House of Representatives

Explanatory Memorandum

Circulated By the Authority of the Treasurer, the Hon Wayne Swan MP)

Chapter 5 - Recovering overpaid refunds

Outline of chapter

5.1 Schedule 5 to this Bill amends the:

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A New Tax System (Goods and Services Tax) Act 1999 (GST Act) so that an overpaid refund under section 35-5 of that Act is treated as an amount due and payable from the date of the overpayment;

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A New Tax System (Luxury Car Tax) Act 1999 (LCT Act) so that an overpaid refund under section 17-5 of that Act is treated as an amount due and payable from the date of the overpayment; and the

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Fuel Tax Act 2006 (Fuel Tax Act) so that an overpaid refund under section 61-5 of that Act is treated as an amount due and payable from the date of the overpayment.

Context of amendments

5.2 The provisions in the goods and services tax (GST), luxury car tax (LCT) and fuel tax legislation that deal with refunds and payments do not specify that overpaid refunds are due and payable from the date of overpayment. This means that underpayments of liabilities are treated differently to overpaid refunds, leading to a difference in the way the general interest charge (GIC) applies. This outcome is contrary to the policy intent.

5.3 The purpose of these amendments is to overcome this unintended result and ensure consistent treatment between those taxpayers who incorrectly determine their GST or other indirect tax liabilities, and taxpayers who incorrectly determine the amount of their refund.

5.4 The Board of Taxation, in its review of the legal framework for the administration of the GST, recommended that the law be amended to allow overpaid refunds to be treated as an amount of tax that becomes payable when either refunded to the taxpayer or applied against a tax debt (recommendation no. 44).

5.5 The Government's response to the Board of Taxation review measures was announced in the then Assistant Treasurer's Media Release No. 042 of 12 May 2009 in the context of the 2009-10 Budget. In particular, the Government accepted the majority of the Board's recommendations, including in relation to overpaid refunds.

Summary of new law

5.6 This Bill amends the GST Act to recover overpaid amounts paid where a GST return for a tax period has a net amount less than zero. [Schedule 5, item 2, subsection 35-5(2)]

5.7 The amendment provides that if an amount refunded under section 35-5 of the GST Act for a tax period is later reduced to a lesser amount by an assessment that is made or amended by the Commissioner of Taxation (Commissioner) or by a taxpayer revising their business activity statement (BAS), the amount by which the overpaid refund has been reduced is treated as if it were GST that became due and payable from the time it was paid to the taxpayer or applied against a tax debt. [Schedule 5, item 2, subsection 35-5(2)]

5.8 The Bill amends the LCT Act to recover an overpaid refund of LCT credits. [Schedule 5, item 4, section 17-15]

5.9 The amendment provides that an overpayment of a LCT credit to a non-registered entity is treated as if it were LCT that became due and payable from the date it was paid or applied to the entity. [Schedule 5, item 4, section 17-15]

5.10 The Bill amends the Fuel Tax Act to recover an overpaid refund of fuel tax credits. [Schedule 5, item 6, subsection 61-5(3)]

5.11 The amendment provides that if an amount refunded under section 61-5 of the Fuel Tax Act for a tax period or fuel tax return period is subsequently reduced to a lesser amount by the Commissioner making an assessment or amending an assessment or by a taxpayer revising their fuel tax return, the amount by which the overpaid refund has been reduced is treated as if it were a net fuel amount that became due and payable from the time it was paid to the taxpayer or applied against a tax debt. [Schedule 5, item 6, subsection 61-5(3)]

Comparison of key features of new law and current law

Detailed explanation of new law

5.12 Under the indirect tax law, taxpayers are obliged to correctly determine their net amount for each tax period. The purpose of these amendments is to ensure consistent treatment between those taxpayers who incorrectly determine their GST or other indirect tax liabilities, and taxpayers who incorrectly determine the amount of their refund.

5.13 Taxpayers who understate their liability to pay tax incur the GIC on the underpaid amounts from when they should have made payment of the correct amount (that is, the due date for payment for the relevant tax period). Under the amendments, taxpayers who are overpaid refunds will be liable for GIC from the date that they receive the benefit of the overpayment. This is seen as an appropriate and equitable outcome.

5.14 However, the Commissioner has discretion to remit GIC in part or in full in appropriate circumstances. This will include circumstances where it is fair and reasonable to do so, based on the particular facts of each individual case.

Overpaid refund of net amount

5.15 The net amount for a tax period is worked out under section 17-5 of the GST Act as, broadly, the sum of the amount of GST payable less any input tax credit entitlements. The net amount includes any amount of wine tax or wine tax credits applicable under the A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act) for the period and any amount of LCT payable under the LCT Act for the period.

5.16 Under section 33 of the GST Act, if a net amount for a tax period is greater than zero, taxpayers have to pay the net amount to the Commissioner on or before a certain date. Any amount that remains unpaid after the due date is subject to the GIC under section 105-80 of Schedule 1 to the TAA 1953.

5.17 Under section 35 of the GST Act, if a net amount for a tax period is less than zero, the Commissioner must pay you a refund.

5.18 Where a taxpayer revises their BAS or the Commissioner assesses that a refund paid under section 35-5 of the GST Act has been overpaid, the amount by which the overpaid refund has been reduced is not currently a 'liability' that is due and payable from a certain date under the GST Act. Nor is the overpaid refund an amount that is subject to the imposition of the GIC under section 105-80 of Schedule 1 to the TAA 1953.

5.19 The Commissioner applies the TAA 1953 to treat refunds overpaid under section 35-5 as administrative overpayments with GIC calculated on the resulting running balance account deficit debt when the administrative overpayment is allocated to the running balance account (section 8AAZF). An administrative overpayment is an amount that the Commissioner has paid to a person by mistake, being an amount to which the person is not entitled (subsection 8AAZN(3)).

5.20 The amendments will ensure that if an amount refunded under section 35-5 of the GST Act for a tax period is subsequently reduced to a lesser amount by the Commissioner making an assessment or amending an assessment or by a taxpayer revising their BAS, the amount by which the overpaid refund has been reduced is treated as if it were GST that became due and payable from the time it was paid to the taxpayer or applied against a tax debt. [Schedule 5, item 2, subsection 35-5(2)]

Example 5.1

Sarah lodges a BAS for the September 2008 quarter. The net amount for the tax period is -$700. As the net amount is less than zero the Commissioner pays her a refund of $700 under section 35-5 of the GST Act.

Subsequently, the Commissioner makes a reassessment of Sarah's net amount for the tax period. The reassessed net amount is -$500.

The Commissioner's reassessment results in an excess amount paid under subsection 35-5(1) of $200. The $200:

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will be treated as if it were GST that became due and payable from the time the original refund was paid or applied;

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is the relevant amount for which the Commissioner can demand payment under section 255-5 of Schedule 1 to the TAA 1953; and

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is subject to the GIC under paragraph 105-80(2)(b) of Schedule 1 to the TAA 1953.

Overpaid refund of luxury car tax credits

5.21 The LCT Act and the WET Act provide for the payment of credits in certain circumstances to non-registered entities. These credits do not form part of a net amount and are claimed on an approved form. Section 17-25 of the WET Act imposes a liability on non-registered entities where wine tax credits have been overpaid by making the overpaid credit an amount of wine tax due and payable from the date of overpayment. There is no corresponding provision in the LCT Act that makes an overpayment of an amount of LCT credit due and payable from the date of the overpayment to a non-registered entity.

5.22 The Commissioner applies the TAA 1953 to treat overpaid refunds of LCT credits as administrative overpayments with the GIC calculated on the resulting running balance account deficit debt when the administrative overpayment is allocated to the running balance account.

5.23 The amendments will ensure that an overpayment of a LCT credit to a non-registered entity will be treated as if it were LCT that became due and payable from the date it was paid or applied to the entity. [Schedule 5, item 4, section 17-15]

Example 5.2

Section 17-5 of the LCT Act provides for the payment of credits in certain circumstances to non-registered recipients of a LCT supply.

Simon is not registered for the GST. He has a credit entitlement under section 17-5 of the LCT Act and no one else has made a valid claim for a credit in relation to the credit entitlement. However, the Commissioner has overpaid Simon $300 of LCT credit. The $300 overpaid:

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is treated as if it were LCT that became due and payable from the date of overpayment;

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is the relevant amount for which the Commissioner can demand payment under section 255-5 of Schedule 1 to the TAA 1953; and

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is subject to the GIC under paragraph 105-80(2)(b) of Schedule 1 to the TAA 1953.

Overpaid refund of fuel tax credits

5.24 Where a taxpayer revises their fuel tax return or the Commissioner assesses that a refund of fuel tax credits under section 61-5 of the Fuel Tax Act has been overpaid, the amount by which the overpaid refund has been reduced is not currently a 'liability' for the purposes of the Fuel Tax Act. Therefore, the imposition of the GIC does not arise under the indirect tax provisions of the TAA 1953.

5.25 The Commissioner applies the TAA 1953 to treat overpaid refunds of fuel tax credits as administrative overpayments with the GIC calculated on the resulting running balance account deficit debt when the administrative overpayment is allocated to the running balance account.

5.26 The amendments ensure that, if an amount refunded under section 61-5 of the Fuel Tax Act for a tax period or a fuel tax return period is subsequently reduced to a lesser amount by the Commissioner making an assessment or amending an assessment or by a taxpayer revising their fuel tax return, the amount by which the overpaid refund has been reduced is treated as if it were a net fuel amount that became due and payable from the time it was paid to the taxpayer or applied against a tax debt. [Schedule 5, item 6, subsection 61-5(3)]

Example 5.3

Luke lodges a fuel tax return for the March 2008 quarter. The net fuel amount for the fuel tax return period is -$700. As the net fuel amount is less than zero the Commissioner pays him a refund of $700 under section 61-5 of the Fuel Tax Act.

Subsequently, the Commissioner makes a reassessment of Luke's net fuel amount for the tax period. The reassessed net fuel amount is -$500.

The Commissioner's reassessment results in an excess amount paid under subsection 61-5(3) of $200. The $200:

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will be treated as if it were a net fuel amount that became due and payable from the time the original refund was paid or applied;

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is the relevant amount for which the Commissioner can demand payment under section 255-5 of Schedule 1 to the TAA 1953; and

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is subject to the GIC under paragraph 105-80(2)(a) of Schedule 1 to the TAA 1953.

Application and transitional provisions

5.27 The amendment applies to overpayments made by the Commissioner from the start of the first quarterly tax period after Royal Assent. [Schedule 5, items 3, 5 and 7]

Consequential amendments

5.28 As a consequence of an additional subsection in Division 35 of the GST Act, an amendment has been made to subsection 250-10(2) of Schedule 1 to the TAA 1953 to include the new provision in that Schedule as a tax-related liability.

5.29 As a consequence of an additional provision in Division 61 of the Fuel Tax Act, an amendment has been made to the table in subsection 250-10(2) of Schedule 1 to the TAA 1953 to include the new provision in that Schedule as a tax-related liability.

5.30 Amendments to the LCT Act to include a provision similar to section 17-25 of the WET Act requires a consequential amendment to the table in subsection 250-10(2) of Schedule 1 to the TAA 1953. The table is amended to include a reference to section 17-15 of the LCT Act. The table is also amended to include a reference to section 17-25 of the WET Act.