Refunding overpaid GST: revised draft amendments
26 February 2013: The Government has revised previously proposed amendments to the GST law, that are aimed at ensuring that GST overpaid by taxpayers is only refundable in limited circumstances. The revision follows concerns raised about the operative effect of the amendments as initially proposed in August 2012.
Under the newly released exposure draft legislation, it is intended that:
- Taxpayers would be able to self-assess their entitlement to a refund of overpaid GST by reference to a set of objective criteria (i.e. whether the extra GST has been passed on by the taxpayer; if so, whether the taxpayer has reimbursed the entity that the GST was passed on to). Currently, taxpayers need to request the Commissioner of Taxation to exercise the discretion to refund overpaid GST, as provided for in s.105-65 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953)
- Section 105-65 would be repealed, but the Commissioner would be given discretion to grant a refund in circumstances where he is satisfied that a refund is appropriate (under the amendments proposed initially, the Commissioner’s discretion would have been removed in full)
- The restriction on refunds would apply to all overpayments of GST, however they arise - including mischaracterisation of a transaction as a taxable supply, incorrect calculation of the amount of GST payable on a supply, and incorrectly reporting an amount of GST on a GST return - but would not apply in cases where the overpaid GST has not been passed on to another entity
- The refund restriction provisions would also apply to overpaid GST relating to cancelled supplies - any decreasing adjustment available to the taxpayer would be reduced to the extent that any passed-on GST has not been reimbursed to the recipient of the supply
- Taxpayers would have review rights under Part IVC of the TAA 1953, being able to challenge an assessment of their ‘net amount’ in consequence of the new provisions being applied, including where the Commissioner decides not to exercise the discretion to pay a refund.
Although the term 'passed on' is not defined under the proposed changes, the draft explanatory memorandum offers more guidance than previously on factors that would be likely to be considered relevant when determining whether passing on has occurred or not, including in the context of the GST margin scheme.
As drafted, the proposed new provisions would apply from the beginning of the first tax period after 17 August 2012. For taxpayers using monthly tax periods, this means that the new law would apply from 1 September 2012.
The Government has invited public comment on the revised exposure draft. Submissions can be made to Treasury by 26 March 2013.
To discuss these issues further, please contact one of our Indirect Tax specialists.