GST and refunds of GST incorrectly included in the price of non-taxable supplies from 1 July 2006

Will the Commissioner exercise his discretion under section 105-65 of Schedule 1 to the Tax Administration Act 1953 (TAA) when an entity, a business operator: • 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?

Yes, in these circumstances the Commissioner will exercise the discretion provided in section 105-65 of Schedule 1 to 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 105-65(1) of Schedule 1 to 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 105-65(1) of Schedule 1 to 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 105-65(1) of Schedule 1 to 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.

Law Administration Practice Statement PS 2002/12 outlines the Tax Office's policy in relation to the exercise of the discretion in subsection 105-65(1) of Schedule 1 to 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 105-65(1) of Schedule 1 to the TAA and give the entity a refund for the amount of GST incorrectly included in the price of a non-taxable supply.