Miscellaneous Taxation Ruling
MT 2010/1A2 - Addendum
Miscellaneous tax: restrictions on GST refunds under section 105-65 of Schedule 1 to the Taxation Administration Act 1953
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Addendum
This Addendum is a public ruling for the purposes of the Taxation Administration Act 1953 (TAA). It amends Miscellaneous Taxation Ruling MT 2010/1 to reflect:
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- the Administrative Appeals Tribunal decision in Naidoo v. Commissioner of Taxation [2013] AATA 443, and
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- amendments made by the Indirect Tax Laws Amendment (Assessment) Act 2012, which came into effect on 1 July 2012 and introduced a self-assessment regime for indirect taxes.
This Addendum also makes further minor amendments to MT 2010/1 and updates the references section.
Miscellaneous Taxation Ruling MT 2010/1 is amended as follows:
- (a)
- Omit the third dot point, substitute:
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- circumstances under which section 105-65 applies;
- (b)
- Omit the seventh dot point.
- (c)
- Omit the last dot point, substitute:
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- whether the operation of section 105-65 of Schedule 1 to the TAA is taken into account in working out an entity's assessed net amount.
Omit the paragraph, substitute:
7. A refund or credit may arise where a taxpayer's assessed net amount[1A] is amended[1B] to:
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- include additional input tax credits;
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- reduce the GST payable; or
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- include a decreasing adjustment.
- (a)
- Omit 'or revision'.
- (b)
- In the first dot point insert 'assessed' before the words 'net amount'.
Omit the paragraph, substitute:
10. However, subsection 105-65(1) modifies this requirement so that the Commissioner need not give a refund (or apply that amount) where the requirements of the section are met.[3]
Insert 'assessed' before the words 'net amount'.
- (a)
- Insert the footnote after, 'Section 105-65:'.
4A Prior to 1 July 2012, subparagraphs 105-65(2)(a)(i), (a)(ii), (b)(i) and (b)(ii) refer to 'net amount'.
- (b)
- Insert 'assessed' before the words 'net amount' at paragraphs (2)(a)(i), (2)(a)(ii), (2)(b)(i) and (2)(b)(ii).
Omit the paragraph; substitute:
19. Section 105-65 only applies to an overpayment of an assessed net amount that arises as a result of the amount of GST payable being overpaid and does not apply to an overpayment of the assessed net amount that arises where LCT or WET is overpaid or to taxable importations.
Omit the paragraph including the heading and footnote, substitute:
Circumstances under which section 105-65 applies
20. For section 105-65 to apply, there must firstly be an amount of GST taken into account in an entity's assessed net amount which is in excess of what was legally payable on the particular supply in the relevant tax period ('incorrect GST').[5]
20A. Section 105-65 applies to the extent that an entity's assessed net amount for a tax period takes into account an amount of incorrect GST and this resulted in:
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- an overpaid amount - because the assessed net amount the entity paid was more than its amended assessed net amount for the tax period, or
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- an amount not refunded - because the assessed net amount paid to the entity was less than the amended assessed net amount payable to it.
20B. However section 105-65 does not apply to the extent that there is incorrect GST but the assessed net amount itself is not overpaid. That is, the entity's assessed net amount is less than its amended assessed net amount because, for example, the incorrect GST is offset by over claimed input tax credits or other errors.
20C. Where an entity is found not to be carrying on an enterprise (so that its amended assessed net amount for a tax period is zero), section 105-65 will apply, but only to the extent that the entity's assessed net amount for the tax period was greater than zero.[5A]
Omit the heading, paragraph and footnote.
Omit the paragraph.
Omit the heading and paragraph, substitute:
Section 105-65 is not taken into account in determining assessed net amount
34. Section 105-65 is not taken into account in determining an entity's net amount for a tax period. It operates after the net amount for a tax period is worked out under the GST Act.[9A]
After the paragraph, insert:
35B. The Addendum to this Ruling that issued on 26 February 2014 applies both before and after its date of issue. To the extent that it relates to the introduction of self assessment for indirect tax, the Ruling applies to tax periods commencing on or after 1 July 2012.
Omit the paragraph, substitute:
46. Subsection 105-65(2) refers to 'assessed net amount', which is relevantly defined in section 195-1 of the GST Act and means, for a tax period, the net amount assessed for that period.[15] 'Net amount' is also defined in section 195-1 and refers to sections 17-5, 123-15, 126-5 and 162-105 of the GST Act. It is clear that GST is included in the meaning of 'net amount'.
Omit the paragraph including the footnotes, substitute:
47. Subsection 17-5(2) of the GST Act provides that the net amount may be increased or decreased under Subdivision 13-A of the A New Tax System (Luxury Car Tax) Act 1999 (LCT Act)[16] and under Subdivision 21-A of the A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act).[17]
Omit the paragraph, substitute:
48. However, this does not mean that section 105-65 applies to overpayments of LCT or WET.
Omit the heading and paragraph, substitute:
Circumstances under which section 105-65 applies
54. For section 105-65 to apply, there must firstly be an amount of incorrect GST (arising from a supply or arrangement being wrongly treated as a taxable supply to any extent). The incorrect GST must result in:
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- an overpaid amount - because the assessed net amount the entity paid was more than its amended assessed net amount for the tax period, or
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- an amount not refunded - because the assessed net amount paid to the entity was less than the amended assessed net amount payable to it.
Omit the paragraph, substitute:
58. Applying the reasoning in Chippendale in the context of section 105-65, the incorrect GST must either result in the assessed net amount that the entity paid being more than its amended assessed net amount for the tax period or the assessed net amount that was paid to the entity being less than the amended assessed net amount payable to it.
After the paragraph, insert the following:
Example 1A - assessed net amount payable to the entity not refunded
61A. Greg Sports Pty Ltd carries on an enterprise of selling sports equipment. Its assessed net amount for the tax period ending 30 June 2013 was a refund of $3,000 consisting of GST payable on taxable supplies of $5,000 and input tax credits of $8,000. Greg Sports was refunded the $3,000.
61B. Later Greg Sports realises that it incorrectly treated a GST-free supply as taxable, resulting in GST of $500 being incorrectly included in the assessed net amount in that tax period. His amended assessed net amount is therefore a refund of $3,500.
61C. Section 105-65 will apply to potentially restrict the additional refund of $500, because it is so much of the assessed net amount payable to Greg Sports that was not refunded.
61D. Section 105-65 does not apply to the extent that the incorrect GST is taken into account in the entity's assessed net amount but the assessed net amount itself is not overpaid because, for example, the incorrect GST is offset by over claimed input tax credits or other errors.
Example 1B - incorrect GST offset by over claimed input tax credits - amount to which section 105-65 applies
61E. Tony Enterprises Pty Ltd's assessed net amount for the tax period ending 31 March 2013 was a refund of $5,000 consisting of GST payable on taxable supplies of $45,000 and input tax credits of $50,000. Tony Enterprises was refunded this amount.
61F. Tony Enterprises incorrectly treated a supply that is input taxed as taxable, resulting in GST of $3,000 being incorrectly included in the assessed net amount for the tax period. In addition, Tony Enterprises also over claimed its input tax credits by $2,000. Tony Enterprises' amended assessed net amount is therefore a refund payable to it of $6,000.
61G. Section 105-65 will apply to potentially restrict the further refund of $1,000, because it is so much of the assessed net amount payable to Tony Enterprises that was not refunded to it.
Example 1C - incorrect GST entirely offset by over claimed input tax credits - no amount to which section 105-65 applies
61H. Jeannette Shoes' assessed net amount for the tax period ending 30 September 2013 is $1,000 payable, consisting of GST payable on taxable supplies of $3,000 and input tax credits of $2,000. It pays the $1,000 to the Commissioner.
61I. Jeannette Shoes incorrectly treated a supply that is GST-free as taxable, resulting in an amount of incorrect GST of $300. In addition, Jeannette Shoes over claimed its input tax credits by $500.
61J. These two errors mean Jeannette Shoes' amended assessed net amount for the September 2013 tax period is $1,200 payable. Since it only paid $1,000 to the Commissioner, it is liable to pay an additional $200 to the Commissioner.
61K. In this example, section 105-65 does not apply because Jeannette Shoes has not overpaid an amount. That is, although its assessed net amount included incorrect GST of $300, it was offset by the over claimed input tax credits, resulting in Jeannette Shoes having an amount payable.
Entity not carrying on an enterprise
61L. Where an entity is found not to be carrying on an enterprise, section 105-65 will apply to potentially restrict a refund of the incorrect GST, but only to the extent that the entity's assessed net amount for the tax period was greater than zero. [26A]
Example 1D - taxpayer not carrying on an enterprise and section 105-65 applies
61M. Matthew is registered for GST. He lodged an activity statement for the tax period ending 31 March 2013 reporting a net amount of $1,000 consisting of GST payable of $1,500 and input tax credits of $500. Matthew pays the assessed net amount of $1,000 to the Commissioner.
61N. The Commissioner later determines that Matthew is not carrying on an enterprise. Therefore, his amended assessed net amount for the March 2013 tax period is nil. As Matthew has paid $1,000 for this tax period, section 105-65 will apply to potentially restrict any refund of that amount. This is because it is so much of his assessed net amount that he overpaid.
61O. Where an entity's assessed net amount resulted in a refund to which it is no longer entitled to following an amendment to its assessed net amount, section 105-65 does not apply. However, the overpaid refund is payable to the Commissioner under subsection 35-5(2) of the GST Act.
Example 1E - application of subsection 35-5(2) of the GST Act
61P. Tess is registered for GST. She lodged an activity statement for the tax period ending 30 June 2013, resulting in a refund of her assessed net amount of $300 being paid to her consisting of GST payable of $1,500 and input tax credits of $1,800.
61Q. The Commissioner later determines that Tess is not carrying on an enterprise. Therefore, her amended assessed net amount for the June 2013 tax period is nil.
61R. Section 105-65 does not apply to Tess because the refund of $300 paid to her is greater than the amended assessed net amount payable to her (ie nil). That is, although her assessed net amount included an amount of incorrect GST of $1,500, it is offset by the over claimed input tax credits of $1,800.The overpaid refund of $300 is payable to the Commissioner under subsection 35-5(2) of the GST Act.
Omit the second sentence, substitute: 'In the context of section 105-65, a supply would be treated as a taxable supply where the supplier mischaracterised a supply as taxable (to any extent) because they believed the supply to be a taxable supply (to that extent), and an amount of GST is taken into account in their assessed net amount.'.
Omit the headings, paragraphs and footnotes.
Omit the third and fourth dot points, substitute:
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- the reimbursement is in money, or if made through a journal entry, to the extent that the journal entry offsets the recipient's pre-existing liability to the taxpayer; and
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- the reimbursement or journal entry has actually been made, and is not merely planned to be made.
Omit '(which introduced the current version of section 105-65)', substitute '(which amended section 105-65 in 2008)'.
Omit the first sentence, substitute: 'However, subsection 105-65(2) provides that the section applies to 'so much of any assessed net amount or amount of GST' as the entity has overpaid (or 'so much of any assessed net amount' that has not been refunded to the entity).'.
Omit the headings, paragraphs and footnotes.
Omit the paragraph, substitute:
143. There are cases where the Commissioner may inadvertently refund amounts without regard to the operation of section 105-65. For example an entity applies for an amendment to its assessment using a revised activity statement, which results in a refund of an amount to which section 105-65 applies. The revised activity statement is processed and paid automatically by ATO systems without regard being had to section 105-65. Later the Commissioner discovers that the refund was one to which section 105-65 applied.
Omit the paragraph, substitute;
147. GST operates in a self-assessment system and, due to the sheer volume of revised activity statements that are required to be processed, relies necessarily on a degree of automation and risk assessment in the processing of these amendment applications. To attempt to check all revised activity statements pre-issue would be counter productive and inconsistent with a self assessment system. It would lead to unnecessary delays in the processing of other refund requests where section 105-65 has no application.
Omit the heading, paragraph and footnote; substitute:
Section 105-65 is not taken into account in determining assessed net amount
150. The Commissioner previously took the view that section 105-65 is taken into account in determining the net amount for a tax period. The Commissioner considered that, in determining the net amount that a taxpayer is legally required to pay or is entitled to as a refund, all sections of all relevant Acts that may bear on that legal obligation or legal entitlement must be taken into consideration.
Omit the paragraphs including the footnote, substitute:
151. Contrary to the Commissioner's previous view, the Administrative Appeals Tribunal in Naidoo v. Commissioner of Taxation [2013] AATA 443 determined that section 105-65 is not a provision that allows the Commissioner to alter the net amount worked out under subsection 17-5(1) of the GST Act. The Tribunal found that section 105-65 operates after the net amount for a tax period is worked out under the GST Act.[55]
152. The Tribunal therefore found that it did not have jurisdiction to review the Commissioner's decision under section 105-65 to not give a refund of the overpaid GST. It noted that the taxpayer's review rights are limited to judicial review in proceedings brought in the Federal Court under section 39B of the Judiciary Act 1903 or under the Administrative Decisions (Judicial Review) Act 1977.[55A]
Omit the paragraphs.
Omit the paragraphs and heading, substitute:
Example 9 - section 105-65 not taken into account in determining assessed net amount
160. Sheree's assessed net amount for the tax period ending 31 March 2014 is $2,000 payable to the Commissioner. In September 2014, Sheree realises that some of the transactions in the tax period ending 31 March 2014 were actually GST-free instead of taxable. Consequently her assessed net amount should have been $1,700 payable to the Commissioner. Sheree does not refund any amounts to her customers. She requests the Commissioner to amend the assessment of her net amount for the tax period ending 31 March 2014.
161. In this situation, the Commissioner will amend Sheree's assessed net amount to $1,700 as section 105-65 is not taken into account in determining her assessed net amount for that tax period. However, the Commissioner need not refund the overpaid amount of $300 because Sheree has not reimbursed a corresponding amount to the recipients of the supplies. As section 105-65 is not taken into account in determining her assessed net amount, Sheree cannot object to the Commissioner's decision to not pay the GST refund, under Part IVC of the TAA.
- (a)
- After the first sentence, insert: 'Therefore, MC has overpaid its net amount.'.
- (b)
- In the second sentence, omit 'overpaid GST'; substitute 'incorrect GST'.
Omit the second sentence, substitute: 'Section 105-65 applies to the incorrect GST of $1,000 because Entity B overpaid the amount on a supply that was treated as taxable (by Entity A) but was not in fact taxable and this resulted in Entity B's net amount being overpaid.'.
Omit the second sentence, substitute: 'Heavy Industries Ltd lodges a section 105-55 notice seeking to notify the Commissioner of its entitlement to a refund in relation to the relevant GST-free supplies incorrectly treated as taxable supplies, which resulted in its net amount being overpaid.'.
Omit 'overpaid GST', substitute 'overpaid amount'.
Omit the last sentence, substitute: 'Rehka has overpaid an amount because Rehka's assessed net amount was more than the amended assessed net amount. Rehka seeks a refund of the overpaid amount.'.
In the last sentence, omit 'overpaid GST', substitute 'overpaid amount'.
Omit the last sentence, substitute: 'George has overpaid an amount because his assessed net amount was more than his amended assessed net amount. George seeks a refund of the overpaid amount.'
In the last sentence, omit 'overpaid GST', substitute 'overpaid amount'.
Omit the Detailed Contents list, substitute:
| Paragraph | |
| What this Ruling is about | 1 |
| Background | 7 |
| Legislative framework | 7 |
| Legislative context | 14 |
| Frequently used terms | 15 |
| Ruling | 19 |
| Whether section 105-65 applies to overpayments of LCT and WET and to taxable importations | 19 |
| Circumstances under which section 105-65 applies | 20 |
| Meaning of 'treated' as a taxable supply | 21 |
| Meaning of 'to any extent' | 23 |
| Circumstances in which the Commissioner may exercise the discretion to refund where section 105-65 applies | 27 |
| What is the amount of any refund given | 29 |
| Recovery of amounts refunded without regard to section 105-65 | 32 |
| Section 105-65 is not taken into account in determining assessed net amount | 34 |
| Date of effect | 35 |
| Appendix 1 - Explanation | 36 |
| Whether section 105-65 applies to overpayments of LCT and WET and to taxable importations | 46 |
| Circumstances under which section 105-65 applies | 54 |
| Example 1 | 59 |
| Example 1A | 61A |
| Example 1B | 61E |
| Example 1C | 61H |
| Entity not carrying on an enterprise | 61L |
| Example 1D | 61M |
| Example 1E | 61P |
| Meaning of 'treated' as a taxable supply | 62 |
| Example 2 | 65 |
| Meaning of 'to any extent' | 68 |
| Margin scheme cases | 83 |
| Mixed supply cases | 86 |
| Example 3 | 89 |
| Gambling supplies | 92 |
| Effect where the wrong entity remits the GST | 94 |
| Example 4 | 95 |
| Associates | 98A |
| Long-term accommodation in commercial residential premises | 98C |
| GST payable on supplies of fringe benefits | 98G |
| Miscalculation of GST which arises when a taxpayer fails to pay LCT on a luxury car | 98K |
| Example 4A | 98L |
| GST on insurance premiums | 98P |
| Circumstances in which the Commissioner may exercise the discretion to refund where section 105-65 applies | 113 |
| Guiding principles to consider in exercising the discretion | 128 |
| What is the amount of any refund given | 133 |
| Example 7 | 137 |
| Recovery of amounts refunded without regard to section 105-65 | 143 |
| Section 105-65 is not taken into account in determining assessed net amount | 150 |
| Example 9 | 160 |
| Appendix 2 - Overview of the GST refund rules | 162 |
| Appendix 3 - Examples: exercise of the discretion | 163 |
| Example 10 | 164 |
| Example 11 | 169 |
| Example 12 | 173 |
| Example 13 | 177 |
| Example 14 | 181 |
| Example 15 | 184 |
| Appendix 4 - Detailed contents list | 195 |
Insert:
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- TAA 1953 Sch 1 155-5
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- TAA 1953 Sch 1 155-15
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- TAA 1953 Sch 1 155-35
Insert:
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- Naidoo v. Commissioner of Taxation [2013] AATA 443; 2013 ATC 10-323
This Addendum applies on and from 26 February 2014.
Commissioner of Taxation
26 February 2014
© AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA
You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).
Footnotes
For tax periods that start before 1 July 2012, section 105-65 applies to a 'net amount'. For these tax periods, a reference to 'assessed net amount' in this Ruling is to be read as 'net amount'.
For tax periods starting on or after 1 July 2012, the Commissioner is taken to have made an assessment of the net amount on the day the taxpayer lodges its GST return for a tax period. Generally, the Commissioner may amend the assessment 4 years from the day after the day the notice of assessment was given. For tax periods starting before 1 July 2012, the Commissioner is not treated as having made an assessment on lodgment of the GST return. For these tax periods, a reference to 'amend' in this Ruling is to be read as meaning a 'revision' to a taxpayer's GST return.
See paragraph 14 of this Ruling.
The incorrect GST must also arise from a supply or arrangement being wrongly treated as a taxable supply to any extent, and it is not taxable to that extent. Refer to the discussion at paragraphs 21 to 25D of this Ruling.
See Naidoo & Anor v. FC of T [2013] AATA 443 at paragraphs 79 and 80.
[2013] AATA 433 at paragraph 95.
Under subsection 3AA(2) of the TAA an expression has the same meaning in Schedule 1 to the TAA as in the Income Tax Assessment Act 1997 (ITAA 1997). Under subsection 995-1(1) of the ITAA 1997 'net amount' has the same meaning as in section 195-1 of the GST Act.
The definition of 'net amount' in section 17-5 of the GST Act was amended, effective 1 July 2012, to clarify that 'net amount' includes an amount of luxury car tax (LCT) refundable or payable. However, before this amendment, amounts of LCT payable or LCT adjustments are included in the net amount pursuant to subsection 2-10(1), section 2-25 and section 13-5 of the LCT Act.
The definition of 'net amount' in section 17-5 of the GST Act was amended, effective 1 July 2012, to clarify that 'net amount' includes an amount of wine equalisation tax (WET) refundable or payable. However, before this amendment, amounts of WET payable or refunded are included in the net amount pursuant to sections 2-20, 2-25, 21-1 and 21-5 of the WET Act.
[2013] AATA 433 at paragraphs 79 and 80.
[2013] AATA 433 at paragraph 95.
[2013] AATA 433 at paragraph 103.
References
ATO references:
NO 1-50MD7TC
ISSN: 1039-0731