rights, freedoms, immunities, principles and values from being specifically affected in the pursuit of clearly identified legislative objects by means within the constitutional competence of the enacting legislature.

314 The principle of construction is fulfilled in accordance with its rationale where the objects or terms or context of legislation make plain that the legislature has directed its attention to the question of the abrogation or curtailment of the right, freedom or immunity in question and has made a legislative determination that the right, freedom or immunity is to be abrogated or curtailed. The principle at most can have limited application to the construction of legislation which has amongst its objects the abrogation or curtailment of the particular right, freedom or immunity in respect of which the principle is sought to be invoked. The simple reason is that “[i]t is of little assistance, in endeavouring to work out the meaning of parts of [a legislative] scheme, to invoke a general presumption against the very thing which the legislation sets out to achieve”

The issue is certainly a difficult one. Further guidance as to the Commissioner’s thoughts on the effect of s 93-5 of the GST Act on a taxpayer’s objection rights will no doubt be given once the proposed Determination is published.

4.4    Are the input tax credits “taken into account” by the taxpayer upon making the objection?

If s 93-5 of the GST Act does operate for all purposes, a question is whether a taxpayer has nevertheless “taken into account” the input tax credits by engaging one of the paths available under the TAA.

The expression “taken into account” is used in s 29-10(4) of the GST Act in the context of the attribution of input tax credits. That section provides as follows:

If the GST return for a tax period does not take into account an input tax credit attributable to that tax period:

(a) the input tax credit is not attributable to that tax period; and

(b) the input tax credit is attributable to the first tax period for which you give the Commissioner a GST return that does take it into account.

The expression is used in the context of a GST return, being an activity statement that is completed by the taxpayer.

In s 93-5(1), the expression “taken into account” is used in the context of an “assessment of a net amount”.

Adopting a literal construction, an input tax credit will only be “taken into account” when the amount is actually reported in the GST return (the deemed assessment) of the taxpayer. On this view, the only avenue open to a taxpayer to claim unclaimed input tax credits is to utilise s 29-10(4) of the GST Act and report those input tax credits in its current GST return, whereby those input tax credits will be “taken into account” in the deemed assessment constituted by the GST return.

Alternatively, it could be said that the context of the provisions support a broader construction of the expression “taken into account”. This is because once the GST return is lodged, and it becomes a deemed assessment of the reported net 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, it can be argued 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.

4.4.1     Do you need to quantify the claim for input tax credits?

It is likely that any application to amend an assessment of net amount will quantify the amount of input tax credits to which the taxpayer claims to be entitled.

But what about an objection to an assessment of net amount? In many cases a taxpayer may become aware of an entitlement to input tax credits, for example because of a decision of a Court or Tribunal, but not be able to quantify that claim for a period of time. A very recent example is the decision of the Federal Court in Travelex Limited v Commissioner of Taxation [2018] FCA 1051 where the Court observed that (at [20]) following the decision of the High Court in Travelex Limited v Federal Commissioner of Taxation (2010) 241 CLR 510:

…Travelex no doubt determined that it was entitled to a refund from the Commissioner on the basis that the net amounts included in its past GST returns had been calculated on the basis that its sale of foreign currency to passengers who had passed through to the departure side of the customs barrier were taxable supplies. It would appear, however, that it took Travelex and its advisers some considerable time to work out the precise amount of the refund.

Travelex involved tax periods in the pre self-assessment regime and it was entitled to protect its rights to a refund by lodging notifications under s 105-55 of Schedule 1 to the TAA.

In my view, the question is whether an objection claiming input tax credits that does not quantify the amount of the credits can nevertheless be a valid objection under Part IVC of the TAA. If the answer is yes, it can be said that the entitlement to those input tax credits have been “taken into account” by the taxpayer.

Section 14ZU of the TAA outlines how a taxation objection is to be made:

A person making a taxation objection must:

(a) make it in the approved form;

(b) lodge it with the Commissioner within the period set out in section 14ZW;

(c) state in it, fully and in detail, the grounds that the person relies on.

There is no express requirement that the objection be quantified. Rather, the objection must state “fully and in detail, the grounds that the person relies on”.

In HR Lancey Shipping Co v FCT [1951] ALR 507 Williams J made the following observation on the requirements of an objection (at 273):[27]

The grounds of objection need not be stated in legal form, they can be expressed in ordinary language, but they should be sufficiently explicit to direct the attention of the respondent to the particular respects in which the taxpayer contends that the assessment is erroneous and his reasons for this contention.

In Szajntop v Commissioner of Taxation [1993] FCA 231the Court observed (at 323-4) that “the requirement that the grounds be stated fully and in detail has not been taken to mean that the grounds have to be lengthy or complicated” and referred to the decision in HR Lancey Shipping as follows:

In HR Lancey Shipping Co Pty Ltd v Commissioner of Taxation (Cth) (supra), the grounds that were considered sufficient by Williams J were as follows:

(5)        That the amount of compensation received by the company from the Department of the Navy which has been included, is not assessable income of the taxpayer.

(6)        That such compensation is of a capital nature and is not made assessable by any of the provisions of the Income Tax Assessment Act.

In the circumstances of that case they were regarded as “sufficiently explicit to direct the attention of the [Commissioner] to the particular respects in which the taxpayer contends the assessment is erroneous and his reasons for that contention”.

In TR 2011/5 the Commissioner adopts the decision in HR Lancey Shippingand states as follows:

140 Based on the Copley and Lancey cases, an objection will meet the requirements of paragraph 14ZU(c) if it:

– Clearly indicates to the Commissioner that the taxpayer is objecting against the assessment;

– Is precise enough to direct the Commissioner to the aspects of the assessment considered to be incorrect; and

– Gives reasons as to why the taxpayer considers the assessment to be incorrect.

141 The requirement that the grounds be stated fully and in detail does not mean that the grounds have to be lengthy or complicated. As a general rule, a letter or document from a taxpayer or their authorised agent which indicates that an assessment is wrong in a particular respect and suggests reasons for the alleged error, will satisfy the requirement that the grounds of objection be stated fully and in detail.

None of the authorities referred to above, nor the Commissioner’s ruling, identify a requirement that the taxpayer must quantify the amount by which the taxpayer contends the assessment is excessive. The requirement is that the taxpayer state the grounds, fully and in detail, that it relies on.

In the context of an objection where the ground relied on is that the taxpayer is entitled to input tax credits, the taxpayer will be required to provide sufficient information to direct the attention of the Commissioner to the particular respects in which it says it is entitled to input tax credits and the reasons for that contention.

In this context, an objection will operate in a similar way to a notification under s 105-55 under the pre-self assessment regime. Under that provision, a taxpayer was required to notify the Commissioner of its “entitlement to a refund in relation to a net amount” in respect of a particular tax period. The Commissioner accepted that there was no requirement for a taxpayer to quantify the amount of the entitlement and considered that the notification should specify the tax periods to which the claim related and the nature of the refund claimed.[28]

5    Conclusion

Refunds are an integral part of the GST regime. The current regime for refunds (s 8AAZLGA of the TAA) seeks to strike a balance between the obligation on the Commissioner to pay taxpayers their entitlements and addressing the risk of non-compliance and fraud. On the whole, the system does appear to be working. However, as identified by the IGOT in his recent report, the Commissioner and taxpayers appear to hold quite different perspectives on the role of that provision where the Commissioner considers that there may be elements of non-compliance or fraud. The IGOT has suggested reform to s 8AAZLGA to better enable the Commissioner to combat these concerns.

The need for certainty requires there be time limits on an entitlement of taxpayers to refunds, just as there needs to be time limits on the ability of the Commissioner to recover GST (absent fraud or evasion). History shows that successfully imposing limitation periods in value added tax regimes has had its difficulties, and Australia has been no different. The current regime does appear to make the position clearer, although there is still areas of confusion and potential controversy, in particular the relationship between the four year limitation period on claiming input tax credits in s 93-5 of the GST Act and a taxpayer’s rights under the TAA.

 

Chris Sievers

Lonsdale Chambers

1 September 2018

 

[1]The Guardian Newspaper, “Mobile phone scam costs VAT billions”, 17 August 2002.

[2]The Australian Newspaper, ‘Tax office: $700m GST scam saw gold mules sell in parks’.

[3]Inspector General of Taxation, ‘GST Refunds’, March 2018.

[4]‘Taxman faces ‘Fleming claims’ of 8.5bn from thousands of companies for overpaid VAT’. The Telegraph, 21 July 2009.

[5]Multiflex Pty Ltd v Commissioner of Taxation [2011] FCA 1112

[6]On 9 December 2011 the High Court dismissed the Commissioner’s application for special leave to appeal.

[7]Tax Law and Superannuation Laws Amendment (2012 Measures No.1) Act 2012

[8]Explanatory Memorandum, 7.32.

[9]Report, 1.3.

[10]Report, 2.15.

[11]Report, 3.4.

[12]Report, 6.35.

[13]Report, 6.39.

[14]Australian Government response to the Inspector-General of Taxation report: GST refunds, June 2008.

[15]Report, 6.33.

[16]Australian Leisure Marine Pty Ltd and Commissioner of Taxation [2010] AATA 620 at [17]; Clontarf Developments Pty Ltd and Commissioner of Taxation [2010] AATA 1065.

[17]MT 2009/1 ‘Miscellaneous taxes: notification requirements for an entity under section 105-55 of Schedule 1 to the Taxation Administration Act 1953, paragraph 11.

[18]See the discussion in Dandenong Motors Unit Trust and Commissioner of Taxation[2012] AATA 920 at [17]-[18].

[19]Schedule 2 to the Tax Laws Amendment (2008 Measures No.3) Act 2008.

[20]See also Central Equity Limited v Commissioner of Taxation [2011] FCA 908 at [75] where Gordon J (as her Honour then was) observed that it was not in dispute that the purpose of the amendment was “to correct an anomaly whereby a taxpayer who was in a tax positive position (being an excess of GST over input tax credits) did not face a four year time limit for refund applications from overpaid GST, being the time limit which applied where a taxpayer was in a negative position”.

[21]National Jet Systems Pty Ltd and Commissioner of Taxation [2011] AATA 766; MTAA Superannuation Fund (RG Casey Building) Property Pty Ltd and Commissioner of Taxation [2011] AATA 769.

[22]Tax Laws Amendment (2009 GST Administration Measures) Act 2010.

[23]Indirect Tax Laws Amendment (Assessment) Act 2012.

[24]Clause 239 of Division 5.

[25]Tax and Superannuation Laws Amendment (2014 Measures No.7) Act 2015– with effect from 20 March 2015.

[26]The relevant provision provided as follows:

Where the (Commissioner) finds in any case that duty has been overpaid…he may refund to the company, person or firm of persons which or who paid the duty the amount of duty found to be overpaid.

[27]The extract has been referred to with approval on a number of occasions by the High Court and the Federal Court. For example: Archer Brothers Pty Ltd v Federal Commissioner of Taxation [1952]-[1953] 90 CLR 140 at 149 per Williams ACJ, Kitto and Taylor JJ; Szajntop v Commissioner of Taxation [1993] FCA 231at 323 per the majority and 327 per Gray J (dissenting); Cajkusic v Commissioner of Taxation [2006] FCAFC 164 at [17]; Commissioner of Taxation v Normandy Finance and Investments Asia Pty Ltd [2016] FCAFC 180 at [20].

[28]MT 2009/1 ‘Miscellaneous taxes: notification requirements for an entity under section 105-55 of Schedule 1 to the Taxation Administration Act 1953, paragraph 13. See also North Sydney Developments Pty Ltd and Commissioner of Taxation [2014] AATA 363 at [13].