GST and refunds of GST incorrectly included in the price of non-taxable supplies

Is the Commissioner required by law to give the entity, a business operator, a refund under subsection 39(3) of the Taxation Administration Act 1953 (TAA), when the entity: • incorrectly included goods and services tax (GST) in the price of a non-taxable supply to a recipient that is registered for GST; and • has reimbursed the recipient for the amount of GST incorrectly included?

No, the Commissioner is not required by law to give the entity a refund under subsection 39(3) of the TAA when the entity: • incorrectly included GST in the price of a non-taxable supply to a recipient that is registered for GST; and • has reimbursed the recipient for the amount of GST incorrectly included.

However, the Commissioner will exercise the discretion provided in section 39 of the TAA and refund the amount to the entity.

The entity is a business operator.

The entity incorrectly included GST in the price of a non-taxable supply to a recipient that is registered for GST. The entity has subsequently reimbursed the recipient for the GST incorrectly included in the price of the non-taxable supply.

The entity is registered for GST.

Subsection 39(3) of the TAA provides that where GST is incorrectly included in the price of a non-taxable supply, the Commissioner is required to refund or credit the overpaid amount to the supplier if: • the Commissioner is satisfied that the supplier has reimbursed the GST incorrectly included in the price to the recipient of the supply; and • the recipient is neither registered nor required to be registered for GST.

However, where either or both of the above conditions are not met, subsection 39(3) of the TAA provides that the Commissioner is not required to refund the amount, but has a discretion to do so.

Although the entity has reimbursed the recipient for the GST incorrectly included in the price, the requirements in subsection 39(3) of the TAA are not satisfied as the recipient of the supply is registered for GST. Therefore, the Commissioner is not required by law to refund the overpayment of GST..

Practice Statement PS 2002/12 outlines the Australian Taxation Office's (ATO) policy in relation to the exercise of the discretion in subsection 39(3) of the TAA. Appendix 1 and 2 of PS 2002/12 provide that where a supplier has reimbursed a recipient for the amount of GST incorrectly included in the price and that recipient is registered for GST, the Commissioner will exercise their discretion and allow the refund.

Therefore, as the entity has refunded the amount of GST incorrectly included to the recipient of the supply, the Commissioner will exercise the discretion under subsection 39(3) of the TAA and give the entity a refund for the amount of GST incorrectly included in the price of a non-taxable supply.