Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 3 - Recovery
Overview
3.1 This Chapter explains Division 3 of new Part VI . This Division deals with situations where goods and services tax (GST) is not paid on time or where amounts payable by the Commissioner are withheld. Division 33 of the GST Act specifies the time when you must make your GST payments.
3.2 Some of the provisions in Division 3 are similar to those in other Acts administered by the Commissioner. As part of the Governments plan for A New Tax System the tax laws are to be integrated in a tax code that will improve consistency across the tax laws. Although Division 3 adopts rules that currently apply to the recovery of other taxes, some of its provisions may be modified if measures to integrate the tax laws are enacted before the GST law comes into effect.
Summary of the legislation
3.3 Division 3 of new Part VI contains rules to support the recovery of GST in situations where:
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- the Commissioner sues for the debt;
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- payments that discharge only part of the debt owing are applied;
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- entities are jointly liable;
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- a person dies before settling his or her GST liabilities; or
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- an entity who has a GST debt is owed money by another entity.
3.4 Division 3 contains rules that prohibit the recovery of GST if:
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- the 4 year time period (other than in cases of fraud or evasion) has expired; or
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- you have relied on the Commissioners interpretation of the GST law which is later altered.
3.5 Although the Commissioner is generally bound to refund a reduction in a net amount payable by you or an increase in a net amount payable to you, the Commissioner may withhold a refund if:
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- you have not provided return information as required; or
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- the Commissioner is satisfied that you have not reimbursed the recipient of a GST-free supply which had previously been treated as a taxable supply.
Explanation of the legislation
Recovery of unpaid GST and penalty
3.6 Unpaid GST, including any penalty payable under new Part VI , will be a debt that the Commissioner can sue for in the appropriate court. [New section 28]
3.7 If you owe two or more amounts of GST, or penalty payable under new Part VI , but pay an amount that is less than the combined amount, the Commissioner may apply the amount paid to offset the outstanding amounts in the order in which they became payable unless the Commissioner determines that they should be applied in a different order. The Commissioner may similarly apply a refund payable to you under Division 35 of the GST Act to offset amounts you owe. [New section 29]
What rights do you have if you pay GST on behalf of another entity?
3.8 If you pay GST and any penalties payable under Part VI for, or on behalf of, another entity you will be entitled to recover the amount (including the cost of recovery) from the other entity as a debt through court action. Alternatively, you will be able to deduct the amount from moneys you hold that belong to the other entity. [New section 30 ]
3.9 If you and one or more other entities become jointly liable to pay GST, including any penalties payable under Part VI, you and the other entities will each be liable for the whole amount. If you pay the whole amount, you will be able to recover an amount from the other entities in the same proportion as their respective interests in the relevant transactions.
3.10 By paying all the GST you will be able to recover the other entities shares as a debt through court action or by deducting it from any money you hold which belongs to the other entities. [New section 31]
Recovery of GST from the trustee of a deceased estate
3.11 If at the time of your death, your GST liability has not been paid, the Commissioner will have the same powers and remedies for assessment and recovery from the trustee of your estate as he or she would have had against you before your death. [New subsection 32(2)]
3.12 The trustee will be required to give any returns and any other information to the Commissioner that you would have been liable to provide. The trustee will also be required to provide any further returns or other information required by the Commissioner. [New subsection 32(3)]
3.13 If the trustee does not provide a return or further information, the Commissioner will be able to make an assessment of your GST liability. [New subsection 32(4)]
The trustee will be liable to the same penalty for unpaid GST for which you would have been liable if you had still been alive. [New subsection 32(5)]
3.14 Any GST payable by the trustee will be a charge on all of your estate in the hands of the trustee. [New subsection 32(6)]
3.15 A trustee who is dissatisfied with an assessment made under this section will be able to seek review by lodging an objection as set out in Part IVC. [New subsection 62(3), item 2 of the table]
Recovery of GST from unadministered deceased estate
3.16 If probate has not been granted or letters of administration have not been taken out within 6 months of your death, the Commissioner will be able to make an assessment of your liability to GST. The Commissioner will be required to publish notice of the assessment twice in a daily newspaper in the State or Territory where you resided at the time of death. [New section 33]
3.17 A person who claims an interest in the deceased person's estate, or has been granted probate of the person's will, or letters of administration of the person's estate, and who is dissatisfied with the assessment will be able to seek review of the assessment by lodging an objection in the way prescribed in Part IVC. [New subsection 33(3)]
3.18 If you have a GST debt the Commissioner will be able to collect money from a third party who owes money to you. [New section 34]
3.19 Money is a term defined in section 195-1 of the GST Act and includes promissory notes, bills of exchange and other negotiable instruments as well as Australian currency and foreign currency.
3.20 The power to collect money owed by a third party will extend to situations where:
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- a third party may owe you money at a later time, or has money accruing to you;
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- a third party holds money for you, or on your account;
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- a third party holds money for, or on account of, another entity for payment to you; or
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- a third party has authority from someone else to pay money to you.
[New subsection 34(8)]
3.21 The Commissioner will be able, by written direction, to require entities in the above situations to pay the money (or an amount equal to the GST due) to the Commissioner, in accordance with the direction. If several payments are to be made to the entity, the Commissioner will be able to require a specified amount out of each payment.
3.22 The third party will not be required to pay the money to the Commissioner until it becomes owing to you. [New subsection 34(3)]
3.23 A person who does not comply with a direction will be guilty of an offence carrying a maximum penalty of 20 penalty units. [New subsection 34(4)]
If such a person is convicted of not complying with a direction by a court, the court will be able to order the convicted person to pay the amount refused in addition to any penalty determined by the court. [New subsection 34(5)]
3.24 A third party making payment to the Commissioner under a direction will be deemed to be acting on the authority of the entity that has the GST debt and be indemnified for the payments. [New subsection 34(6)]
3.25 If the whole debt has been paid before the Commissioner has received payment of the debt from a third party, the Commissioner will be required to inform the third party that the debt has been paid and that the direction has been withdrawn. [New subsection 34(7)]
3.26 If a person owns withdrawable shares in the capital of a building society which have not been repaid, the money represented by the shares and held by the building society will be taken to be due to the person if it is repayable on demand, or if it is not repayable on demand, it will be taken to be money which may later be due by the building society to the person. [New subsection 34(9)]
Time limit on GST and credit entitlements
3.27 Ordinarily, GST and penalty for late payment under new section 40 will not be payable if 4 years have passed after the due date for payment following the end of the tax period to which the net amount relates. The exceptions will be where the Commissioner has issued a notice requiring payment before the end of that 4 year period, or is satisfied that the absence of payment is due to fraud or evasion. An amount of GST on an importation will also cease to be payable if 4 years have passed after the due date for payment of the GST on the importation. [New section 35]
3.28 Similarly, entitlements to refunds, input tax credits and diesel fuel credits will expire 4 years after the end of the tax period to which they relate unless your claim to the refund or entitlement has been notified to the Commissioner before that time. [New section 36]
Will the Commissioner be bound by rulings on the GST law?
3.29 If you have underpaid GST the amount underpaid will cease to be payable if the underpayment occurred in reliance on the Commissioner's interpretation of the GST law. Similarly, an amount overpaid as a refund by the Commissioner will be taken to have been payable if the overpayment occurred in reliance on the Commissioners interpretation.
3.30 The Commissioner's interpretation of the GST law will be communicated through private rulings or public rulings. These rulings will take the form of advice or rulings given or published by the Commissioner, other than by oral means. Private rulings will apply only to the entity to which the ruling is given.
3.31 If you have relied on a ruling which has later been changed and, in reliance on the earlier ruling, you have underpaid the GST that had become due under the later ruling you will not be liable for the shortfall prior to the later ruling. Similarly, you will not be liable to repay an amount overpaid by the Commissioner as a refund in these circumstances.
3.32 However, the underpayment will remain payable, or you will be liable to repay the overpaid refund (as appropriate), if the Commissioner is satisfied that you had made a misstatement of fact or suppressed an important fact causing the first ruling to be given or continued.
3.33 If a private ruling is given to a particular entity, it will apply only to that entity and when a subsequent public ruling is issued which conflicts with a private ruling previously given to a particular entity, the public ruling will prevail. Similarly, if a private ruling is issued which conflicts with an earlier public ruling, the private ruling will be the correct ruling.
3.34 The general position with private and public rulings will be that the later issued ruling will prevail. With public rulings, it will be the responsibility of the entity to ensure that any public ruling does not conflict with an earlier ruling the entity has received.
3.35 If the Commissioner issues a ruling after an amendment to the law that ruling will only alter a previous ruling issued before the amendment to the extent that it deals with issues other than the amendment. [New section 37]
Withholding of refunds if GST returns are outstanding
3.36 The Commissioner will be able to withhold a refund payable to you under section 35-5 of the GST Act if you have not complied with a requirement to provide GST returns for other tax periods or to provide further or fuller returns as requested by the Commissioner. [New subsection 38(1)]
3.37 When the return, or returns, as requested are given to the Commissioner, and provided a refund remains payable, the Commissioner will be obliged to pay the refund within 14 days from that time. Interest will be payable on the refund amount if the refund is not paid or applied against other liabilities during the 14 day period. [New subsection 38(2)]
3.38 Alternatively, if the Commissioner makes an assessment of your net amount for a tax period before you provide a further or a fuller return, and provided a refund remains payable by the Commissioner, the Commissioner will be obliged to pay the refund at the time the assessment is made. [New subsection 38(3)]
In what situation can a refund not be payable?
3.39 Ordinarily, if GST has been overpaid or entitlements to credits have been understated the Commissioner is obliged to refund the amount overpaid or credit understated. [New subsection 39(1)]
Alternatively, the Commissioner may apply any or all of it against other taxation liabilities. [New subsection 39(2)]
Refunds may result from error in the calculation of a net amount for a tax period or from GST being paid in error on a non-taxable importation.
3.40 However, if GST is overpaid in a situation where supplies were incorrectly treated as taxable supplies in a GST return or assessment, a refund will have to be paid only if the Commissioner is satisfied that the recipients of the supplies on which the GST was overpaid have been reimbursed. The recipients of the supplies must not be registered or required to be registered for GST purposes. [New subsection 39(3)]
3.41 Because GST is payable by suppliers but is ultimately borne by the consumers of goods and services, a refund of overpaid GST would ordinarily result in a windfall gain to the supplier. A supplier will need to satisfy the Commissioner that an amount corresponding to the refund will be passed on to the persons who ultimately bore the cost of the overpaid GST.