Refunds of overpaid GST
Proposed changes to increase restrictions
The Australian Government has proposed an important change to the GST law that, if enacted, would fundamentally change how and whether businesses can obtain a refund of overpaid GST.
Under the changes proposed:
- Businesses would self-assess the entitlement to a refund of any overpaid GST, by reference to specific criteria, including: whether the overpaid GST amount has been passed on to a customer (or customers); whether customers to whom the GST amount has been passed on have been reimbursed; and, whether those customers are registered or required to be registered for GST
- Except in circumstances where a business satisfied the specific criteria, the overpaid GST amount would be deemed to have always been payable and therefore not refunded
- The Commissioner of Taxation would have no discretion on whether or not to refund overpaid GST. (Currently the Commissioner still has discretion, treated as ‘a discretion to pay’ a refund in cases where the refund restriction applies)
- The existing restriction on GST refunds would be extended to apply to all overpayments of GST no matter how the overpayment arose. (The current restrictions for GST refunds only apply in circumstances where the taxpayer has incorrectly treated a supply or arrangement as giving rise to a fully or partly taxable supply).
The proposed changes would apply to tax periods commencing on or after 17 August 2012. For large businesses with an annual turnover of at least AU$20 million and other businesses that have elected to have monthly tax periods, this will generally be the tax period commencing on 1 September 2012; for those with quarterly tax periods, this will generally be the tax period commencing on 1 October 2012.
The proposed changes will significantly limit the ability of businesses to obtain refunds of overpaid GST. For example, businesses that overpay GST simply as a result of incorrectly calculating the amount of GST payable on a supply or arrangement would have no entitlement to a refund. Among those that could be adversely affected are businesses in the property development sector that use the GST ‘margin scheme’ to calculate the GST amount payable on supplies of real property (whereby GST is calculated on the margin rather than the full selling price), and businesses in the gambling industry who use a similar margin calculation approach.
The proposed changes may also adversely affect businesses that are unable to claim full input tax credits for the GST included in their costs (e.g. those making financial supplies). This could occur where a supplier has passed on (and paid) too much GST and would otherwise be willing, for commercial reasons, to reimburse the overcharge. As the law currently stands, the Commissioner’s discretion to refund overpaid GST provides an avenue, together with the supplier’s reimbursement of the customer and both making appropriate corrections to affected GST returns, for reversing out the incorrectly charged GST. With the removal of the discretion, this opportunity will no longer exist.
The proposed changes are in response to a recommendation made by the Board of Taxation in 2009, in its report ‘Review of the Legal Framework for the Administration of the GST’, and several judicial decisions that have limited the application of the provision restricting GST refunds.
The proposed changes are contained in draft amending legislation published on 17 August 2012. The Government has invited public comment on the draft legislation, with submissions invited until 14 September 2012.
To discuss how the proposed changes might affect your business, please contact one of our Indirect Tax specialists.