On 17 August 2012 the Assistant Treasurer released draft legislation for public consultation dealing with refunds of overpaid GST. The amendments are intended to apply to tax periods commencing on or after the date of the announcement. Today the ATO published its proposed administrative treatment for GST refunds pending the enactment of the new legislation – the page of the ATO website can be accessed here.
The legislation repeals the discretion in s 105-65 of Schedule 1 to the TAA and introduces Division 36 into the GST Act which does not provide any discretion but simply provides when refunds will (and will not) be payable, which will allow taxpayers to self-assess their entitlements to refunds. My analysis of the proposed amendments can be accessed here.
The administrative procedure is as follows:
The ATO will apply the existing law and follow current procedure until the proposed law is enacted where taxpayers:
- are required to write to the Commissioner to claim a refund of overpaid GST as a result of a mischaracterisation of a supply (for example a supply is treated as taxable but is actually GST-free), and
- are not required to write to the Commissioner to claim a refund of overpaid GST as a result of a miscalculation of an amount of GST payable (for example, the amount of GST payable was incorrectly calculated on a taxable supply of real property using the margin scheme), and can instead self-assess their claim to a refund of overpaid GST.
After the new law is enacted, taxpayers will need to review their circumstances regarding their claims for refunds of overpaid GST made during the period between the date of the announcement and enactment.
If a taxpayer is required to seek amendments and the amendments result in an increase in their liability there will be no shortfall penalties or interest imposed where the amendments are made within 28 days after enactment. Otherwise the full GIC will apply from the date of enactment.
If amendments reduce a taxpayer’s liability, appropriate interest on any overpayment will be paid.
Yesterday the Commissioner issued Addendum MT 2010/1A1 to MT 2010/1 Miscellaneous tax: restrictions on GST refunds under s 105-65 of Schedule 1 to the TAA.
The Addendum amends the Ruling to reflect the decision of the Federal Court in International All Sports v Commissioner of Taxation  FCA 824. In that case the Court found that the restriction on GST refunds in s 105-65 did not apply where there was an overpayment of GST because of a miscalculation of GST using Division 126 of the GST Act (dealing with gambling supplies).
Importantly, as envisaged in the Decision Impact Statement to the decision, the Addendum acknowledges that s 105-65 does not apply in cases where the supply is always correctly characterised and treated by the supplier as taxable, but an overpayment of GST arises from a mere miscalculation. Examples include:
- a supplier correctly characterises a supply as taxable but merely miscalculates the GST for that supply in the calculation of their net amount;
- supplies are treated as taxable under the margin scheme where there was an error in the calculation of the margin;
- GST on supplies of real property has been calculated under the ordinary provisions, when in fact the margin scheme applied;
- Division 72 of the GST Act applies but an overpayment of GST arises from an error in the calculation of market value;
- a supplier chooses to apply Division 87 of the GST Act to a supply of long term accommodation in commercial residential premises, but the supplier then fails to apply the concessional rate when calculating the value of the supply
- GST is overpaid due to a miscalculation of GST which arises when a taxpayer fails to pay LCT on a luxury car; or
- GST on a taxable supply of an insurance policy is overpaid as a result of an error when working out the value of the taxable supply pursuant to s 78 of the GST Act
The Addendum is welcome, but there may be no victory for taxpayers because on 17 August 2012 the Assistant Treasurer released draft legislation to repeal s 105-65 and replace it with Division 36 of the GST Act, which would remove the Commissioner’s discretion and taxpayers’ entitlement to a refund in each of the cases outlined above. The amendments are to apply from monthly tax periods starting 1 September 2012 and quarterly tax periods starting 1 October 2012, so the effectiveness of this Addendum is questionable (on the assumption that the amendments proceed, of course).
My analysis of the proposed new refund provisions can be accessed here.