GST Developments - 2017 Peter Adams

1 1 GST Developments - 2017 Peter AdamsSession 5 GST Refunds Legislative Change Businesses would be denied under the proposed Div36 a refund of excess GSTrecorded in the BAS and paid, except in two specific GST has not been passed on to another entity -where supplier bears economic cost of GST, rather than transfer it to customer as increased prices; excess GST has been passed on by supplier to another entity, but that entity has received a reimbursement of GST and is not registered for GST. Outside of those two exceptions, the Commissioner has no clear basis for refunding the excess GST.

2 This is in stark contrast to the current law which gives the Commissioner a discretionto pay refunds of excess GST to suppliers. GSTR 2014/D4 issued by ATO as ID -GST refund and reimbursement by a journal entry Over paid GST can no longer be refunded unless taxpayer provides evidence that they bear the GST cost or that they have reimbursed GST cost to customer In ID 2013/56 Commissioner of Taxation considers that ATO will not be satisfied that an amount of overpaid GST has been reimbursed to a recipient when a supplier merely makes a journal entry in its accounts.

3 If journal entry is effectively an offset against an owed amount, then may be acceptable as evidence of reimbursement of GST GST Financial Supply RegulationsTreatment of all components of a hire purchase transaction as taxable supplies Currently, supply of credit under a hire purchase agreement is regarded as an input taxed financial supply if made for a separate charge disclosed to the recipient. If charge is not separately identified and disclosed, supplier does not make a financial supply and GST is payable The amendments ensure that all supplies made under hire purchase agreement on or after 1 July 2012 are not financial suppliesthus making them fully taxable (and creditable)

4 3 GST on no-shows QANTAS v FCT In June 2008, QANTAS taxpayer lodged a GST refund notification with the Commissioner for GST that it said was incorrectly paid by it in respect of pre-paid fares for unused travel The Commissioner subsequently issued the taxpayer with notices of assessment which included GST paid by the taxpayer in respect of the disputed pre-paid fares. The Commissioner also disallowed the taxpayer s objections to the assessments Full Federal Court held that GST was not payable by an airline where a passenger books and pays for airline travel, but subsequently cancels the booking or does not turn up for the flight and does not receive a refund.

5 Court said that what each customer paid for was carriage by air ( essence and sole purpose of the transaction ) -the actual travel was the relevant supply, and if it did not occur there was no taxable supply. However, High Court has now held that GST was payable based on supply being contractual promise to transport or convey which remained intact. What about forfeited security deposits GST treatment now?Commissioner cannot delay GST refunds -Multiflexv FCT Taxpayer carried on a business which involved purchasing mobile phones from suppliers in Australia and exporting them to overseas customers.

6 On the basis of GST returns lodged, the taxpayer was entitled to GST refunds Commissioner, however, had suspicions that the documentary evidence for the taxpayer s claims for input tax credits was fraudulent and delayed payment of the refunds pending completion of an investigation. Taxpayer commenced legal proceedings claiming that it was entitled to immediate payment of the refunds The Full Federal Court has now also affirmed that the Commissioner was not entitled to delay paying GST refunds due to a taxpayer while he completed an investigation into the accuracy of the taxpayer s GST returns.

7 NOTE recent law change -Commissioner can refuse release of refunds with effect from 1/11/20114 Supply by Mortgagee in Possession AKN Consultants Pty Ltd (as trustee for Naidu Family Trust) v FC of TFacts The taxpayer, AKN Consultants Pty Ltd (AKN), was the trustee for a family trust which loaned money to an investment company (J&H) secured by a second mortgage over a property owned by J&H. J&H subsequently failed to repay the loan on the due date J&H as vendor entered into a contract of sale for the property Supreme Court of Victoria ordered that AKN (in liquidation) enter into possession of the property and that AKN liquidator be appointed as agent for the mortgagee in possession, ieAKN.

8 Court also ordered that J&H be wound up for insolvency. Transfer of land was subsequently executed by liquidator, as agent for the mortgagee in supply occurred upon executing transfer AKN Consultants Pty Ltd (as trustee for Naidu Family Trust) v FC of TFacts Commissioner advised taxpayer that it was liable for GST payable on the sale of the property Commissioner claimed that property was sold at the time transfer was completed on or about 12 January 2009 and that the taxpayer was liable for the payment of GST as the mortgagee in possession at the time.

9 Commissioner contended that s 105-5(1)(a) of GST Act were satisfied because taxpayer supplied the property of J&H to third party, towards satisfaction of a debt owed by J&H to taxpayer under the relevant loan contract Commissioner further contended that the requirements of s 105-5(1)(b) were satisfied because it would have been a taxable supply had J&H made the supply, being the sale of new residential supply occurred upon executing transfer AKN Consultants Pty Ltd (as trustee for Naidu Family Trust) v FC of TDecision AAT held that a taxable supply for GST purposes occurred at settlement, consequent to agent of mortgagee in possession executing the transfer.

10 The supply did not occur when the vendor of the property executed the contract of sale -supply did not occur until sale was completed. AAT found that the fact that AKN supplied a property owned by a debtor to a third party in satisfaction of a debt owed by the vendor to AKN fell squarely within s 105-5 of the GST Act. AAT has held that taxable supply by taxpayer as mortgagee in possession occurred when sale was completed (when agent of mortgagee in possession executed transfer), not when vendor executed contract of sale Note legislative change from 1 July 2013 to excuse lender from GST liability on supply to recover debtGST on vehicle incentive payments -AP Group Ltdv FCT The taxpayer was engaged in motor vehicle dealerships throughout Australia.