On 30 May 2014, the rules governing taxpayer eligibility for an excess GST refund were amended by the Tax Laws Amendment (2014 Measures No 1) Act 2014 (Cth) (“Amending Act”).  The Amending Act provides that excess GST is not to be refunded where an entity would obtain a windfall gain. 

Previously, the TAA did not allow taxpayers to obtain a windfall gain by restricting the circumstances in which the Commissioner could refund overpaid GST.  However, under the Amending Act, taxpayers are able to determine their entitlement to a GST refund by reference to objective conditions, rather than relying on the Commissioner’s discretion.  These amendments are predicted to benefit taxpayers as a result of their expected low implementation costs and to provide suppliers with an incentive to reimburse customers.

Under the new self-assessment regime, a taxpayer will be eligible for a refund in circumstances where it has failed to pass on the excess GST to another entity or, if it did pass on a portion of the excess, the taxpayer subsequently reimbursed the other entity for that amount.

Typically, a taxpayer accumulates excess GST by either mischaracterising a sale or arrangement as taxable (for example, incorrectly treating a GST-free or input taxed supply as a taxable supply) or miscalculating GST (for example, under a margin scheme).

The Commissioner’s discretion to grant a refund is reserved for exceptional circumstances where the Commissioner considers that treating GST as payable would be inappropriate.  In determining what is inappropriate, the Commissioner will have regard to the principle that excess GST is not refundable where it provides the entity with a windfall gain.