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Taxpayers warned about GST windfall gains

Thursday 28 August, 2008 Media Release 2008/43 issued on 27 August 2008 announced Taxpayer Alert 2008/17, which warns people that the Tax Office intends to closely scrutinise GST refund request that could result in windfall gains not intended by the law.

The Commissioner is concerned about situations where a taxpayer seeks to obtain a GST refund four years after the end of a tax period on the basis they had originally incorrectly classified the supply of goods or services as taxable, and now contend it should have been GST-free.

In this situation the Commissioner may not be able to recover the input tax credits previously claimed on what are contended to be incorrectly classified supplies. This could lead to a situation where either the supplier or the recipient of the supply obtains a windfall gain.

This alert applies to situations that exhibit some or all of the following features:

• A taxpayer has paid GST on a supply that they considered at the time was a taxable supply but they now contend that the supply is in fact not a taxable supply.

• The taxpayer at the time of making the supply issued tax invoices to the recipient who was registered for GST or required to be registered.

• The taxpayer's notification is now seeking a refund of the GST purportedly overpaid in an earlier tax period where more than four years has elapsed since the end of that tax period.

• Depending on whether or not the taxpayer reimburses the refund of the overpaid GST to the registered entity who was the recipient of the supply, there may be an unintended windfall gain to either the taxpayer who made the supply or to the recipient of the supply.

• In some cases there are arrangements in place for the supplier and recipient of the supply to share a percentage of the refund sought from the Commissioner.