The Australian Taxation Office (ATO) released a new Goods and Services Tax Ruling on (GSTR 2015/1) yesterday, 25 March 2015, which outlines the Commissioner’s view on the meaning of the terms ‘passed on’ and ‘reimburse’ for the purposes of obtaining a refund of Goods and Services Tax (GST).

The GST Act places restrictions on the claiming of GST refunds and the new GST Ruling highlights that there are no clear cut rules on whether a taxpayer is entitled to a GST refund in circumstances where the GST has already been remitted to the ATO.

Implications
Whether GST has been passed on is a question of fact and must be determined on a case by case basis taking into account the particular circumstances of each case. Given the Commissioner’s stance in the ruling, we recommend all taxpayers ensure that its GST processes are sound as any GST over-paid as a result of a simple and accidental transposition error or calculation will also be subject to the same GST refund restrictions. 

Background
Division 142 will apply to all GST refunds for periods commencing on or after 31 May 2014 and This Ruling is the finalised version of draft GSTR 2014/D4 which was issued in September last year. Generally under Division 142, a supplier will only be entitled to claim an amount of excess GST (GST refund) in the circumstance where:

• the GST has not been ‘passed on’ to another entity (the recipient); or 
• where the GST has been passed on, the supplier has reimbursed that other entity for the passed-on GST. This Ruling aims to provide guidance for suppliers in self-assessing their entitlement to a refund of an amount of excess GST under Division 142.    

Meaning of ‘passed on’
While the Commissioner highlights the general expectation that excess GST is passed on, he acknowledges that whether the excess GST has actually been passed on is a question of fact, and must be determined on a case by case basis. The Ruling provides matters relevant in determining whether or not excess GST has been passed on:

• the manner in which the excess GST arose 
• the supplier’s pricing policy and practice
•  the documentary evidence surrounding the transaction; and 
• any other relevant circumstance

What constitutes a ‘reimbursement’
The Commissioner considers that an amount of excess GST will be appropriately reimbursed when it has been compensated by an equivalent amount of the excess GST (which was passed on). Reimbursement may take the form of a payment in money, offsetting of mutual liabilities or issuing of a voucher. A journal entry may also suffice, on the basis an agreement is in place, effecting the discharge of mutual liabilities between the parties.

The Commissioner also considers that where a supplier charges an administration fee (which reduces the amounts ultimately reimbursed) to the recipient, the supplier will only be entitled to a refund of the full amount of excess GST, to the extent the administration fee is based on the reasonable administration costs incurred. The Commissioner recognises that this will vary from case to case, and should be charged accordingly.