GST and changes in net amount outside the four year time limit

In determining an entity's net amount, does the four year time limit in section 105-50 of Schedule 1 to the Taxation Administration Act 1953 (TAA) apply to prevent increases in the entity's goods and services tax (GST) payable on certain transactions being taken into account where, in the same tax period: • the GST payable on other transactions is decreased, and • the amount of the decrease is greater than the amount of the increase?

No. The four year time limit in section 105-50 of Schedule 1 to the TAA does not apply to prevent increases in GST being taken into account in determining the entity's net amount where, in the same tax period, the GST payable on other transactions is decreased and the amount of the decrease is greater than the amount of the increase.

The entity is registered for GST.

The net amount for the tax period as originally reported on the entity's activity statement was an amount greater than zero.

More than four years after the entity lodged its activity statement and paid the net amount, it discovered mistakes in the calculation of that net amount. The mistakes were not due to fraud or evasion.

The GST payable for the tax period was overstated in relation to some transactions and understated in relation to other transactions.

The net result of the overstated and understated GST payable was an overall decrease in the net amount for the tax period, resulting in a lower net amount which was still greater than zero.

The Commissioner did not give the entity a notice for the purposes of section 105-50 of Schedule 1 to the TAA requiring payment of an unpaid net amount within the four years.

Section 105-55 of Schedule 1 to the TAA (time limit on refunds and credits) does not apply to deny a refund or credit to the entity as the revised net amount is still greater than zero and the mistakes did not relate to an increase in input tax credits that were attributable to the tax period.

Section 105-65 of Schedule 1 to the TAA (restriction on refunds) also does not apply to deny a refund to the entity as the mistakes were not as a result of the entity incorrectly treating supplies as taxable supplies.

Section 105-50 of Schedule 1 to the TAA provides that any unpaid net amount or amount of indirect tax ceases to be payable four years after it became payable, unless the Commissioner: • has notified the entity of the unpaid amount, and required payment of it, within four years of the date it was payable, or • is satisfied that the payment of the amount was avoided due to fraud or evasion.

'Net amount' is defined in section 17-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) according to the following formula: GST - input tax credits

GST is the sum of all of the GST for which an entity is liable on the taxable supplies that are attributable to the tax period. Input tax credits is the sum of all of the input tax credits to which an entity is entitled for the creditable acquisitions and creditable importations that are attributable to the tax period.

Section 9-40 of the GST Act provides that an entity must pay the GST payable on any taxable supply that it makes.

Division 33 of the GST Act sets out when payments of an entity's net amount must be made. GST payable on a transaction involving the making of a taxable supply is not an amount that is separately payable under the GST Act.

Section 105-50 of Schedule 1 to the TAA applies to an 'unpaid net amount'. It does not apply to individual amounts of GST payable for particular transactions. In determining the net amount payable, all transactions attributable to a tax period need to be taken into account regardless of whether they will lead to an increase or decrease in the net amount.

Although section 9-40 of the GST Act requires payment of the GST payable, except as provided for in Division 33 of the GST Act in relation to GST payable on some taxable importations, there are no provisions in the GST Act or the TAA that: • provide for the collection of the GST separately from the net amount, or • specify when the amount of GST in relation to a specific taxable supply is payable.

As the GST on an individual transaction is not an amount that is payable separately and is not the net amount payable by the entity, it cannot cease to be payable after four years.

For the above reasons, section 105-50 of Schedule 1 to the TAA does not apply to prevent increases in GST payable being taken into account where, in the same tax period, the GST payable on other transactions is decreased and the amount of the decrease is greater than the amount of the increase. There is no overall increase in the net amount and as such there is no 'unpaid net amount'. Note: as the net result of the increases and decreases in GST payable is that the net amount decreases to a lesser net amount, and neither section 105-55 of Schedule 1 to the TAA nor section 105-65 of Schedule 1 to the TAA apply to deny a refund or credit, the entity is entitled to a refund or credit equal to the overall decrease in the net amount. Example The entity originally reported and paid a net amount of $1,000 on its activity statement for the March 2003 tax period. More than four years later it discovers arithmetic mistakes for two different transactions made in the March 2003 tax period. One mistake resulted in an increase in GST payable of $100 and the other, a decrease in GST payable of $700. The four year time limit in section 105-50 of Schedule 1 to the TAA does not apply to prevent the increase in GST payable of $100 being taken into account in working out the entity's net amount as it does not relate to individual amounts of GST payable for particular transactions. The net result of the adjustments is a decrease in the GST payable for the tax period of $600. Therefore the net amount for the tax period has decreased from $1,000 to $400, and the entity is entitled to a refund or credit of $600.