Issue
Must the Commissioner refund to the entity, a supplier that is no longer registered for goods and services tax (GST), the amount of GST the entity remitted to the Tax Office for a supply when: • the supply was cancelled after the entity ceased to be registered for GST, and • the entity refunded the full amount that it received to the unregistered customer?
Decision
Yes, under section 8AAZLF of the Taxation Administration Act 1953 (TAA) the Commissioner must refund the amount of GST to the entity provided that there are no other taxation liabilities against which it will be off-set and provided that the making of the refund is not restricted under section 39 of the TAA.
Facts
The entity is a supplier that is no longer registered for GST. In its concluding tax period, the entity entered into an agreement to make a supply to a customer. The entity issued an invoice for the supply (which included an amount in respect of GST) and received payment from the customer. In accordance with section 29-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), the entity attributed the GST on this supply to that tax period.
After the entity cancelled its GST registration, the supply was cancelled at the customer's request. The entity refunded the total amount invoiced to the customer. The customer is neither registered nor required to be registered for GST.
Reasons for Decision
Generally when an entity is registered for GST and a supply for which it has attributed GST is cancelled, the entity would apply Division 19 of the GST Act to make an adjustment for any overpaid amount of GST. However, one of the requirements for an adjustment under Division 19 of the GST Act is that the adjustment event (the cancelling of the supply) occurs 'during a tax period'.
As the entity is no longer registered for GST when the supply is cancelled, it no longer has tax periods that apply to it. Therefore, the cancellation of the supply did not occur during a tax period and Division 19 of the GST Act does not apply.
Although the entity cannot make an adjustment under Division 19 of the GST Act, the net amount for the entity's concluding tax period is overstated. Section 9-40 of the GST Act states that you must pay the GST payable on any taxable supply that you make. As the entity's supply was cancelled by the customer, there is no supply from which a GST liability, under section 9-40 of the GST Act, arises.
Therefore, to rectify this position, the entity can revise its business activity statement (BAS) for its concluding tax period to take into account the fact that this supply was never made. When the entity lodges the revised BAS, the revision will be reflected in its running balance account (RBA).
Under section 8AAZLF in Division 3A of the TAA, the Commissioner must refund to an entity so much of an RBA surplus, or credit in the entity's favour that the Commissioner does not allocate or apply under Division 3 of the TAA.
However, subsection 39(3) of the TAA provides that, in certain circumstances, the Commissioner need not give an entity a refund, or apply the amount under Division 3 or 3A of the TAA unless: • the Commissioner is satisfied that the entity has reimbursed a corresponding amount to the recipient of the supply, and • the recipient is neither registered nor required to be registered.
The entity refunded the total amount invoiced (including the GST component) to the customer and the customer is neither registered nor required to be registered for GST. Therefore, there is no restriction on the refund under subsection 39(3) of the TAA.
As such, provided that there are no other taxation liabilities against which it will be off-set, the Commissioner must refund the amount of GST for the cancelled supply to the entity under section 8AAZLF of the TAA. Note: if an entity has not refunded the amount of GST to the recipient of the supply, or the recipient is registered for GST, refer to Law Administration Practice Statement PS LA 2002/12 which outlines when the Commissioner may allow a refund.