Refunding excess GST draft legislation Print E-mail

The Assistant Treasurer has released draft legislation on the proposal to amend the GST Act and the TAA to ensure that: (i) overpaid GST is only refundable if certain conditions are met; (ii) the restrictions on GST refunds apply to overpayments of GST, irrespective of whether the overpayment arises as a result of a mischaracterisation or miscalculation of GST payable; and (iii) the Commissioner's discretion to pay a refund is removed and instead taxpayers will be allowed to self-assess their entitlement to a refund of amounts of excess GST.

Currently, s 105-65 of Sch 1 to the TAA states that the Commissioner "need not" pay a refund in particular circumstances. This has caused uncertainty on whether the section relates to a discretion to refund or a discretion not to refund. The uncertainty lead to the Board of Taxation identifying the need to clarify the law as set out in recommendation 45 of its Review of the Legal Framework for the Administration of GST.

Specifically, the draft legislation seeks to replace the existing s 105-65 with a new Div 36 of the GST Act. Under the proposed Div 36, the taxpayer will no longer need to ask the Commissioner to exercise the discretion to refund an amount that has been overpaid. Instead, the draft legislation will allow taxpayers to self-assess their entitlement against a set of ascertainable criteria. However, according to the draft legislation, an amount of excess GST will not be refunded if the taxpayer has passed on the amount.

The draft legislation defines excess GST as the amount of GST that has been taken into account in an assessment of a net amount, but is subsequently found to not be payable. It does not matter how the excess arose (ie by mischaracterisation or miscalculation) and the draft legislation includes the following practical examples:

  • incorrectly treating GST-free or input taxed supply as a taxable supply, or incorrectly apportioning a mixed supply;
  • incorrectly treating something as a taxable supply;
  • miscalculating GST liability (eg under Divs 75 or 126); or
  • incorrectly reporting a GST amount on a GST return.

The draft legislation effectively states that when determining whether a taxpayer is entitled to a refund, the taxpayer must consider whether the amount of excess GST is taken to have always been payable. It says where an amount is treated as payable, then the taxpayer has no basis on which to amend the GST return relating to the net amount, therefore, the taxpayer will not be entitled to a refund of the overpaid amount.

According to the proposed Div 36, an amount of excess GST is not taken to have always been payable if:

  • the amount has not been passed on to the recipient of the supply (ie due to accounting or clerical errors, or accounting for supplies that have not been made); or
  • the amount has been passed on to a recipient who is not registered or required to be registered, and the recipient has been reimbursed for that amount.

Hence, the proposed Div 36 provides that if a taxpayer can establish that either of the above criteria is satisfied, then they will be entitled to a refund of the excess amount and may request such a refund by lodging a revised GST return or seeking an amendment of the relevant assessment. In addition, the Commissioner must apply the amount in accordance with the rules for running balance accounts under Div 3 and 3A of Pt IIB of the TAA.

Whether or not GST has been passed on is a question of fact and must be determined on a case-by-case basis taking into account the particular circumstances of each case, the draft legislation indicates. However, it says where a tax invoice has been issued (including a recipient created tax invoice) it will be strong evidence that GST has been passed on. Further, the draft says this applies to documents purporting to be a tax invoice but which do not satisfy the tax invoice requirements under s 29-70(1).

In special cases such as the margin scheme, the draft legislation states that a contract of sale or other relevant documents may demonstrate that an amount of GST has been passed on, even though the precise amount of GST may not have been separately identified.

In relation to gambling supplies, an example contained in the EM to the draft legislation states that where a miscalculation of GST payable occurs in relation to gambling supplies, the fact that a tax invoice has not been issued does not mean the GST has not been passed on. In fact, it says the gambling entity would not be entitled to a refund of overpaid GST as it has effectively passed on the excess GST in the ordinary course of business (ie it is not able to reimburse individual customers).

Date of effect

Proposed to apply when working out net amounts for tax periods commencing on or after 17 August 2012.


Submissions are due by 14 September 2012 to: General Manager, Indirect Philanthropy and Resource Tax Division, The Treasury, Langton Crescent, PARKES ACT 2600 - Email: This e-mail address is being protected from spambots. You need JavaScript enabled to view it . For enquiries call Michael Harms on (02) 6263 3308.


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