The Government will seek to amend the tax law to overcome an anomaly limiting the scope of the restriction on refunds to taxpayers if GST is overpaid.
The Federal Court of Australia in KAP Motors Pty Ltd v Commissioner of Taxation [2008] FCA 159 held that the restriction on paying refunds does not apply if GST is paid on a transaction which is later determined not to be a supply for GST purposes. In these circumstances, businesses can claim a refund of GST without first having to refund their customers.
This is inconsistent with the general operation of the refund provisions. These provisions seek to ensure that the benefit of the refund goes to the person who has borne the tax. Hence, a business that has overpaid GST must refund that amount to the customer that has borne the cost of GST before obtaining a refund. Similarly, the provision seeks to prevent refunds to businesses where their customer is registered for GST, as the customer is generally able to claim input tax credits which offset the incidence of GST on the transaction.
The decision has also highlighted an anomaly in the operation of the four-year limit on the payment and refund of indirect taxes. This anomaly undermines certainty for taxpayers by preventing relevant indirect tax refunds and liabilities becoming final after four years.
The Government will seek to amend the tax law to ensure that businesses must generally reimburse a corresponding amount to their customers even if the transactions for which the tax was paid are found not to be supplies. The Government will also seek to ensure a consistent four-year time limit applies to refunds and tax liabilities for indirect taxes.
The amendments are to restrict refunds on overpayments of GST for tax periods starting on or after 1 July 2008 and address the anomaly for the four-year time limits for GST, wine equalisation tax, luxury car tax and fuel tax credits notified on or after 1 July 2008.
The Government is currently seeking the agreement of the States and Territories to the amendment in line with the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations.