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2010-2011-2012-2013
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
TAX LAWS AMENDMENT (2013 MEASURES No. 4) BILL 2013
EXPLANATORY MEMORANDUM
(Circulated by the authority of the
Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)
Table of contents
Glossary .................................................................................................. 1
General outline and financial impact ....................................................... 3
Chapter 1 Research and development tax incentive --
targeting access ............................................................ 7
Chapter 2 Quarterly R&D credits .................................................. 15
Chapter 3 Refunding excess GST ................................................ 59
Index ..................................................................................................... 85
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
Abbreviation Definition
ATO Australian Taxation Office
Commissioner Commissioner of Taxation
GST goods and services tax
GST Act A New Tax System (Goods and Services Tax)
Act 1999
IR&D Act 1986 Industry Research and Development
Act 1986
ITAA 1936 Income Tax Assessment Act 1936
ITAA 1997 Income Tax Assessment Act 1997
MEC group multiple entry consolidated group
R&D research and development
TAA 1953 Taxation Administration Act 1953
1
General outline and financial impact
Research and development tax incentive -- targeting access
Schedule 1 amends the Income Tax Assessment Act 1997 to deny access to
the research and development (R&D) tax incentive for companies with
aggregated assessable income of $20 billion or more for an income year.
The amendment better targets the R&D tax incentive to businesses that
are more likely to increase their R&D spending in response to
Government incentives, delivering a greater return for taxpayers.
Date of effect: The measure applies to R&D entities' income years
starting on or after 1 July 2013.
Proposal announced: This measure was announced on 17 February 2013
as part of the Government's Industry and Innovation Statement, `A Plan
for Australian Jobs'.
Financial impact: This measure is estimated to have a gain to revenue of
$1.1 billion over the forward estimates period.
Human rights implications: This Schedule does not raise any human
rights issue. See Statement of Compatibility with Human Rights --
Chapter 1, paragraphs 1.26 to 1.29.
Compliance cost impact: This measure does not raise any compliance cost
issues. The Office of Best Practice Regulation determined that a
regulation impact statement was not required for this measure.
Quarterly R&D credits
Schedule 2 to this Bill amends the Taxation Administration Act 1953 to
enable taxpayers to claim specified refundable tax offsets in quarterly
instalments in anticipation of their end of year refund from those offsets.
Similar to the current Pay-As-You-Go instalment system, a taxpayer's
quarterly instalments are reconciled against its actual refund entitlements
when its annual income tax assessment is made.
The system initially only applies to the research and development (R&D)
refundable tax offset.
3
Tax Laws Amendment (2013 Measures No. 4) Bill 2013
Date of effect: The measure applies to instalment quarters starting on or
after 1 January 2014.
Proposal announced: This proposal was announced in the Deputy Prime
Ministers and Treasurers Media Release No. 066 of 15 June 2011.
Financial impact: The estimated impact on the underlying cash balance
is:
2013-14 2014-15 2015-16 2016-17
$75m $165m $15m $15m
Human rights implications: Schedule 2 does not raise any human rights
issue. See Statement of Compatibility with Human Rights -- Chapter 2,
paragraphs 2.214 to 2.219.
Compliance cost impact: Those who participate in the system to obtain
the benefits of quarterly credits will incur some compliance costs in
applying to do so and in monitoring their operations to make sure that
they do not stop being eligible. However, as the decision to participate is
voluntary, the associated compliance costs are also voluntary.
Refunding excess GST
Schedule 3 to this Bill amends the A New Tax System (Goods and Services
Tax) Act 1999 to ensure that overpaid GST is refundable only in certain
circumstances. The amendments allow taxpayers to determine their
entitlement to a refund of excess GST rather than having to rely on the
Commissioner of Taxation to exercise the discretion to refund an overpaid
amount of GST.
Date of effect: The amendments apply to all refund claims relating to tax
periods starting on or after 17 August 2012, for those refund claims
lodged on or after the date the Bill is introduced into Parliament.
However, for refund claims lodged or amendments made before the date
the Bill is introduced into Parliament, the existing law relating to
restrictions on refunds under section 105-65 in Schedule 1 to the
Taxation Administration Act 1953 continues to operate.
Proposal announced: This proposal was announced in the Assistant
Treasurer's Media Release No. 086 of 17 August 2012.
Financial impact: The cost of this measure is estimated to be $4 million
over the forward estimates period.
4
General outline and financial impact
Human rights implications: This Schedule does not raise any human
rights issue. See Statement of Compatibility with Human Rights --
Chapter 3, paragraphs 3.82 to 3.85.
Compliance cost impact: The amendments reduce compliance costs for
most taxpayers by allowing them to determine their entitlement to a GST
refund by reference to objective conditions.
5
Research and development tax incentive
-- targeting access
Outline of chapter
1.1 Schedule 1 to this Bill amends the Income Tax Assessment
Act 1997 (ITAA 1997) to deny access to the research and development
(R&D) tax incentive for companies with aggregated assessable income of
$20 billion or more for an income year. The amendment better targets the
R&D tax incentive to businesses that are more likely to increase their
R&D spending in response to Government incentives, delivering a greater
return for taxpayer funds.
1.2 All references in this chapter are to the ITAA 1997 unless
otherwise specified.
Context of amendments
1.3 The R&D tax incentive replaced the previous scheme (the R&D
tax concession) from 1 July 2011. The R&D tax incentive provides more
generous benefits, particularly for small and medium companies. It also
includes a clearer definition of R&D activities, targeting those activities
that are more likely to deliver wider benefits than was the case under the
R&D tax concession.
1.4 The two components of the R&D incentive are:
· a 45 per cent refundable R&D tax offset for eligible entities
with a turnover of less than $20 million; and
· a non-refundable 40 per cent R&D tax offset for all other
eligible entities.
1.5 On 17 February 2013, the Government announced changes to
better target the R&D tax incentive to businesses that are more likely to
increase their R&D spending in response to Government incentives. The
change adds a third tier to the eligibility requirements, with very large
companies no longer being eligible for the offset.
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Tax Laws Amendment (2013 Measures No. 4) Bill 2013
1.6 Internationally, there is broad support for the view that R&D
spending of small firms is more responsive than that of large firms to
Government incentives. The Government has taken a decision to better
target the R&D tax incentive to small and medium companies, where it
will stimulate behavioural change and deliver a greater return for taxpayer
funds.
1.7 Part of the savings from this measure will be used to fund other
Government priorities, including reforms announced in the Government's
Industry and Innovation Statement, `A Plan for Australian Jobs'.
Summary of new law
1.8 This Schedule prevents an entity from claiming the R&D tax
incentive if its assessable income for an income year, when aggregated
with the assessable income of entities it is connected with, entities it is
affiliated with and entities affiliated with it, is $20 billion or more.
1.9 Although the entity is not able to claim the R&D tax incentive, it
is able to treat the R&D expenditure for tax purposes in the same way as
other expenditure, for example, as a deduction.
Comparison of key features of new law and current law
New law Current law
An entity with an aggregated turnover An entity with aggregated turnover of
of more than $20 million can only more than $20 million is able to claim
claim the R&D tax incentive if its a non-refundable R&D tax offset or
aggregated assessable income is less the refundable R&D tax offset if its
than $20 billion. If it cannot, the aggregated turnover is less than
entity will treat the R&D expenditure $20 million. Such expenditure is
in the same way as any other non-deductible.
expenditure.
Detailed explanation of new law
1.10 These amendments limit the R&D tax incentive to entities with
aggregated assessable income of less than $20 billion in an income year.
An entity with aggregated assessable income in excess of $20 billion
treats their R&D expenditure in the same way as it treats its other
expenditure, for example, as a deduction. This denies access to the R&D
tax incentive for very large entities, which are less likely to engage in
8
Research and development tax incentive -- targeting access
additional R&D in response to Government incentives. [Schedule 1, item 1,
subsection 355-103(1)]
Aggregated assessable income
1.11 `Assessable income' has the meaning that it is given in the
ITAA 1997, which includes the assessable components of an entity's
ordinary and statutory income and is worked out by reference to the
residence of the entity and the source of the income.
· Australian residents include global ordinary and statutory
income in their assessable income.
· Foreign residents include only Australian sourced ordinary
and statutory income (unless it is assessed on some basis
other than source) in their assessable income.
· Exempt and non-assessable non-exempt income is not
included in assessable income.
1.12 If a foreign resident has a permanent establishment in Australia
that is covered by a tax treaty, then its assessable income includes the
income which is attributable to the permanent establishment from all
sources.
1.13 To determine an entity's aggregated assessable income the entity
adds together its assessable income with the assessable income of entities
it is connected with, entities it is affiliated with and entities affiliated with
it. The new threshold is based on the entity's aggregated assessable
income so that it cannot be easily circumvented by diverting income to an
associated entity or directing another entity to conduct certain activities.
[Schedule 1, item 1, subsection 355-103(2)]
Example 1.1: Foreign sourced and Australian sourced income
GJP Pty Ltd is an Australian resident company that wishes to claim the
R&D tax incentive. GJP earns $12 billion of assessable income in the
2013-14 income year. This includes statutory and ordinary income
from both Australian and foreign sources.
GJP has a wholly owned subsidiary, CJE Pty Ltd, which is therefore
connected with GJP. CJE has assessable income from all sources
of $7 billion for the 2013-14 income year. This $7 billion will be
aggregated with GJPs assessable income to determine whether GJP's
aggregated assessable income exceeds $20 billion for the 2013-14
income year.
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Tax Laws Amendment (2013 Measures No. 4) Bill 2013
GJP is expected to act in accordance with the wishes of a foreign
resident company, Goji Pty Ltd, with respect to its business decisions.
GJP is therefore an affiliate of Goji. Goji has $10 billion of income for
the 2013-14 income year. This includes $3 billion of Australian
sourced income which is assessable income in Australia, including
$2 billion from trading through a permanent establishment in Australia
and a $1 billion net capital gain from the sale of an Australian factory
and associated land. Only the $3 billion of income that is assessable in
Australia will be included in GJP's aggregated assessable income.
GJP has aggregated assessable income of $22 billion
(=$12 billion+$7 billion+$3 billion) and therefore will not qualify for
the R&D tax incentive.
GJP will, however, be able to claim deductions in relation to the R&D
expenditure it has incurred during the relevant income year. For
example, the decline in value of depreciating assets it holds may be
deductible under Division 40 and some capital expenditure may be
included in the cost base of an asset or be deductible under
section 40-880 as black hole expenditure.
1.14 An entity is an affiliate of another entity in accordance with the
existing definition in section 328-130. Broadly, these are entities that can
reasonably be expected to act in accordance with the wishes of the other
entity. [Schedule 1, item 1, paragraphs 355-103(2)(c) and (d)]
1.15 An entity is usually `connected with' another entity where one
entity controls the other entity or both entities are controlled by the same
entity (section 328-125). Broadly, an entity controls another entity where
it has a certain level of interest (the control percentage) in the income,
capital or voting power of the other entity. This connected entity test is
usually used to determine whether an entity is a small business entity
eligible to access special small business tax provisions. For that purpose,
the control percentage is 40 per cent.
1.16 For the purposes of determining whether an entity is part of a
business with aggregated assessable income of more than $20 billion, the
control percentage has been increased from at least 40 per cent to more
than 50 per cent. This reflects the circumstances where a large company
controls another entity and might be able to access the relevant tax
information. For the avoidance of doubt, the Bill makes it clear that the
Commissioner cannot exercise discretion to treat an entity as not
controlling another entity where their shareholding is more than
40 per cent but less than 50 per cent. [Schedule 1, item 1, subsection 355-103(4)]
1.17 An entity does not have to aggregate its assessable income with
an unrelated business that it is connected with only because they are both
owned by a State, Territory or Commonwealth Government. However, an
entity still needs to aggregate its assessable income with entities that it is
10
Research and development tax incentive -- targeting access
connected with for some other reason. [Schedule 1, item 1,
subsection 355-103(3)]
Example 1.2: Connected entities
Mach Co is a company that is wholly owned by the Commonwealth.
Mach Co owns a 40 per cent interest in an entity `East Coast Co' and
a 51 per cent interest in `West Coast Co'. Mach Co also has a wholly
owned subsidiary `Central Co. Mach Co, East Coast Co, West Coast
Co and Central Co each have assessable income of $5 billion for the
2013-14 income year.
Icca Co is also a company that is also wholly owned by the
Commonwealth. Icca Co has assessable income of $15 billion for
the 2013-14 income year. Icca Co does not need to aggregate its
income with the income of Mach Co or Mach Co's subsidiaries
because they are only connected because they are both wholly owned
by Government.
Mach Co has to aggregate its assessable income with its wholly owned
subsidiary, Central Co, as well as West Coast because it has more than
a 50 per cent interest in West Coast. Mach Co will not have to
aggregate its assessable income with East Coast or Icca Co. As such,
Mach Co's aggregated assessable income is $15 billion.
Amendment to the Industry Research and Development Act 1986
1.18 The amendment to the Industry Research and Development
Act 1986 (IR&D Act 1986) ensures that the conditions for eligibility of
R&D activities conducted outside Australia continue to operate as
intended, following the introduction of section 355-103 of the ITAA 1997.
1.19 Since R&D entities with aggregated assessable income
of $20 billion or more for an income year are excluded from claiming the
R&D tax offset, they are not required to register their R&D activities for
that income year with Innovation Australia (under section 27A of the
IR&D Act 1986). This minimises the compliance costs for those R&D
entities and avoids unnecessary use of administrative resources by
Innovation Australia.
1.20 Under the R&D tax incentive, one of the conditions of eligibility
for R&D activities conducted outside Australia is that the overseas
activities must satisfy the `significant scientific link test' -- that is, be
sufficiently related to at least one Australian core R&D activity that is
registered or (if conducted in a future income year) is likely to be
registered. These conditions are problematic if R&D entities conduct
overseas activities in income years in which they are able to claim the
R&D tax incentive and conduct Australian core activities in income years
11
Tax Laws Amendment (2013 Measures No. 4) Bill 2013
when they are excluded by the operation of section 355-103 of the
ITAA 1997. To address this issue, an amendment has been made to
subsection 28D(2) of the IR&D Act 1986.
1.21 The amendment means that, where an R&D entity was excluded
from the R&D tax incentive by the $20 billion aggregated assessable
income test and conducted (but did not register) Australian core activities
in that prior income year, the significant scientific link test may be
satisfied. What matters is whether the Australian core activities would be
reasonably likely to have been registered if the $20 billion aggregated
assessable income test were disregarded. Effectively, this tests whether
the activities themselves were registrable and would have been registered
if the entity had applied to do so. [Schedule 1, item 2,
subparagraph 28D(2)(b)(iii) of the Industry Research and Development Act 1986]
1.22 Where the Australian core activities are to be conducted in a
future income year, the amendment makes it clear that Innovation
Australia, in applying the significant scientific link test, does not need to
consider the likelihood that an entity's aggregate assessable income might
reach or exceed $20 billion for that future income year. [Schedule 1, item 2,
subparagraph 28D(2)(b)(iii) of the Industry Research and Development Act 1986]
Application and transitional provisions
1.23 The measure applies to R&D entities' income years starting on
or after 1 July 2013. However, in aggregating an R&D entity's assessable
income, an R&D entity should include the assessable income of entities
that it is connected or affiliated with, along with entities that it is an
affiliate of, for the same income year, even if the corresponding income
year for those entities starts before 1 July 2013. [Schedule 1, item 3]
Example 1.3: Application
Following on from Example 1.1, GJP and CJE both have income years
that start on 1 July. However, Goji has a substituted accounting period
that starts on 1 January (an early balancer). Goji's 2013-14 income
year therefore starts on 1 January 2013. It is Goji's assessable income
for this income year (running 1 January 2013 to 31 December 2013)
that is used to work out GJP's aggregated assessable income
for the-2013-14 income year.
12
Research and development tax incentive -- targeting access
STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS
Prepared in accordance with Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011
Research and development tax incentive -- targeting access
1.24 This Schedule is compatible with the human rights and freedoms
recognised or declared in the international instruments listed in section 3
of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview
1.25 Schedule 1 to this Bill amends the ITAA 1997 to deny access to
the R&D tax incentive for companies with aggregated assessable income
of $20 billion or more for an income year. The amendment better targets
the R&D tax incentive to businesses that are more likely to increase their
R&D spending in response to Government incentives, delivering a greater
return for taxpayer funds.
Human rights implications
1.26 This Schedule does not engage any of the applicable rights or
freedoms.
Conclusion
1.27 This Schedule is compatible with human rights as it does not
raise any human rights issues.
Assistant Treasurer, the Hon David Bradbury
13
Quarterly R&D credits
Outline of chapter
2.1 Schedule 2 to this Bill amends the Taxation Administration
Act 1953 (TAA 1953) to enable taxpayers to claim specified refundable
tax offsets in quarterly instalments in anticipation of their end of year
refund from those offsets. Similar to the current Pay-As-You-Go (PAYG)
instalment system, a taxpayer's quarterly instalments are reconciled
against its actual refund entitlements when its annual income tax
assessment is made.
2.2 The system initially only applies to the research and
development (R&D) refundable tax offset.
2.3 All legislative references in this chapter are to Schedule 1 to the
TAA 1953 unless otherwise indicated.
Context of amendments
2.4 Refundable tax offsets are one means by which the tax law
confers special status on certain expenditure. Enhanced deductions,
accelerated deductions and non-refundable tax offsets only reduce tax, or
alter its timing, but refundable tax offsets can result in a payment to
taxpayers, thereby improving their cash flow.
2.5 Currently, any refund resulting from a taxpayer's entitlement to
a refundable tax offset occurs after the end of the income year as part of
the annual income tax assessment for an income year. However, some
entities with low turnover but large immediate expenditure demands
would benefit more if their refunds arrived earlier. One area where earlier
payment would be particularly helpful is R&D because research-based
businesses often conduct substantial R&D, at considerable expense,
before they begin to derive income.
2.6 Innovation is recognised internationally as an important driver
of productivity and economic growth. Innovation is the implementation
of a new or significantly improved good, service, process, or marketing or
organisational method. It is a tool to drive growth in productivity, market
diversity, and export and employment levels. Significant benefits accrue
to business, to the economy, and to society through innovation.
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Tax Laws Amendment (2013 Measures No. 4) Bill 2013
2.7 Recognising that a widespread culture of innovation does
provide significant benefits to society as a whole, the Commonwealth
supports innovation in a wide range of areas, including workforce skills,
venture capital, collaboration, technology uptake, management practices
and R&D.
2.8 The 2011 R&D tax incentive was the biggest reform to
Commonwealth support for business innovation for more than a decade.
It cut red tape and provided a more targeted incentive for companies to
invest in R&D. It significantly improved the incentive for smaller firms
to undertake R&D by providing those R&D entities that have aggregated
turnover under $20 million with access to a refundable tax offset equal to
45 per cent of their R&D expenditure.
Summary of new law
2.9 An entity that satisfies the threshold tests can apply to
participate in the quarterly credits system for one or more quarters in an
income year. It can participate for any or all of the refundable tax offsets
for which it qualifies and that are eligible to be in the system. Initially,
only the R&D tax offset is within the system.
2.10 If it does participate, an entity receives a payment each quarter
towards its expected end-of-year refund from those tax offsets. It can
receive either a `safe harbour' standard amount, based on a previous
year's refund, or it can vary to a different amount that better reflects the
refund it expects to receive in the current year.
2.11 The general interest charge applies if an entity varies to an
amount that proves to be excessive when the amount of the actual refund
is assessed at the end of the year. This is to discourage entities from
varying to excessively high amounts. The interest charge does not apply
if the entity uses `safe harbour' standard amounts.
2.12 The quarterly payments are set off against the amount of the
actual refund and any excess is paid to the entity if the payments were too
low, or repaid by the entity if the payments were too high.
2.13 Allowing taxpayers with an expected entitlement to the R&D
refundable tax offset to receive their anticipated refund in quarterly
instalments during the year provides additional cash-flow for them to
reinvest in their R&D activities and so delivers wider benefits to the
Australian economy.
16
Quarterly R&D credits
Comparison of key features of new law and current law
New law Current law
R&D entities can apply to anticipate R&D entities can be entitled to a tax
an expected tax offset refund for their offset, which reduces their income tax
R&D expenditure through quarterly liability, for expenditure they incur on
payments. R&D.
Any difference is made up, either by Any unused part of the tax offset is
a further payment or by repaying the paid to the entity after its assessment
excess, when their assessment for the for the income year is made.
year is made.
Detailed explanation of new law
2.14 It is quite common for entities that undertake research and
development (R&D) work to have little or no turnover in their early years.
Although they receive no revenue, they might incur considerable
expenditure on their research. In other cases, small and medium
companies can be in a tax loss position during a period of significant
investment in R&D to transform their business. In all these cases,
deductions for R&D expenditure are of little immediate value to the
entities because they have to wait for a future year to deduct the tax loss
against future income.
2.15 Accordingly, the income tax law was amended in 2011 to
provide a refundable tax offset for expenditure on R&D for those
companies that have an aggregated annual turnover under $20 million.
That means that the R&D entity can receive a refund of its unused offset
when its assessment is made instead of having to wait until it has a tax
liability to use it against. The R&D tax offset is also set at a level that
provides a greater benefit than the 125 per cent deduction under the
previous R&D tax concession.
2.16 To further encourage entities to undertake R&D, the
amendments in this Schedule allow entities to claim quarterly instalments
in anticipation of their expected refund at the end of the year, instead of
having to wait until their assessment. This can improve their cash flow
and so allow them to bring forward, or increase, their expenditure on
R&D.
2.17 The measure has been designed to balance the compliance
burden for businesses in accessing the quarterly credits system for the
R&D tax offset and the need to ensure the integrity of the tax system. The
design may mean that an entity is not always able to match the profile of
its quarterly credit amounts for an income year with the pattern of its
17
Tax Laws Amendment (2013 Measures No. 4) Bill 2013
R&D expenditure for the year. However, this is balanced by relatively
lower compliance costs for entities that access the quarterly credits
system.
2.18 This is the first time that Australia's income tax law has
provided for a refundable tax offset refund to be paid in advance of an
assessment. Therefore, the amendments implement a general regime that
accommodates the possibility that Parliament may decide in the future that
refunds for other refundable tax offsets should be paid in quarterly
advance instalments. For the moment though, the regime only applies to
the R&D refundable tax offset. [Schedule 2, item 1, paragraph 48-5(1)(b) and
section 48-100]
Who is eligible to participate in the quarterly credits system?
2.19 An entity participates in the quarterly credits system for
particular offsets. It can decide to participate for some of the offsets
eligible for the system and not for others, as it chooses. However, it can
only participate for a particular offset if it satisfies two tests: the
reasonable receipt test and the complying taxpayer test. Further special
tests may also have to be satisfied for particular offsets. [Schedule 2, item 1,
section 48-100]
The reasonable receipt test
2.20 The reasonable receipt test requires that it be reasonable to
expect that the entity will be entitled to the tax offset for the income year
and that the offset will be a refundable tax offset. However, it is not
necessary to expect that the entity will actually get a refund from its tax
offsets for the year. [Schedule 2, item 1, section 48-105]
2.21 The test only requires a reasonable expectation that an entity
will be entitled to the tax offset (rather than determining that the entity is
actually entitled to it) because it is receiving the quarterly payments
before the end of the year, which may be before it satisfies the
prerequisites for getting the offset and will be before its assessment is
made.
2.22 To be `reasonable to expect' that an entity will be so entitled
means the expectation must be reasonable, as opposed to irrational, absurd
or ridiculous (Attorney-General's Department & Anor. v Cockcroft [1986]
FCA 35 per Bowen CJ and Beaumont J at [29]). There must be real and
substantial grounds for thinking that the entity will be so entitled but the
matter should not be considered as a question of mathematical probability
(Cockcroft per Bowen CJ and Beaumont J at [29] and Sheppard J at [12]).
18
Quarterly R&D credits
2.23 Although whether it is reasonable to expect something is an
objective test, the entity's subjective intentions may still be relevant
(Federal Commissioner of Taxation v Arklay [1989] FCA 34 at [13]).
That will be so, for example, in the case of the R&D tax offset because
entitlement to that offset depends in part on whether or not the entity
incurs expenditure on relevant R&D. So, what the entity intends to do
will be a relevant factor in forming an expectation about the future.
The R&D tax offset
2.24 The real and substantial grounds for thinking that an R&D entity
will be entitled to an R&D tax offset for a year would include a clear plan
to expend an amount on R&D activities that will be registered under the
Industry Research and Development Act 1986 (IR&D Act 1986). It would
also be relevant to be able to demonstrate that any other conditions of
entitlement required by Division 355 of the Income Tax Assessment
Act 1997 (ITAA 1997) are, or will be, satisfied and that no conditions
exist that would disentitle the entity to the offset under that Division.
2.25 The real and substantial grounds for thinking that the R&D tax
offset will be a refundable tax offset would usually involve an expectation
that the entity's aggregated turnover for the year will be under $20 million
(see sections 67-30 and 355-100 of the ITAA 1997).
The complying taxpayer test
2.26 To satisfy the complying taxpayer test, an entity must:
· have no overdue amount owing under a taxation law;
· be complying with all its obligations under taxation laws to
provide documents or other information to the Commissioner
of Taxation (Commissioner) or to another entity; and
· not have been convicted of an offence against a taxation law,
or under any other law in relation to a taxation law, during
the year it is applying to participate in the quarterly credits
system or during any of the previous five income years.
[Schedule 2, item 1, subsection 48-110(1)]
2.27 It must also be reasonable to expect that the entity will comply
with its obligations under taxation laws in the future. [Schedule 2, item 1,
paragraph 48-110(1)(d)]
2.28 An entity would comply with its obligations so long as it meets
every obligation imposed on it by a `taxation law'. These are Acts of
which the Commissioner has the general administration (such as the
19
Tax Laws Amendment (2013 Measures No. 4) Bill 2013
income tax law, the GST law and the fringe benefits tax law), the Tax
Agent Services Act 2009, and the legislative instruments made under those
Acts.
2.29 Examples of complying with obligations include:
· lodging tax returns;
· providing all other requested information in the required
form;
· not misleading the Commissioner; and
· paying tax debts.
2.30 An entity would not fail to comply with its obligations merely
because it received a quarterly credit amount that later proves to be
excessive, even if the excess was large enough for it to have had to pay
the general interest charge. However, an entity would fail to comply with
its tax law obligations if it did not pay the general interest charge on time.
2.31 Real and substantial factors in forming a reasonable expectation
that an entity will continue to comply with its obligations include:
· whether the entity is solvent and so likely to be able to
continue paying its tax debts;
· whether it has a history of non-compliance before the
previous five years (and whether, in the case of companies
and similar entities, the responsible personnel are
unchanged); and
· whether there is a history of non-compliance by related
entities and the extent to which that is likely to be reflected in
the entity's own behaviour (for example, because of
overlapping personnel).
2.32 Some entities are not legal entities, so that the obligations that
would fall on them must instead be met for them by other entities (called
their `managing entities'). For example, the obligations that would fall on
a partnership must be satisfied by the partners and the obligations that
would fall on a trust must be satisfied by the trustees. For those cases, the
entity only passes the complying taxpayer test if that test is also passed by
those who must satisfy the obligations that would otherwise fall on the
entity. The tests, however, only apply to the managing entities when they
are acting in that capacity. [Schedule 2, item 1, subsection 48-110(2)]
20
Quarterly R&D credits
2.33 The managing entities that must also pass the test include:
· for a corporate limited partnership -- each of the general
partners;
· for each other partnership -- each of the partners;
· for a trust -- each of its trustees; and
· for an unincorporated association -- each member of its
committee of management.
[Schedule 2, item 1, subsection 48-110(2)]
Special tests
2.34 Special tests may need to be satisfied to participate in the
quarterly credits system for particular tax offsets. To participate in the
quarterly credits system in a year for the R&D tax offset, the special test
an entity must satisfy is the history test. [Schedule 2, item 1,
paragraph 48-100(c)]
The history test
2.35 The history test requires the entity to have satisfied all the
requirements for obtaining the R&D tax offset provided by Division 355
of the ITAA 1997 in one or more of the previous five income years.
Requiring a history with the R&D tax offset helps to maintain the integrity
of the quarterly credits system by, for example, reducing the risks that can
arise through the activities of `phoenix companies'1. It also increases the
likelihood that an R&D entity will have a better capacity to accurately
anticipate the effect of the R&D tax offset in its end-of-year position.
[Schedule 2, item 1, section 48-100 (table item 20)]
Example 2.1: Passing the history test
Spencer Sensible Shoes Pty Ltd expects to get the R&D tax offset for
2016-17 for its expenditure on developing a machine that manufactures
shoes in half the normal time. It also incurred expenditure on
developing a new shoe polish in 2013-14 and got the R&D tax offset in
that year.
1 So called `phoenix companies' are entities that go into liquidation with substantial unpaid
debts (including taxation liabilities) but whose business activities continue through another
entity (or entities), typically controlled by the same people.
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Tax Laws Amendment (2013 Measures No. 4) Bill 2013
Spencer applies to participate in the quarterly credits system for the
R&D tax offset for 2016-17. Because it also got the R&D tax offset
for 2013-14, only three years earlier, it passes the history test.
2.36 It is not necessary that the entity participated in the quarterly
credits system for the R&D tax offset for the earlier year. It is also not
necessary that its R&D tax offset was refunded in that year, or even that
the offset was a refundable tax offset in that year. It is enough if the entity
got the R&D tax offset in one of those five years. [Schedule 2, item 1,
section 48-100 (table item 20)]
2.37 The R&D tax offset in its current form was only enacted in
2011. It replaced an R&D tax concession that worked as an enhanced
income tax deduction (although there was an option for some taxpayers to
convert their deduction into an offset). An entitlement to the deduction
(or to the optional tax offset) under that previous concession is not
sufficient to satisfy the history test to participate in the quarterly credits
system with the R&D tax offset. To satisfy the history test, an entity must
have obtained the R&D tax offset under the provisions in Division 355 of
the ITAA 1997. [Schedule 2, item 1, section 48-100 (table item 20)]
How to participate in the quarterly credits system
2.38 An entity must apply to participate in the quarterly credits
system for an income year. It can apply to participate for some quarters or
for all quarters and for some eligible refundable tax offsets or for all
eligible refundable tax offsets. [Schedule 2, item 1, subsection 48-5(1)]
2.39 The entity's application must be in the approved form, which
determines what information is required and the way it must be provided
to the Commissioner. The latest day that an entity can apply to participate
for a particular quarter is the 14th day after the end of the quarter. To
allow for the disruption during the end of year holiday season, that period
is extended to 14 February for quarters whose last month includes any part
of December (that is, for quarters that end on any day from 1 December to
30 January). [Schedule 2, item 1, subsections 48-5(3) and 48-15(1)]
2.40 The Commissioner can disallow the entity's application, and
must do so if the application is late or if he or she is aware that the entity
does not satisfy the tests it needs to satisfy to be able to participate. The
Commissioner must also disallow the entity's application if it has already
withdrawn from participating in the system for the same quarter and for
the same offset. [Schedule 2, item 1, subsections 48-5(1) and 48-10(1)]
2.41 The Commissioner can ask the entity for further information to
decide whether or not to disallow its application to participate in the
system. The Commissioner can ask for the information to be in the
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Quarterly R&D credits
approved form and may set a time limit for providing the information (but
must allow at least 14 days). The Commissioner can disallow the
application if the information is not provided within the time limit.
[Schedule 2, item 1, paragraph 48-10(2)(a) and subsections 48-15(2) and (3)]
2.42 If an entity is applying to participate in the quarterly credits
system for the R&D tax offset for a quarter in a year, the Commissioner
can also disallow the application if the entity has not given Innovation
Australia information it has requested under section 28H of the IR&D
Act 1986 (which is information relevant to findings about the entity's
R&D activities). [Schedule 2, item 1, paragraph 48-10(2)(b)]
2.43 The Commissioner must notify the entity whether its application
to participate in the system for particular quarters and particular tax
offsets has been allowed or disallowed. If the application is disallowed,
the Commissioner must also provide reasons why. [Schedule 2, item 1,
subsection 48-5(2)].
2.44 An entity that is dissatisfied with the Commissioner's decision
whether to allow it to participate in the quarterly credits system for a
quarter can object to it. [Schedule 2, item 1, section 48-800]
How much is the quarterly credit amount?
2.45 An entity that is participating in the quarterly credits system for
a quarter can either be paid the standard amount for the quarter or can
apply to vary the amount. [Schedule 2, item 1, section 48-200]
2.46 Using the standard amount provides a `safe harbour' that
protects the entity from any liability for the general interest charge if the
amount is too high by comparison with the quarter's benchmark amount,
which is determined at the end of the year. If the entity uses a varied
amount for the quarter, it is not protected from a liability for the general
interest charge if the amount is excessive. Once an entity uses a varied
amount for a quarter, it cannot access the `safe harbour' for later quarters
in that year.
The standard amount
2.47 For the tax offsets for which the entity is participating in the
quarterly credits system, the standard amount for a quarter is the lesser of:
· 25 per cent of the total of those tax offsets for the most recent
income year in which it was assessed as being entitled to any
of them; and
23
Tax Laws Amendment (2013 Measures No. 4) Bill 2013
· 25 per cent of the refund (from all its refundable tax offsets)
that was assessed to the entity for that year.
[Schedule 2, item 1, subsection 48-205(1)]
2.48 The idea underlying this approach is that the refund the entity
got for the same offsets last time is a sufficiently reliable predictor of what
it will get this time.
2.49 To ensure the standard amount is based on the entity's recent
activities, the relevant year must be one of the past two income years.
Therefore, an entity that did not have the relevant refundable tax offsets,
or got no refund from its refundable tax offsets, in either of the past two
years would get a standard amount of nil. Such an entity could choose to
use a varied amount instead. [Schedule 2, item 1, paragraph 48-205(1)(c) and
subsection 48-205(2)]
2.50 The tax offsets must also have been refundable tax offsets in that
earlier year. In rare cases, this may be affected by legislative changes to
the status of a particular tax offset. But the more typical case involves a
tax offset that involves the taxpayer having to satisfy a condition before it
is a refundable tax offset. For example, the R&D tax offset is only
refundable in an income year for taxpayers whose aggregated turnover in
that year is under $20 million (see subsection 67-30(1) of the
ITAA 1997). [Schedule 2, item 1, paragraph 48-205(1)(b)]
2.51 For most taxpayers, the refund for their refundable tax offsets
for an income year will be assessed during the second quarter of the next
year (that is, after the end of the first quarter). That will mean that the
standard amount for that first quarter of the next year will be based on the
payment assessed for two years earlier but the standard amount for the
later quarters of the year will be based on the new assessment. This could
result in the standard amount changing, perhaps to a smaller amount, or
even to zero.
Example 2.2: Standard amount
In 2015-16, Beetroot Broadband Services has a basic income tax
liability (before applying its tax offsets) of $10 million. Beetroot has
three refundable tax offsets for that year: tax offset A comes to
$3 million, tax offset B to $4 million and tax offset C to $5 million.
After they reduce its basic income tax liability to zero, the remaining
$2 million of the offsets is paid to Beetroot.
In 2016-17, Beetroot has a basic income tax liability, before applying
its tax offsets, of $12 million. Beetroot has two refundable tax offsets
for that year: tax offset A, which comes to $5 million and tax offset B,
which comes to $6 million. Those offsets reduce its basic income tax
24
Quarterly R&D credits
liability to $1 million. There is no excess, so no amount is paid to
Beetroot.
In 2017-18, Beetroot participates in the quarterly credits system for tax
offset A. In the first quarter, the standard amount will be worked out
by reference to the 2015-16 income year because that is the most
recently assessed year in which Beetroot got a refundable tax offset
(the assessment for 2016-17 not yet having been made). The standard
amount will be 25 per cent of the lesser of 2015-16's $3 million for tax
offset A and that year's $2 million refund. $2 million is less than
$3 million, so the standard amount will be 25 per cent of the
$2 million, or $500,000.
For the second, third and fourth quarters, the standard amount will be
worked out by reference to the 2016-17 income year because that year
has now been assessed and so is the most recently assessed year in
which Beetroot got a refundable tax offset. Because there was no
refund for 2016-17, the standard amount for those quarters will be nil.
To be paid a quarterly credit amount for those quarters, Beetroot would
have to vary from the standard amount.
2.52 The standard amount for the second, third and fourth quarters
will usually remain constant. One exception would be where an entity
withdraws from the quarterly credits system but only for some tax offsets.
Because the standard amount for the tax offsets participating in a quarter
is calculated by reference to the amount of those offsets for the most
recently assessed year, changing which offsets are participating can
change the standard amount for a quarter. [Schedule 2, item 1,
subsection 48-205(1)]
Varied amounts
2.53 An entity can apply to vary its credits for a quarter and for the
remaining quarters of the year instead of using the standard amount. Once
it makes that choice (and if the Commissioner does not disallow the
application), it cannot access the standard amount `safe harbour' for the
rest of the year. Instead, it continues to use those varied amounts (or later
varied amounts) for the affected quarters. A `safe harbour' would be
available again in the first quarter of the following year. [Schedule 2, item 1,
section 48-200 and subsections 48-210(1) and (2)]
2.54 The choice of varying amounts allows entities to receive credit
amounts that more accurately reflect the refund they expect to receive for
the current year than would the standard amount (which is based on an
earlier year's refund). An entity could vary amounts to bring the total
credits it receives for the year closer to its expected final refund (as the
amount of that final refund becomes clearer). For example, if it received
too much for an early quarter, it could reduce the amount for later quarters
to bring the current total back to where it should be. If necessary, it could
25
Tax Laws Amendment (2013 Measures No. 4) Bill 2013
drop an amount to nil, or even to a negative amount to achieve that.
Varying to a negative amount for a quarter would mean that the entity had
to pay that amount back to the Commissioner. [Schedule 2, item 1,
subsection 48-210(2)]
2.55 An entity can apply to vary amounts more than once during a
year but each application must propose a varied amount for:
· each remaining quarter in the year;
· for any quarter that ended within the 14 days before the
application was made; and
· for a quarter, the last month of which contained any part of
December, if the application was made before the following
15th of February.
The proposed amounts could be the same for each of those quarters or
they could differ. For example, if an entity decides that its first quarter
amount was too low, it might increase the second quarter's amount to
catch up and then use constant amounts for the last two quarters.
[Schedule 2, item 1, paragraph 48-215(1)(a)]
2.56 An application to vary amounts must be in the approved form
and must be made on or before the 14th day after the end of the first
quarter to be varied by the application. That period is extended to
14 February for quarters whose last month includes any part of December
(that is, for quarters that end on any day from 1 December to 30 January).
[Schedule 2, item 1, subsection 48-220(1)]
2.57 In determining the appropriate amount to vary to, an entity
should only have regard to its likely total refund at the end of the year.
The actual pattern of its expenditure, and of any other amounts that gave
rise to its offset entitlement, during the year should not be taken into
account. So, for example, that an entity only incurs its R&D expenditure
during the first quarter of the year does not mean that it can `front load' its
quarterly credits for that year. Conversely, the entity is not prevented
from receiving its quarterly credit amounts ahead of incurring its R&D
expenditure in the final quarter.
2.58 To discourage entities from deliberately `front loading' their
credit amounts to get what would effectively be an interest-free loan that
they would repay by varying to lower amounts in later quarters, the
general interest charge can apply to quarterly amounts that are excessive
when compared with a benchmark that reflects an even pattern of
quarterly credit amounts throughout the year.
26
Quarterly R&D credits
Disallowing applications to vary amounts
2.59 The Commissioner is able to disallow an application to vary
amounts so that the Commonwealth is not exposed to an unacceptable
risk. The Commissioner cannot disallow an application for some quarters
and allow it for others; he or she can only disallow an application in its
entirety. [Schedule 2, item 1, subsections 48-210(3) and 48-215(1)]
2.60 The Commissioner must disallow an application to vary
amounts if it does not propose an amount for each quarter it is required to
cover. [Schedule 2, item 1, paragraph 48-215(1)(a)]
2.61 The Commissioner must also disallow an application if, for any
quarter it affects, the total amount for that quarter and the previous
quarters in the year would be negative. In other words, varying to a
negative amount cannot do more than repay the year's earlier quarterly
credit amounts. [Schedule 2, item 1, paragraph 48-215(1)(b)]
Example 2.3: Disallowing a negative amount
Robinson Robotic Instruments is in the quarterly credits system and
has received credit payments of $500 and $600 for the first two
quarters. It applies to vary the amounts for quarters 3 and 4 to $750.
For the third quarter, the total payments would come to
$350 ($500 + $600 -- $750). For the fourth quarter, the total
payments would come to $400 ($500 + $600 -- $750 -- $750).
Since that would make the total payments a negative amount, the
Commissioner must disallow Robinson's application.
2.62 The Commissioner must also disallow an application if, for any
quarter it affects, the total amount for that quarter and the previous
quarters in the year would exceed the part of the expected refund of tax
offsets for the year (or, the eventual total of participating offsets for the
year if that is less) that relates to those quarters. [Schedule 2, item 1,
paragraph 48-215(1)(b) and subsection 48-215(2)]
2.63 The Commissioner normally cannot disallow an application if
the varied amount it proposes for each quarter is lower than (or equal to)
the amount that would otherwise apply for that quarter. The purpose of
providing a power to disallow proposed varied amounts is to protect the
Commonwealth revenue against unacceptable risks. Therefore, it should
not be disallowed if each quarter's varied amount is lower than the
amount that would otherwise apply because lowering the amount
decreases any risk to the revenue. [Schedule 2, item 1, subsection 48-215(4)]
27
Tax Laws Amendment (2013 Measures No. 4) Bill 2013
Example 2.4: Limit on disallowing a varied amount application
Public relations firm `Goodwin's Good Vibes' is in the quarterly
credits system. It takes the standard amount for quarter 1 but then
applies to vary to $5,000 for quarters 2 and 3 and $4,500 for quarter 4.
The Commissioner does not disallow the application.
Goodwin receives the $5,000 credit amount for quarter 2 but then
applies to vary the amounts for quarters 3 and 4 again to $4,000 each.
Since those amounts are below the $5,000 and $4,500 respectively that
otherwise would have applied for those quarters, the Commissioner
cannot disallow the new application.
2.64 The Commissioner can request further information from the
entity to help decide whether to disallow an application for varied
amounts. If the entity does not provide the information within the period
allowed, the Commissioner can disallow the application, even if the
proposed amounts are lower than the amounts they would replace.
[Schedule 2, item 1, subsections 48-215(3) and 48-220(2) and paragraph 48-215(4)(a)]
2.65 The Commissioner can require the information to be provided in
the approved form and can set a time limit on when it must be provided
(but must allow at least 14 days). The Commissioner might provide more
time where the particular information requested would necessarily be
difficult to obtain within 14 days or where the entity asks for more time
because it knows of, or encounters, obstacles in obtaining the information.
An extension would not usually be granted simply because providing the
information at that time would be inconvenient for the entity. [Schedule 2,
item 1, subsection 48-220(3)]
2.66 If the Commissioner disallows an application, he or she must
notify the entity in writing of that decision and of the reasons for it.
[Schedule 2, item 1, subsection 48-210(4)]
2.67 An entity that is dissatisfied with the Commissioner's decision
to disallow its application to vary amounts can object against it.
[Schedule 2, item 1, section 48-800]
Paying the quarterly credit amount
2.68 The quarterly credit amount for a quarter is usually to be paid by
the 28th day after the end of the quarter. The Commissioner can of course
pay the amount before the payment date. [Schedule 2, item 1,
paragraph 48-225(1)(a)]
2.69 If the last month of the quarter contains any part of December, it
must instead be paid by the 28th of February of the following year. This
28
Quarterly R&D credits
mirrors the timing of PAYG instalments and allows for delays caused by
the end of year holiday period. [Schedule 2, item 1, paragraph 48-225(1)(b)]
2.70 Quarterly credit amounts for a year cannot be paid to a taxpayer
after the taxpayer's assessment for the year has been made. This is
because there is no reason to make payments in anticipation of a refund
once the actual refund has been assessed and is payable. This case would
be unusual: it would involve the taxpayer lodging its return much earlier
than required, the Commissioner making an early special assessment
under section 168 of the ITAA 1936, or the Commissioner delaying
payment past the assessment date. [Schedule 2, item 1, subsection 48-225(6)]
Delaying payable amounts
2.71 The Commissioner has the power to delay a payment even after
that payment is due.
2.72 Delayed payment can occur where the Commissioner is
examining whether to revoke an entity's participation in the quarterly
credits system. [Schedule 2, item 1, paragraph 48-225(3)(a)]
2.73 That form of delayed payment can also arise where another
listed regulator is conducting a relevant examination. The only listed
regulator is Innovation Australia, which can conduct examinations into a
matter relevant to that taxpayer's eligibility for the R&D tax offset.
[Schedule 2, item 1, paragraph 48-225(3)(b)]
2.74 Delayed payment can also occur where a taxpayer has applied to
vary its quarterly credits amounts. If the Commissioner is considering
whether to disallow the application, the Commissioner can delay paying
an amount to the extent that it exceeds the amount that would otherwise
be payable. Paying the amount that would otherwise be payable (either
the standard amount or a previously accepted varied amount) cannot be
delayed for this reason; only the excess. [Schedule 2, item 1,
subsection 48-225(2)]
Example 2.5: Delayed payment while considering a variation
proposal
Jared & Jones Pty Ltd applied for varied amounts of $5,000 for each
quarter of the 2015-16 income year. The Commissioner did not
disallow that application. Late in the second quarter, Jared & Jones
realises that its entitlement is likely to be considerably higher and
applies for varied amounts of $25,000 for the second quarter and
$15,000 for each of the last two quarters.
The Commissioner decides to examine the new application and delays
paying the full amount sought for the second quarter. Since $5,000
29
Tax Laws Amendment (2013 Measures No. 4) Bill 2013
was payable already, only the $20,000 excess is delayed. After
deciding that the application should be allowed, the Commissioner
pays the remaining $20,000, along with interest for the late payment.
2.75 The Commissioner must delay making a payment if it is not
possible for the payment to be made in one of the permitted ways.
[Schedule 2, item 1, subsection 48-225(4)]
2.76 If the Commissioner delays paying any part of a taxpayer's
quarterly credit amount, he or she must notify the taxpayer and provide
written reasons for the delay.
2.77 A taxpayer who is dissatisfied with a decision the Commissioner
makes to delay paying the full amount can usually object against it.
However, if the delay arises because the payment cannot be made in a
permitted form, there is no right to object to it because that delay is not a
matter of administrative discretion but a legal requirement. [Schedule 2,
item 1, subsection 48-225(5) and section 48-800]
Interest on late credit payments
2.78 An entity is entitled to interest for each day the quarterly credit
payment to it is late (for example, because the Commissioner has chosen
to delay making the payment beyond its due day). If the amount is
allocated to a running balance account and, on the day the quarterly credit
amount is payable, there is a surplus in that account that the
Commissioner is required to refund, interest is payable on the amount of
that refund. [Schedule 2, item 50, sections 12BA and 12BB and subsection 12BC(1)
of the Taxation (Interest on Overpayments and Early Payments) Act 1983]
2.79 The interest is worked out from the day after the payment was
due until the refund is fully paid or the entity's assessment for the year is
made, whichever comes first. The interest rate for each day in that period
is the monthly average yield of 90-day Bank Accepted Bills, as published
by the Reserve Bank of Australia for the middle month of the previous
quarter (often referred to as the `base rate'). [Schedule 2, item 50,
subsections 12BB(1) and 12BC(2) and sections 12BA and 12BE of the Taxation
(Interest on Overpayments and Early Payments) Act 1983]
2.80 If any part of a quarterly credit amount that was not allocated to
a running balance account is paid to the entity after it was due, interest is
payable to the entity on the unpaid amount for each day from the day after
it was due until it is fully paid, or until the entity's assessment for the year
is made if that comes first. The interest rate used is the same as for the
running balance account case. [Schedule 2, item 50, sections 12BA, 12BB, 12BD
and 12BE of the Taxation (Interest on Overpayments and Early Payments) Act 1983]
30
Quarterly R&D credits
2.81 No interest is payable if, instead of paying the amount to the
entity, the Commissioner applies it towards paying another of the entity's
tax liabilities. [Schedule 2, item 50, paragraphs 12BC(1)(b) and 12BD(1)(b) of the
Taxation (Interest on Overpayments and Early Payments) Act 1983]
2.82 Interest is also not payable for a period when it is not possible
for the Commissioner to pay the quarterly credit amount in a permitted
way. [Schedule 2, item 50, subsection 12BB(2) of the Taxation (Interest on
Overpayments and Early Payments) Act 1983]
Paying negative varied amounts
2.83 An entity can vary to a negative amount for a quarter in order to
make up for having received excessive quarterly credits for earlier
quarters in the year. It might do that to `stop the clock' on the general
interest charge that applies to excessive amounts. If an entity varies to a
negative amount, it must pay that negative amount to the Commonwealth.
[Schedule 2, item 1, subsection 48-230(1)]
2.84 The payment is due on the day that would have been the
payment day had the Commissioner owed a quarterly credit amount to the
entity. If a positive amount would not have been payable by the
Commissioner because the year's assessment has already been made, a
negative amount for a quarter is also not payable. [Schedule 2, item 1,
subsections 48-230(2) and (4) and section 48-235]
2.85 General interest charge is imposed if the amount is not paid by
that day. [Schedule 2, item 1, subsection 48-230(3)]
Payment methods
2.86 Quarterly credit amounts (whether positive amounts payable by
the Commissioner, or negative amounts payable to the Commissioner)
must usually be paid by electronic transmission, or in some other
electronic format approved by the Commissioner. This helps to ensure
that quarterly credit amounts can be paid in a timely way. [Schedule 2,
item 1, subsection 48-820(1)]
2.87 However, to accommodate those rare cases where a taxpayer
does not have a bank account or is otherwise unable to make or receive a
payment electronically, the Commissioner may approve another method
of payment. These other methods could be approved for all taxpayers
participating in the quarterly credits system, for a particular class or group
of those taxpayers, or for a particular taxpayer in the system. The
Commissioner can approve a method retrospectively (for example, he or
she could approve a negative quarterly credit amount a taxpayer has
already paid by cheque). [Schedule 2, item 1, subsections 48-820(2) and (3)]
31
Tax Laws Amendment (2013 Measures No. 4) Bill 2013
2.88 The Commissioner must delay making a payment if it is not
possible to make it in a permitted form (for example, if the entity has not
provided the Commissioner with the details of the bank account into
which it should be transferred). In such cases, the entity does not begin to
accrue interest for the late payment until 14 days after it becomes possible
to make the payment in a permitted form. [Schedule 2, items 1 and 50,
subsection 48-225(4) and subsection 12BB(2) of the Taxation (Interest on Overpayments
and Early Payments) Act 1983]
2.89 There is an administrative penalty of 5 penalty units for a
taxpayer not paying a negative quarterly credit amount by electronic
transmission or in some other approved manner. A penalty unit is
currently $170 (see subsection 4AA(1) of the Crimes Act 1914). If the
Commissioner has approved the method of payment (even
retrospectively), the penalty does not apply. [Schedule 2, item 46,
paragraph 288-20(c)]
Reconciling the credit amounts at the end of the year
2.90 Quarterly credit amounts are advance payments an entity gets in
anticipation of its expected refund for its refundable tax offsets, which
would normally be paid to it after its income tax assessment was made.
Therefore, the quarterly credit payments must be reconciled with the
year's actual refund for those refundable tax offsets (that is, the amount
remaining after those offsets have reduced the tax liability to nil). This
occurs when the assessment is made.
2.91 This reconciliation is achieved by creating a debt equal to the
amount of the credits paid to the entity for the year. The Commissioner
must notify the entity of the debt (except for entities that are full
self-assessment taxpayers and therefore are deemed to be assessed and
receive a notice of assessment when they lodge their income tax return).
This notice may be incorporated into the entity's notice of assessment. If
the debt is later changed, the Commissioner would also have to notify the
entity of the revised debt. [Schedule 2, item 1, section 48-300]
2.92 The entitlement to a refund for the tax offsets for the year will
still be assessed in the normal way. That entitlement and the debt equal to
the quarterly credit amounts that were paid will be set off against each
other and only the difference will be paid or received:
· If the debt for the quarterly credits paid is an exact reflection
of the year's refund for tax offsets, no amount will be paid,
either by the Commissioner or by the entity.
· If the debt for the total credit amounts exceeds the actual
refund for tax offsets, the entity will have to pay the excess to
32
Quarterly R&D credits
the Commissioner. In effect, it will be repaying the overpaid
amount of the year's quarterly credits.
· If the debt for the credit amounts is less than the actual
refund for tax offsets, the Commissioner will pay the excess
to the entity. In effect, this payment is the amount by which
the credits paid understated the entity's actual refund
entitlement.
Example 2.6: Reconciling the credit amounts
Mohr Exciting Holidays Pty Ltd participates in the quarterly credits
system for 2014-15. It uses the standard amount of $1 million for the
first quarter of the year but varies to $1.5 million for the second, third
and fourth quarters, for total quarterly credit amounts of $5.5 million.
Mohr has a basic income tax liability of $4 million for the year. Its
refundable tax offsets are assessed at $9 million. This is applied
against the income tax liability and the excess $5 million is a refund
payable to Mohr. The $5.5 million in quarterly credit amounts paid to
Mohr becomes a debt it owes to the Commissioner. The two are set
off against each other.
The $500,000 by which the debt exceeds Mohr's refund entitlement is
the amount that Mohr will have to pay back to the Commissioner.
2.93 The part of the debt that is offset by the tax offset refund is
payable to the Commissioner on the day of the assessment (the same day
that the entitlement to the refund arises), ensuring that those two amounts
offset each other at all times. Any remaining part of the debt is payable at
the same time as an income tax debt would be payable (see section 5-5 of
the ITAA 1997). The general interest charge may apply if the debt is not
paid by that time. [Schedule 2, item 1, section 48-305]
2.94 Any negative quarterly credit amounts the entity varied to during
the year (that is, amounts that the entity had to repay) are factored into
working out the net amount that the entity received. This is done by
adding up the positive amounts and subtracting the negative amounts.
However, while positive amounts are only counted to the extent that they
have been paid to the entity (or applied for its benefit) by the time the
year's assessment is made, this is not the case with negative amounts.
Negative amounts are counted, even if they have not been paid to the
Commissioner by the time the assessment is made, because those amounts
will remain payable after the assessment and so will continue to be debts
owed by the entity. There is an exception for negative amounts that
become due on or after the assessment day because the entity will never
have to pay those amounts. [Schedule 2, item 1, subsections 48-300(2)
and 48-230(4)]
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Tax Laws Amendment (2013 Measures No. 4) Bill 2013
Example 2.7: Reconciling with negative amounts
Vercingetorix Celtic Decorations has quarterly credit amounts of
$6,000 for each quarter of a year. In the second quarter, it decides that
these amounts are too high and varies to -$3,000 for that quarter and to
$1,500 for each of the third and fourth quarters. The Commissioner
does not disallow those variations. In the third quarter, Vercingetorix
decides to vary upwards to $3,000 for the third quarter and $2,000 for
the fourth quarter. The Commissioner decides to examine whether
those increased amounts are appropriate and delays paying the excess
above the $1,500 existing amounts for those two quarters. Neither the
negative amount Vercingetorix had to pay, nor the delayed payments
(for the amounts above $1,500), are paid by the time Vercingetorix's
assessment is made for the year.
The reconciliation adds up the quarterly credit amounts for the year.
These come to $6,000 + $3,000 + $3,000 + $2,000 = $8,000. That is
then reduced by the unpaid parts of the third and fourth quarter
payments ($1,500 + $500) down to $6,000. There is no adjustment for
Vercingetorix not having paid the second quarter's negative amount,
which would remain an amount due in its own right.
In the reconciliation process, Vercingetorix therefore incurs a debt for
that $6,000. The $9,000 actually paid to Vercingetorix for the first,
third and fourth quarters is matched by a combination of that $6,000
debt and the $3,000 debt incurred for the second quarter. The tax
offset refund that Vercingetorix is assessed as being entitled to will be
set off against the $6,000 and $3,000 debits; any excess will be paid to
Vercingetorix, any shortfall will have to be paid by it.
The general interest charge
2.95 The general interest charge can apply in a number of cases under
the quarterly credits system. An entity is liable for the general interest
charge if it does not pay a negative varied amount on time. [Schedule 2,
item 1, subsection 48-230(3)]
2.96 If an entity's quarterly credits paid for a year exceed the refund
for the year from refundable tax offsets, the entity will have to pay the
difference back to the Commissioner. If that amount is not paid on time,
the general interest charge will also apply in the same way as it does for
an unpaid tax debt. [Schedule 2, item 1, subsection 48-305(4)]
2.97 If an entity is paid a quarterly credit amount for a quarter and it
later withdraws from participating in the quarterly credits system for that
quarter, or its participation is revoked, it will need to repay that amount
and will be liable for the general interest charge until it does so.
[Schedule 2, item 1, subsection 48-425(3)]
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Quarterly R&D credits
General interest charge for excessive varied amounts
2.98 The general interest charge also applies for quarters during the
year if the credit paid for the quarter is excessive (except for quarters
when the standard amount `safe harbour' applies). It does not matter if
the total credits for the year are not too high; it only matters if the credits
are excessive for that quarter. This ensures that entities cannot
unreasonably increase their credits for the early quarters in the year and
make up the difference by reducing or repaying their credits for the later
quarters; in effect getting an interest-free loan for part of the year.
[Schedule 2, item 1, subsection 48-350(1)]
2.99 The general interest charge is payable on the `excess' amount
for the quarter. The excess is the total net credits for the quarters so far in
the year less the benchmark amounts for those quarters in which the entity
participated in the system. The net credits are the sum of all the positive
amounts for those quarters that have been paid before the entity's
assessment for the year, reduced by any negative amounts the entity had
for those quarters. [Schedule 2, item 1, subsections 48-350(1) and (2) and
section 48-355]
2.100 No general interest charge is payable for a quarter if the
benchmark amounts for the quarters so far in the year are at least
85 per cent of the net credits for those quarters. [Schedule 2, item 1,
subsections 48-350(1) and (2) and section 48-355]
2.101 The benchmark amount for a quarter is worked out by taking
25 per cent of the total of the refundable tax offsets participating in the
system for the year, or 25 per cent of the year's refund of tax offsets if that
is less. The amount is then multiplied by the number of participating
quarters to that point in the year (for example, it is multiplied by 2 for the
second quarter of the year). [Schedule 2, item 1, subsection 48-355(2)]
2.102 However, the benchmark amount for a quarter can never be less
than the total standard amounts for the participating quarters so far. This
ensures that an entity is not subject to the general interest charge merely
for using the standard amount for a quarter, or for varying to an amount
below the standard amount. [Schedule 2, item 1, paragraph 48-355(1)(a)]
Example 2.8: Working out the benchmark amounts
Elliott is participating in the quarterly credits system for one
refundable tax offset. In the first quarter, Elliott uses the $500 standard
amount. In the second quarter, he varies to $1,000. In the third
quarter, he realises that $1,000 was too high and varies to $750. In the
fourth quarter, he varies downwards again to $500. In total, Elliott
receives $2,750 in quarterly credit amounts for the year.
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Tax Laws Amendment (2013 Measures No. 4) Bill 2013
On assessment for the year, Elliott has an income tax liability of
$6,000 remaining after allowing for his non-refundable tax offsets. He
has refundable tax offsets worth $8,400 (of which $3,000 comes from
the offset in the quarterly credits system). Elliott will therefore have a
$2,400 refund.
Assuming that the standard amount for each quarter stays unchanged at
$500, the benchmark amount for the first quarter will be the greater of
$600 (because 25 per cent of the $2,400 refund is less than 25 per cent
of the $3,000 in participating tax offsets) and the $500 standard
amount. So, the benchmark amount for the first quarter will be $600.
For the second quarter, it will be 2 x $600 = $1,200. For the third
quarter, it will be $1,800 and, for the fourth quarter, it will be $2,400.
2.103 The general interest charge is payable for the period from the
time the credit for the quarter was due until the next time a credit amount
is due for a quarter in the year (or until the time the year's assessment is
made if the entity has withdrawn from the system for all later quarters).
[Schedule 2, item 1, subsection 48-350(3)]
Example 2.9: The amount subject to general interest charge
Continuing the previous example, Elliott is subject to no general
interest charge for the first quarter because he used the standard
amount for that quarter.
For the second quarter, the total credits paid in the first two quarters
come to $1,500 and the benchmark amount to $1,200. As the
benchmark amount is not at least 85 per cent of the total credits paid
(that is, not at least $1,275), the excess subject to general interest
charge is $300 and the charge is payable for the period from
28 October until 28 February (because the second quarter ended in
December, the due date is a month later than usual).
For the third quarter, the total amount paid in the first three quarters
comes to $2,250 and the benchmark amount to $1,800. Again, the
benchmark amount is not at least 85 per cent of the total credits paid
(that is, not at least $1,912.50), so the $450 excess is subject to the
general interest charge and the charge is payable for the period from
28 February until 28 April.
For the fourth quarter, the total amount paid in all four quarters comes
to $2,750 and the benchmark amount to $2,400. The excess that would
be subject to the general interest charge is $350 and the charge would
be payable for the period from 28 April until the day Elliott's
assessment for the year was made. However, for this quarter, Elliott's
benchmark amount is over 85 per cent of his total credit payments for
the year (that is, over $2,337.50). Therefore, no general interest charge
is imposed for this quarter.
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Quarterly R&D credits
2.104 After the Commissioner makes an entity's assessment for a year,
he or she will notify the entity of the amount of general interest charge
that has been worked out for excessive quarterly credit amounts.
[Schedule 2, item 1, subsection 48-350(4)]
2.105 The entity must pay the charge within 14 days after being
notified. If it is not fully paid by then, a further amount of general interest
charge will accrue on a daily basis on the unpaid amount. [Schedule 2,
item 1 subsections 48-350(4) and (5)]
2.106 As with other amounts of general interest charge, the
Commissioner has a broad power to remit some or all of it in special
circumstances (see section 8AAG of the TAA 1953. The Commissioner
has published guidelines on the exercise of this remission power and, to
the extent that they are relevant, it can be expected that they would also
apply in this case.2
Leaving the quarterly credits system
Withdrawing from the system
2.107 An entity that is participating in the quarterly credits system can
choose to leave the system for any quarter in the year. It can withdraw
from the system for some quarters and not others. It can also withdraw
for some tax offsets and not for others. [Schedule 2, item 1,
subsections 48-400(1) and (3)]
2.108 A withdrawal from a quarter, once made, is irrevocable but the
entity could apply to re-enter the system for a later quarter of the year, or
for a quarter in a later year. [Schedule 2, item 1, subsection 48-400(4)]
2.109 An entity withdraws from the quarterly credits system by giving
the Commissioner notice of the withdrawal in the approved form.
[Schedule 2, item 1, subsection 48-400(2)]
2.110 An entity that fails one of the tests necessary for it to participate
in the quarterly credits system for a particular tax offset must withdraw
from the system for that tax offset for all affected quarters. This may
mean that the entity will have to withdraw from the system for all quarters
of the year because some of the tests relate to the whole year. [Schedule 2,
item 1, subsections 48-405(1) and (2)]
2 See ATO Practice Statements PS LA 2006/8 and PS LA 2011/12 and Taxation Ruling
TR 2000/3.
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Tax Laws Amendment (2013 Measures No. 4) Bill 2013
Example 2.10: Compulsory withdrawal
The McCabe-Miller Corporation is participating in the quarterly credits
system for the R&D tax offset. It has claimed the R&D tax offset for
the previous three years, since the time it was incorporated, but the
Commissioner has recently issued amended assessments disallowing
its claims for the R&D tax offset for each of those years.
McCabe-Miller no longer passes the history test that is necessary to
participate in the quarterly credits system for the R&D tax offset.
Accordingly, it must withdraw from the system for the R&D tax offset
for all quarters of the year.
2.111 Some obligations might only affect one quarter, so only
requiring withdrawal for that quarter. However, obligations could be
failed continuously and so lead to the need to withdraw from repeated
quarters until the obligation is satisfied.
Example 2.11: Failing an obligation continuously
Salad Days Pty Ltd, a firm specialising in barbeque products, is
participating in the quarterly credits system. In the first quarter of the
year, the Commissioner issues it with a notice under section 77 of the
Superannuation Guarantee (Administration) Act 1992 to provide
information about its contributions to its employees' superannuation
fund. The information must be provided before the end of the quarter.
It does not provide the information until half way through the second
quarter.
Salad Days did not satisfy a test necessary for it to participate in the
system for the first quarter (the complying taxpayer test), so must
withdraw for that quarter. However, it also failed that test in the
second quarter because, during that quarter, it was late in providing the
required information. Therefore, it must also withdraw for the second
quarter. It has not failed the obligation for the third and fourth
quarters, so does not have to withdraw from the system for those
quarters.
2.112 A continuing failure to satisfy an obligation could lead to the
conclusion that it is not reasonable to believe that the entity will comply
with its taxation obligations in the future. That would be a failure of the
complying taxpayer test and would require the entity to withdraw from the
system for the remaining quarters of the year.
2.113 An entity must withdraw within 28 days of failing a test
necessary for it to participate unless the Commissioner has already
revoked its participation. [Schedule 2, item 1, paragraphs 48-405(1)(c) and (d)]
2.114 An entity must also withdraw from the system for a quarter if it
fails to comply with an obligation under a taxation law during that quarter.
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Quarterly R&D credits
These obligations are not limited to the obligations it must satisfy in order
to pass the complying taxpayer test to participate in the system (that is, all
tax-related liabilities being paid on time and all required documents or
other information being provided on time). They also include any other
obligation under the taxation laws (for example, keeping required tax
records). If it is the type of entity that cannot satisfy its taxation
obligations itself, it must withdraw from the system if one of its managing
entities fails to comply with a relevant obligation during the quarter.
[Schedule 2, item 1, subsection 48-405(2)]
2.115 The entity must withdraw within 28 days of failing to comply
with the obligation unless the Commissioner has already revoked its
participation. [Schedule 2, item 1, paragraphs 48-405(2)(c) and (d)]
Penalty for not withdrawing
2.116 If an entity is required to withdraw from the quarterly credits
system, and does not do so within the 28 days allowed, it commits an
offence for which it can be prosecuted. The offence carries a maximum
penalty of 60 penalty units. A penalty unit is currently $170 (see
subsection 4AA(1) of the Crimes Act 1914). [Schedule 2, item 1,
subsection 48-405(3)]
2.117 If the entity participating in the quarterly credits system is not a
legal entity, then existing provisions of the law ensure that the obligation
to withdraw falls on legal entities behind the entity (see Division 444 of
Schedule 1 to the TAA 1953). For example, if the participating entity is a
partnership, then the obligation to withdraw would fall upon the partners.
2.118 The offence is one of strict liability. That means that it is not a
defence that the entity had no intention to fail to withdraw. This is
necessary to protect the Commonwealth from making payments to a
taxpayer of amounts the taxpayer ought to have known it was not entitled
to. However, the defence of mistake of fact is still available for entities
who had a reasonable (albeit mistaken) belief that they were not required
to withdraw from the system in the circumstances (see sections 6.1 and
9.2 of the Criminal Code Act 1995). [Schedule 2, item 1, subsection 48-405(3)]
2.119 There is an alternative administrative penalty of 20 penalty units
for not withdrawing. That amount is consistent with other administrative
penalties for this sort of infringement. The normal rules about the
application and remission of administrative penalties apply to this
administrative penalty (see Subdivision 298-A). [Schedule 2, items 1 and 47,
subsection 48-405(4) and paragraph 298-5(c)]
2.120 The administrative penalty and the offence are alternative
penalties; a person convicted of the offence cannot also be subject to the
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Tax Laws Amendment (2013 Measures No. 4) Bill 2013
administrative penalty and is entitled to repayment of any administrative
penalty it has already paid (see section 8ZE of the TAA 1953).
Excusing non-compliance
2.121 The Commissioner can excuse an entity from having to
withdraw from the quarterly credits system because it failed a particular
obligation under a taxation law. This discretion to excuse a failure
provides the flexibility to overlook minor infractions that do not indicate
the likelihood of future non-compliance or otherwise bear on the
suitability of the main entity to participate in the quarterly credits system.
It also provides the flexibility to avoid having to withdraw where the
entity has taken the necessary action to remedy its failure and so would in
any case soon be able to reapply to participate. [Schedule 2, item 1,
subparagraphs 48-405(2)(d)(i) and (ii) and subsections 48-410(1) and (2)]
2.122 The Commissioner can excuse the failure of a taxation
obligation that forms part of the complying taxpayer test (such as having
no overdue tax liabilities) but cannot excuse a failure of the other tests or
requirements necessary for participation in the quarterly credits system.
For instance, the Commissioner cannot excuse a failure of the reasonable
receipt test or a breach of the requirement to have no recent convictions
for taxation offences (which is a non-obligation part of the complying
taxpayer test). These are not matters in relation to which the entity could
withdraw, remedy, then reapply to participate. The Commissioner also
cannot excuse any failure to meet an obligation necessary to participate in
the system that occurred before participation began. [Schedule 2, item 1,
paragraph 48-410(1)(b) and subsection 48-410(2)]
2.123 In deciding whether to excuse an entity's failure to meet a
taxation obligation, the Commissioner must take into account the
consequences of that failure and any other current failures, the likelihood
of future compliance and the consequences of future non-compliance.
[Schedule 2, item 1, subsection 48-410(3)]
2.124 The Commissioner can excuse an entity's failed obligation on
his or her own initiative or on the entity's application to be excused.
[Schedule 2, item 1, subsection 48-410(4)]
2.125 The entity can only apply to be excused within 28 days after the
failure started (or later if the Commissioner extends the time). The
application must be in the approved form. [Schedule 2, item 1,
subsection 48-415(1)]
2.126 An entity that applies to be excused for failing to meet a tax
obligation is no longer required to withdraw from the system because of
that failure. [Schedule 2, item 1, subparagraph 48-405(2)(d)(ii)]
40
Quarterly R&D credits
2.127 When the Commissioner makes a decision on whether to excuse
an entity's failure to meet an obligation, the entity must be notified. If the
Commissioner refuses to excuse the entity, the entity must also be notified
of the reasons for doing so. The entity can object against a decision not to
excuse its failure. [Schedule 2, item 1, subsection 48-410(6) and section 48-800]
2.128 The Commissioner can ask the entity for more information about
its application to be excused. This might be necessary to inform the
Commissioner about the matters he or she must have regard to in making
the decision (such as what action the entity has taken to remedy its failure)
but is not limited to those matters. The Commissioner can require the
information to be given in the approved form (which would affect the way
in which the information can be provided) and can specify a time within
which the information must be provided (but it must be at least 14 days).
[Schedule 2, item 1, subsection 48-415(2) and (3)]
2.129 A failure to provide the requested information within time is
itself a basis for the Commissioner to refuse the application to be excused,
although the Commissioner could still allow the application if he or she
considered it appropriate to do so. [Schedule 2, item 1, subsection 48-410(5)]
Revoking participation
Mandatory revocation
2.130 The Commissioner must revoke an entity's participation in the
quarterly credits system for all quarters in a year if he or she becomes
aware that, when it began to participate, the entity did not pass the tests
necessary for it to participate for that year. [Schedule 2, item 1,
subsection 48-420(1)]
2.131 If it is the type of entity that cannot satisfy its taxation
obligations itself, its participation must also be revoked for all quarters of
a year if one of its managing entities did not pass the tests necessary for
the entity's participation when it began to participate for the year.
[Schedule 2, item 1, subsection 48-420(1)]
Discretionary revocation
2.132 The Commissioner may also revoke an entity's participation for
any or all quarters of a year if it (or one of its managing entities) fails a
test necessary for it to participate in the quarterly credits system for a
quarter of that year or if it (or one of its managing entities) fails to comply
with a taxation obligation during such a quarter (other than an obligation
that has been excused). [Schedule 2, item 1, subsection 48-420(2)]
2.133 The Commissioner can also revoke participation for any or all
quarters of an income year if the entity does not lodge that year's income
41
Tax Laws Amendment (2013 Measures No. 4) Bill 2013
tax return on time. Lodging an income tax return on time is an obligation
under a tax law, so would be relevant to whether the entity has complied
with its tax law obligations. However, the obligation to lodge a return for
an income year usually arises after the year has ended and so is not an
obligation that can be failed during the year. Lodging the year's return is
nevertheless vital for working out the entitlement to a refund of tax
offsets, and therefore for knowing whether any of the quarterly credit
payments need to be recovered. For that reason, the Commissioner can
revoke participation if the return is not lodged, allowing the payments to
be recovered. [Schedule 2, item 1, paragraph 48-420(2)(c)]
Process of revocation
2.134 The Commissioner must notify the entity in writing of a
revocation, specifying the quarters for which participation has been
revoked, and providing reasons for revoking the entity's participation.
[Schedule 2, item 1, section 48-420]
2.135 An entity that is dissatisfied with the Commissioner's decision
to revoke its participation can object against it. [Schedule 2, item 1,
section 48-800]
Recovering excess payments on leaving the system
2.136 A quarterly credit payment made to an entity for a quarter must
be repaid if the entity later ceases to participate in the quarterly credits
system for that quarter (whether because it withdraws or has its
participation revoked). [Schedule 2, item 1, subsection 48-425(1)]
2.137 The repayment is due on the same day it was originally paid to
the entity, reflecting the fact that the entity was not entitled to the
payment. This means that the repayment will usually be late. The general
interest charge applies for each day the payment is late. [Schedule 2, item 1,
subsections 48-425(2) and (3)]
Negative quarterly credit amounts
2.138 If an entity used a negative quarterly credit amount for a quarter
(for example, to repay an excessive amount from a previous quarter of the
year), it is entitled to be repaid that amount if it later ceases to participate
in the system for that quarter. The amount is payable to the entity 14 days
after it ceases to participate and interest is payable to it if the amount is
not repaid by that time. [Schedule 2, items 1 and 50, subsection 48-430(1), and
sections 12BA, 12BB, 12BC and 12BD of the Taxation (Interest on Overpayments and
Early Payments) Act 1983]
2.139 The Commissioner must delay repaying that amount to the
entity if it is not possible to pay it in a permitted form (for example, if the
42
Quarterly R&D credits
entity has not provided the Commissioner with the details of the bank
account into which it should be transferred). In such cases, the entity does
not begin to accrue interest for the late payment until 14 days after it
becomes possible to make the payment in a permitted form. [Schedule 2,
items 1 and 50, subsection 48-430(2) and subsection 12BB(2) of the Taxation (Interest
on Overpayments and Early Payments) Act 1983]
Consolidation and quarterly credits
2.140 Wholly-owned corporate groups have been able to consolidate
for income tax purposes since 2002. The broad effect of consolidating is
that the group is treated as a single entity, with all its assets and activities
being treated as belonging to the group's head company rather than to the
various group entities that own those assets or conduct those activities.
The effect is that intra-group transactions are ignored for income tax
purposes, reducing the group's tax compliance costs and improving the
integrity of the income tax system.
2.141 The amendments relating to consolidation extend those results to
the quarterly credits system. [Schedule 2, item 1, Subdivision 48-P]
Single entity rule
2.142 The quarterly credits single entity rule replicates the single entity
rule in the income tax consolidation provisions to ensure that it applies for
the purposes of the quarterly credits system. It treats the entities that were
subsidiary members of a consolidated group at the start of a quarter as
being parts of the group's head company for the whole of that quarter.
[Schedule 2, item 1, section 48-700]
2.143 The same rule applies to the members of a multiple entry
consolidated group (MEC group).3 [Schedule 2, item 1, section 48-700]
2.144 An entity that becomes a member of a group during a quarter
remains as a separate entity until the start of the next quarter. This
ensures that the joining entity can continue to participate in the quarterly
credits system itself for the quarter it joins. It, and not the group, would
be entitled to its quarterly credit amount for that quarter. The joining
entity would not be entitled to receive quarterly credits for any later
quarters in that year (unless it leaves the group and successfully applies to
participate in the quarterly credits system).
3 In broad terms, MEC groups are groups whose head company would otherwise be a foreign
resident entity. Instead, their head company is chosen from among the first tier of
Australian resident entities.
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Tax Laws Amendment (2013 Measures No. 4) Bill 2013
2.145 Similarly, an entity that starts a quarter as a member of a group
but leaves it during that quarter cannot itself participate in the quarterly
credits system for the quarter. The part of the group's credit amount for
that quarter that is due to the leaving entity's activities instead remains
with the group.
Entry rule
2.146 When an entity joins a consolidated group or a MEC group, its
past history is inherited by the group for the purposes of the quarterly
credits system. This ensures that the group will be able to pass the history
test necessary to participate in the system for the R&D tax offset (that is,
being entitled to the R&D tax offset during any of the past five years) so
long as the joining entity would have been able to pass it. If that history
were not inherited, the ability to participate in the system for that tax
offset would disappear unless the group independently satisfied the test.
[Schedule 2, item 1, subsection 48-705(1)]
2.147 As a starting point, the inherited history includes everything that
happened to the joining entity up to the end of the quarter it joined and
applies from the start of the next quarter. [Schedule 2, item 1,
subsection 48-705(2)]
2.148 However, certain aspects of the joining entity's history are not
inherited. In particular, the group does not inherit the part of the joining
entity's history that would stop the group participating in the system.
Therefore, it does not inherit the joining entity's history of tax
convictions, of having overdue tax liabilities, or of having failed to
comply with another tax law obligation. Each of those, if inherited, would
prevent the group passing the complying taxpayer test. This exception
ensures that a group is not denied access to the quarterly credits system
just because it acquires an entity with a bad tax history. [Schedule 2, item 1,
subsection 48-705(2) (table item 1)]
2.149 The group would also not inherit any conclusion that might have
been drawn that it was not reasonable to expect that the joining entity
would comply with its future tax obligations. However, matters that
informed that conclusion (for example, the joining entity's personnel,
practices and culture) could still be relevant in considering whether the
group would meet its future obligations. [Schedule 2, item 1,
subsection 48-705(2) (table item 1)]
2.150 A group also does not inherit the joining entity's history of
participating in the quarterly credits system for the current year. This
means that the group must apply separately if it wishes to participate in
the system. This ensures that a group does not automatically participate in
the system against its wishes. [Schedule 2, item 1, subsection 48-705(2)
(table item 2)]
44
Quarterly R&D credits
2.151 A group does not inherit the joining entity's history of having
received quarterly credit amounts for the income year. The joining
entity's participation in the system will be finalised when it is assessed for
the year and any credit amounts it has received will give rise to a debit for
the joining entity. This rule ensures that that debit is not replicated for the
group but attaches only to the entity that received the quarterly credit
amounts (and any related refund from the tax offset that crystallises on
assessment). [Schedule 2, item 1, subsection 48-705(2) (table item 3)]
2.152 Finally, although a group inherits the joining entity's history of
having been entitled to particular tax offsets for past years, it does not
inherit the history of the amounts of the quarterly credits paid to the entity.
This means that the group's standard amount is unaffected by the joining
entity's history. Instead, a group that wants to receive quarterly credit
amounts would have to continue to use its own standard amount or use a
varied amount. [Schedule 2, item 1, subsection 48-705(2) (table item 4)]
Exit rule
2.153 There is also a rule about history transfer for quarterly credit
purposes when an entity leaves a consolidated group or a MEC group. As
discussed already, the entity only becomes an independent entity for
quarterly credit purposes from the quarter after it leaves the group. For
those later quarters, the leaving entity inherits none of the group's history
(including any history the group might have had only because it inherited
it when the entity that is now leaving first joined). There is no effect on
the group: it keeps its full history. [Schedule 2, item 1, subsections 48-710(1) and
(2)]
2.154 There is one exception to the `no inherited history rule' on exit.
The leaving entity does inherit the group's history of having been entitled
to tax offsets for past income years. That means the leaving entity is able
to satisfy the history test and so could apply to participate in the quarterly
credits system for the R&D tax offset if the group had been entitled to that
tax offset. This means that both the leaving entity and the group it left can
satisfy the history test. It also ensures that, when an entity leaves a group,
participation in the system for the R&D tax offset is not denied both to the
group (if it could no longer pass the reasonable receipt test without the
leaving entity) and to the leaving entity (because it does not pass the
history test). [Schedule 2, item 1, subsection 48-710(2) (table item 1)]
2.155 The group's standard and varied amounts for the quarters after
that in which an entity leaves the group are set to nil. This ensures that
the group's existing amounts, which could well be inappropriate because
they were based on activities that were to be conducted by the leaving
entity, do not continue despite the change in circumstances. The group
can, of course, propose the varied amounts it thinks appropriate but they
45
Tax Laws Amendment (2013 Measures No. 4) Bill 2013
would be based on the actual circumstances that exist after the entity has
left. [Schedule 2, item 1, subsection 48-710(3)]
2.156 The leaving entity's amounts are not explicitly set to nil but that
is the result for the leaving entity because it does not take with it any
history the group had, including a history of having received particular
offset amounts in earlier years or of having proposals approved for varied
amounts. Of course, this only affects the leaving entity should it apply to
participate in the quarterly credits system. [Schedule 2, item 1,
subsection 48-710(2)]
Changes in head company
2.157 Consolidation works by attributing the group's activities to the
head company, so there are issues when a shelf company is interposed
into the group as the group's new head company but the group chooses to
continue in existence. These issues are normally dealt with by
transferring to the new head company the history of the group in the hands
of the old head company. The consolidation amendments for purposes of
the quarterly credits system adopt that approach.
2.158 If a group chooses to continue in existence for normal income
tax purposes when its head company changes in this way, then the group
also continues for quarterly credit purposes but with a new head company.
[Schedule 2, item 1, subsections 48-715(1) and (2)]
2.159 The history of the group is transferred to the new head company
and applies as if it had always been the group's head company. The
transferred history displaces any history that company actually had before
it became the head company. [Schedule 2, item 1, subsection 48-715(3)]
2.160 The history is not transferred in one respect. That respect is that
the original head company remains liable for quarterly credits system
liabilities that arose before the change in head companies. This would
apply to a liability to pay a negative amount or to repay an amount if the
group ceased to participate in the system for a quarter. However, although
those liabilities remain with the original head company, all of the group's
quarterly credit amounts (including negative amounts) will still be taken
into account in the usual way in working out the new head company's
debit in the reconciliation process at assessment. [Schedule 2, item 1,
subsection 48-715(4)]
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Quarterly R&D credits
2.161 The same things happen when a cessation event happens to the
provisional head company of a MEC group.4 A `cessation event' happens
when the company ceases to exist or otherwise stops qualifying to be the
group's provisional head company (see subsection 719-60(6) of the
ITAA 1997). [Schedule 2, item 1, section 48-720]
Converting MEC groups and consolidated groups
2.162 A MEC group can become a consolidated group in certain
circumstances (see section 703-55 of the ITAA 1997). Also, a MEC
group can be created from a foreign-owned consolidated group in certain
circumstances (see section 719-40 of the ITAA 1997). Again, the usual
approach to deal with these group conversions is to treat the new group as
a continuation of the old group and the consolidation amendments for the
quarterly credits system adopt that approach.
2.163 The new group is taken for quarterly credits purposes to be a
continuation of the old group and the history of the old group is attributed
to the new group. [Schedule 2, item 1, sections 48-725 and 48-730]
Notifying the Commissioner
2.164 Normally, when an entity joins or leaves a consolidated group or
a MEC group, the head company must inform the Commissioner, usually
within 28 days (see, for example, sections 703-60 and 719-80 of the
ITAA 1997). However, that timing does not apply when a group forms.
In that case, the Commissioner only has to be notified that a decision has
been taken to form a consolidated group when the group lodges its first
income tax return after formation (although it could notify the
Commissioner earlier) (see sections 703-58 and 719-76 of the
ITAA 1997).
2.165 Such a delay would not work for the quarterly credits system
because the Commissioner needs to know before the assessment is made
that payments should no longer be made to entities that have joined a
group. Accordingly, the consolidation amendments for the quarterly
credits system require the group to notify the Commissioner within
28 days of deciding to form a consolidated group if any of its joining
entities are participating in the quarterly credits system. [Schedule 2, item 1,
section 48-735]
4 `Provisional head company' is the label given to a MEC group's head company during a
year. Its `head company' for the year is whichever entity is its provisional head company at
the end of the year.
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Tax Laws Amendment (2013 Measures No. 4) Bill 2013
Joint and several liability
2.166 Although the income tax law generally ignores the various
members of a consolidated group or a MEC group, attributing the group's
activities to its head company, there is an exception when collecting
amounts owing under the tax laws. All of the entities in the group are
jointly and severally liable for paying income tax amounts the group owes
if the head company does not do so (see Division 721 of the ITAA 1997).
2.167 The measure extends the same treatment to liabilities of the
group arising under the quarterly credits system. These include negative
quarterly credit amounts, the debit raised as part of the reconciliation
process at the end of the year, amounts of general interest charge a group
might have to pay because of its participation in the quarterly credits
system, and quarterly credit amounts that must be repaid because the
group has withdrawn from the system, or had its participation revoked, for
a quarter. [Schedule 2, item 36, subsection 721-10(2) of the ITAA 1997 (table items 62
to 62C)]
Ensuring the operation of the quarterly credit system
2.168 To begin with, quarterly credits will be payable in respect of
only one offset: the R&D tax offset. Consistent with the existing R&D
tax offset provisions, rules are included to ensure that, in the event of a
successful challenge to the validity of the system, it will continue to apply
in relation to foreign corporations, financial corporations, trading
corporations and corporations that are incorporated within a Territory, or
that have their registered offices or principal places of business within a
Territory. These are matters over which the Commonwealth has
legislative power under paragraph 51(xx) and section 122 of the
Constitution. [Schedule 2, item 1, subsection 48-840(1)]
2.169 They also ensure that the quarterly credits system will continue
to apply in relation to activities conducted only within a Territory and/or
outside of Australia, or for the dominant purpose of supporting core R&D
activities conducted (or to be conducted) solely within a Territory. The
Commonwealth has legislative power over these matters under
paragraph 51(xxix) and section 122 of the Constitution. [Schedule 2, item 1,
subsection 48-840(2)]
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Quarterly R&D credits
Amendments to the Industry Research and Development Act 1986
Role of Innovation Australia
2.170 An R&D entity is eligible to participate in the quarterly credits
system for the R&D tax offset for an income year if it passes these tests
(discussed earlier) for the year:
· it has the necessary history with the R&D tax offset;
· it is a complying taxpayer; and
· it reasonably expects to receive the R&D refundable tax
offset.
2.171 Companies will self-assess their eligibility to participate in the
quarterly credits system for the R&D tax offset. Innovation Australia's
role is to contribute to the integrity of the quarterly credits system through
risk assessment and compliance work in relation to an R&D entity's
self-assessment of certain activities as eligible R&D activities. That work
will feed into the existing compliance processes for the R&D tax incentive
more broadly.
2.172 To facilitate that role, the amendments give Innovation Australia
new powers. These are not limited to R&D quarterly credits, but are
available to Innovation Australia in its broader role as an administrator of
the R&D tax incentive. This minimises complexity and saves Innovation
Australia from having to deal with quarterly credits separately from the
R&D tax offset more broadly.
Innovation Australia may initiate advance findings
2.173 Innovation Australia is given the power to make advance
findings about activities that are related to R&D entities before
registration, either of its own volition or at the request of the
Commissioner. These powers are in addition to Innovation Australia's
existing power to make advance findings at the request of an R&D entity.
An advance finding is a decision by Innovation Australia about whether
the activities an R&D entity conducts (or will conduct) are R&D activities
as defined by section 355-20 of the ITAA 1997. Advance findings
provide certainty for both R&D entities and administrators about the
nature of the activities ahead of registration. R&D entities that disagree
with a finding may have it internally reviewed by Innovation Australia
(see Division 5 of Part III of the IR&D Act 1986). [Schedule 2, items 6 and 7,
sections 28A and 28AA of the IR&D Act 1986]
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Tax Laws Amendment (2013 Measures No. 4) Bill 2013
2.174 Advance findings made by Innovation Australia are in force, and
binding on the Commissioner, for three income years. The first income
year in which the Commissioner is bound is usually the income year in
which Innovation Australia starts considering whether to make an advance
finding because either;
· it acts of its own initiative;
· the Commissioner asks for an advance finding to be made; or
· an R&D entity applies to have an advance finding made.
[Schedule 2, item 6, paragraph 28A(3)(a) of the IR&D Act 1986]
2.175 However, with the amendments, the first income year in which
the Commissioner is bound is instead the most recently completed income
year (that is, the income year prior to the income year in which the
advance finding is initiated by one of the above means) if the R&D entity
has not yet applied for registration under section 27A of the IR&D
Act 1986 in relation to the most recently completed income year and:
· it applies for, or the Commissioner requests, the finding and
specifies that the most recently completed income year is the
first income year the finding is relevant to; or
· Innovation Australia initiates the finding and specifies in the
certificate that the most recently completed income year is
the first income year the finding is relevant to.
[Schedule 2, item 6, subsection 28A(3) of the IR&D Act 1986]
2.176 The Commissioner is also bound for the two income years
following the first income year for which the advance finding is in force.
[Schedule 2, item 33, subsections 355-705(2) and (3) of the ITAA 1997]
2.177 The changes to the times when an advance finding is in force
and binding on the Commissioner are to ensure that the Commissioner can
request advance findings about activities relevant to quarterly credits even
if the income year in which those activities were conducted has been
completed. Without this amendment, there would be a gap between the
end of the income year and the date on which the R&D entity applied for
registration under section 27A of the IR&D Act 1986, preventing the
Commissioner from requesting findings during this period. The changes
also mean that R&D entities have additional time to apply for advance
findings in relation to a particular income year. That is, an R&D entity
can apply after the end of the income year and before registration for that
income year. [Schedule 2, item 6, subsections 28A(2) and (3) of the IR&D Act 1986]
50
Quarterly R&D credits
2.178 If an R&D entity participating, or seeking to participate, in the
quarterly credits system for the R&D tax offset for an income year is
found by Innovation Australia to have no eligible R&D activities in the
year, the Commissioner will exclude it from the system for that offset.
The R&D entity would not satisfy the reasonable receipt test because it
could not reasonably be expected to undertake eligible R&D activities in
the income year and therefore could not reasonably be expected to
become entitled to the R&D tax offset.
2.179 A negative advance finding about some but not all of the
activities relating to an R&D entity's application would be considered
when determining whether the entity meets the reasonable receipt test.
Other outcomes from an advance finding could be relevant to whether the
R&D entity meets the reasonable receipt test. A positive finding about
R&D activities in an income year would support a reasonable expectation
that the entity will receive the R&D tax offset.
2.180 Innovation Australia may refuse to make an advance finding for
certain reasons specified in the decision-making principles that guide the
way it performs its role. A refusal to make a finding is reviewable.
[Schedule 2, item 7, subsection 28AA(2) and paragraph 28AA(1)(d) of the IR&D
Act 1986]
2.181 If Innovation Australia refuses to make a finding, this could be
relevant to whether the R&D entity satisfies the reasonable receipt test.
This will typically not be the case where the R&D entity has applied for
the finding. However, in some instances, Innovation Australia's refusal
may be relevant (for example, if Innovation Australia has refused to make
a finding because a negative finding already exists for the R&D entity in
relation to the same or substantially similar activities -- see
paragraph 4.2(1)(c) of the Industry Research and Development
Decision-making principles 2011). [Schedule 2, item 1, section 48-105]
2.182 Innovation Australia may discontinue a findings process
initiated by request of the Commissioner if the Commissioner withdraws
the request. Innovation Australia may also discontinue a findings process
it has initiated itself.
Innovation Australia may initiate overseas findings
2.183 It is not necessary for overseas findings to be in place before an
R&D entity can participate in the quarterly credits system to receive an
R&D tax offset on the basis of activities conducted outside Australia and
its territories. However, an R&D entity is still obliged to apply for and
receive a positive overseas finding about overseas activities in order for
the expenditure on those activities to be eligible for the R&D tax offset.
Therefore, overseas findings are relevant to whether the R&D entity
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Tax Laws Amendment (2013 Measures No. 4) Bill 2013
satisfies the reasonable receipt test in relation to its participation in the
quarterly credits system.
2.184 To ensure Innovation Australia's scope to conduct compliance
activities extends to activities conducted outside Australia and its
territories, the amendments give Innovation Australia the power to initiate
and make findings about activities conducted outside Australia and its
territories, of its own volition or at the request of the Commissioner. The
Commissioner may later withdraw such a request. [Schedule 2, items 8 and 9,
subsection 28C(1) and section 28DA, of the IR&D Act 1986]
2.185 Innovation Australia may refuse to make an overseas finding for
reasons specified in the decision-making principles. A decision to refuse
to make an overseas finding is reviewable. [Schedule 2, item 9, section 28DA of
the IR&D Act 1986]
Other amendments to the IR&D Act
Simplified outlines
2.186 The simplified outlines for Part III of the IR&D Act 1986 and
Division 3 of that Part are amended to reflect the ability of Innovation
Australia, of its own volition or at the request of the Commissioner, to
initiate findings that were previously only initiated on application by an
R&D entity. [Schedule 2, items 2, 3 and 5, sections 26A and 28 of the IR&D
Act 1986]
Amendment to registration and findings
2.187 An amendment is made to the provision that deems registrations
to be consistent with findings, to be consistent with the restructured
advance findings provisions. The amendment does not change the
operation of the provision. [Schedule 2, item 4, paragraph 27L(2)(a) of the IR&D
Act 1986]
Amendments to core technology findings
2.188 Innovation Australia can initiate core technology findings under
existing legislation, so the amendments to the core technology provisions
are largely a restructuring of the provisions to align them with the other
findings that may be made by Innovation Australia under Division 3 of
Part III of the IR&D Act 1986. However, as with those other findings,
Innovation Australia's ability to refuse to make a finding is expanded.
Innovation Australia may now refuse to make a finding requested by the
Commissioner if justified by the decision-making principles. As with
other findings made under Division 3 of the IR&D Act, the Commissioner
may, after requesting that a core technology finding be made, later
withdraw that request. [Schedule 2, items 10 to 12, subsections 28E(1), (3) and (4)
and section 28EA of the IR&D Act 1986]
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Quarterly R&D credits
Amendments to notice requirements and applications for Division 3
findings
2.189 Amendments are made to the provisions relating to the
mechanics of seeking findings and notifying R&D entities of findings
about R&D related matters to reflect Innovation Australia's additional
capacity to initiate advance and overseas findings, and the restructure of
the provisions relating to advance findings, overseas findings and core
technology findings. Those amendments do not substantially change the
requirements for notices or applications for findings under Division 3 of
Part III of the IR&D Act 1986. [Schedule 2, items 13 to 19, sections 28F and 28G
of the IR&D Act 1986]
Innovation Australia may request information
2.190 The amendments give Innovation Australia the power to request
further information from an R&D entity in order to carry out its role,
which includes compliance work in relation to the entity's participation in
the quarterly credits system for the R&D tax offset. Innovation Australia
can require this information to be provided in the approved form, and
within 30 days after the request was given or any further period allowed
(in accordance with the decision-making principles). Innovation Australia
may request information either from the R&D entity, or from an entity
acting on behalf of the R&D entity (as permitted by section 28B of the
IR&D Act 1986). For example, Innovation Australia will request
information in the latter case where the entity is a Research Service
Provider conducting R&D activities on behalf of multiple R&D entities.
[Schedule 2, items 20 to 24, section 28H of the IR&D Act 1986]
2.191 Failure to provide requested information to Innovation Australia
hinders or prevents the carrying out of appropriate compliance work. If
information is not provided to Innovation Australia within the time
allowed, the R&D entity's participation in quarterly credits may be
refused or revoked on the basis that sufficient doubt has been raised as to
the R&D entity's ability to satisfy the reasonable receipt test. [Schedule 2,
item 1, section 48-105 and paragraph 48-10(2)(b) of the ITAA 1997]
Amendments to reviewable decisions
2.192 The table of decisions that are reviewable, and a related note, are
amended to reflect the restructure of the provisions relating to advance
findings, overseas findings and core technology findings. [Schedule 2,
items 25 and 26, section 30A (table items 11 to 13A) and the note to subsection 30B(2) of
the IR&D Act 1986]
Amendments to scope of decision-making principles
2.193 The amendments expand the potential scope of the
decision-making principles. The Minister is now able to make
53
Tax Laws Amendment (2013 Measures No. 4) Bill 2013
decision-making principles establishing the basis on which Innovation
Australia may refuse to make findings that it has initiated or that the
Commissioner has requested under Division 3 of Part III of the IR&D
Act 1986. The decision-making principles provide guidance to Innovation
Australia and transparency and clarity for R&D entities. [Schedule 2,
item 27, paragraph 32(A)(d) of the IR&D Act 1986]
Disclosure of protected quarterly credits information
2.194 The confidentiality rules of the IR&D Act 1986, which prevent
Innovation Australia and its staff from disclosing information relating to
matters covered by that Act, are amended to ensure disclosure of
information can occur for the purpose of performing functions relating to
the quarterly credits system. [Schedule 2, items 28 and 29, subsection 47(2A) of
the IR&D Act 1986]
2.195 Reciprocal protected information sharing arrangements are
amended to clarify that the Commissioner can share protected information
relating to tax offsets under the R&D tax incentive, including quarterly
credits, with Innovation Australia. [Schedule 2, item 48, subsection 355-65(4)
(table item 6)]
Application and transitional provisions
2.196 The amendments apply to instalment quarters starting on and
after 1 January 2014. For most entities, this will be the last two quarters
of the 2013-14 income year, so they will only be able to receive half of
their expected refund for the year in quarterly instalments (or half of their
most recently available year's refund if they use the standard amounts).
[Schedule 2, subitem 53(1)]
2.197 The amendments to the IR&D Act 1986 generally apply from
the same time as the other amendments. However, the amendments
providing Innovation Australia with the ability to make advance findings
about the status of an entity's R&D activities for an earlier income year,
on application by an R&D entity or the Commissioner, only apply if the
findings process starts on or after the Royal Assent. [Schedule 2,
subitem 53(2)]
Transitional provision
2.198 Any findings made under Division 3 of Part III of the IR&D
Act 1986 that were in force immediately before the amendments
commence have effect as though they were made under the relevant
provision as amended. That is, the findings are treated as though the law,
as amended for quarterly credits, was in place at the time the findings
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Quarterly R&D credits
were originally made. This transitional arrangement ensures that the
amendments arising as a result of the quarterly credits system do not
create mechanical issues, either for the internal operation of the IR&D
Act 1986 or for its interaction with the ITAA 1997. [Schedule 2, item 54]
Consequential amendments
Responsibilities of trustees
2.199 When entities are not legal entities, the tax laws generally
require that their obligations be met by the legal entities that are
responsible for them (for example, the partners in the case of a
partnership). For income tax purposes, trustees are responsible for
meeting the obligations of the trust (see section 254 of the ITAA 1936).
The amendments make clear that trustees' responsibilities also extend to
those that fall on their trust under the quarterly credits system. [Schedule 2,
item 49, subsections 444-120(1) and (6)]
Record keeping
2.200 The income tax record keeping provisions are amended to
ensure that an entity participating in the quarterly credits system that
chooses to vary its quarterly credit amount must keep records that explain
its decision, whether or not it is carrying on a business. Records must
normally be kept for five years. [Schedule 2, item 30, subsection 262A(2AAF) of
the ITAA 1936]
Amendments to the R&D tax offset
2.201 Amendments to the R&D provisions provide that advance
findings made by Innovation Australia bind the Commissioner for the
period they are in force. They also ensure that the restructured findings
provisions in Division 3 of Part III of the IR&D Act 1986 interact
properly with the ITAA 1997. [Schedule 2, items 31 to 35, section 355-705 and
subparagraphs 355-710(a)(iii) and (iv) of the ITAA 1997]
Definitions
2.202 The defined terms `managing entity', `quarterly credit amount',
`quarterly credit due day' and `quarterly credits system', which are
created for the purposes of the measure, are added to the Dictionary of the
ITAA 1997 (which is also used as the Dictionary for Schedule 1 to the
TAA 1953). [Schedule 2, items 37 to 40, subsection 995-1(1) of the ITAA 1997
(definitions of `managing entity', `quarterly credit amount', `quarterly credit due day'
and `quarterly credits system')]
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Tax Laws Amendment (2013 Measures No. 4) Bill 2013
Guide material
2.203 A non-operative index of the tax law provisions that deal with a
liability to the general interest charge is updated to include the extra
liabilities created by the amendments. [Schedule 2, item 41, subsection 8AAB(4)
of the TAA 1953 (table items 44A to 44D)]
2.204 The non-operative list of the tax liabilities covered by Part 4-15
in Schedule 1 to the TAA 1953 (which provides for the collection and
recovery of various taxation liabilities) is also amended to include the
liabilities to repay the excess quarterly credit amounts that arise on
reconciliation at the end of a year, or because an entity leaves the
quarterly credits system for a quarter it has already been paid for, or
because an entity varies its quarterly amount to a negative amount.
[Schedule 2, item 42, subsection 250-10(2) (table items 135A to 135C)]
Avoiding double administrative penalties
2.205 An entity that is required to withdraw from the quarterly credits
system for a tax offset because it has failed a test necessary for its
participation is liable to an administrative penalty if it does not withdraw.
That penalty is discussed earlier in this Chapter. An entity withdraws by
notifying the Commissioner in the approved form. However, there is
already an administrative penalty for not providing the Commissioner
with a required notice or other document (see section 286-75).
2.206 To ensure that the entity cannot be subject to a double
administrative penalty, the amendments make clear that the existing
penalty does not apply to failing to give the Commissioner notice of
withdrawal from the quarterly credits system. [Schedule 2, items 43 and 44,
subsection 286-75(2)]
Confidentiality of taxpayer information
2.207 The Commissioner and other Australian Taxation Office staff
are generally required to keep taxpayer information confidential. There
are a number of exceptions to that general rule. These exceptions
accommodate cases where there is a higher duty or a greater competing
public policy.
2.208 They also accommodate cases where the Commissioner needs to
provide the information to other agencies that are performing roles in the
taxation system. One of these agencies is Innovation Australia, whose
role under the Venture Capital Act 2002 can affect the capital gains
treatment of a company's investments. Therefore, the Commissioner can
currently provide information to Innovation Australia for the purpose of
administering the venture capital laws.
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Quarterly R&D credits
2.209 The amendments clarify that the Commissioner is also able to
provide information to Innovation Australia for the purpose of
administering a law relating to R&D. That ensures that Innovation
Australia can get the information it needs from the Commissioner to
properly carry out its role in deciding whether an entity's expenditure
qualifies for the R&D tax offset and whether the entity is eligible to
participate in the quarterly credits system for the R&D tax offset.
[Schedule 2, item 48, subsection 355-65(4) (table item 6)]
R&D quarterly credits regulations
2.210 When the R&D tax offset was enacted in 2011, provision was
made for a quarterly credits system to be achieved by making regulations.
The Treasurer was required to recommend to the Governor-General
before 1 January 2014 that regulations be made to give effect to a
quarterly credits system. The need for regulations to achieve that result
now being supplanted by the quarterly credits system in this Bill, the
provisions for the making of regulations are repealed. [Schedule 2, items 51
and 52, subsection 2(1) of, and Schedule 3A to, the Tax laws Amendment (Research and
Development) Act 2011]
STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS
Prepared in accordance with Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011
Quarterly R&D credits
2.211 This Schedule is compatible with the human rights and freedoms
recognised or declared in the international instruments listed in section 3
of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview
2.212 This Schedule provides for an expected refund of an entity's
refundable tax offsets for an income year to be paid to it in quarterly
instalments during the year in anticipation of the refund assessed after the
end of the year. Any difference between the quarterly amounts paid and
the assessed amount of the refund is dealt with through a reconciliation
process at the time of the assessment.
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Tax Laws Amendment (2013 Measures No. 4) Bill 2013
2.213 The system is designed to handle any number of refundable tax
offsets that the Parliament decides to include in the system but initially
only applies to the refundable R&D tax offset.
Human rights implications
2.214 A future amendment to add a further refundable tax offset to the
quarterly credits system might engage an applicable right or freedom.
However, the system initially only applies to the refundable R&D tax
offset and that offset is only available to bodies corporate (see
sections 355-35 and 355-100 of the ITAA 1997) and bodies corporate are
not entities covered by human rights and freedoms.
2.215 Accordingly, this Schedule does not engage an applicable right
or freedom.
Conclusion
2.216 This Schedule is compatible with human rights as it does not
raise any human rights issues.
Assistant Treasurer, the Hon David Bradbury
58
Refunding excess GST
Outline of chapter
3.1 Schedule 3 to this Bill amends the
A New Tax System (Goods and Services Tax) Act 1999 (GST Act), the
Income Tax Assessment Act 1936 (ITAA 1936) and the
Taxation Administration Act 1953 (TAA 1953) to ensure that excess
goods and services tax (GST) is only refundable in certain circumstances.
The amendments apply to overpayments of GST as a result of a
mischaracterisation of a supply or arrangement or miscalculation of the
GST payable, or for any other reason, if the overpaid GST has been
passed on.
3.2 In most cases, the amendments allow taxpayers to determine
whether they are entitled to a refund of amounts of excess GST. The
Commissioner of Taxation (Commissioner) also has discretion to refund
the excess GST in exceptional circumstances where the application of
these provisions to deny a refund would be inappropriate.
3.3 All references in this Chapter to section 105-65 are to that
section in Schedule 1 to the TAA 1953. All other legislative references
are to the GST Act unless otherwise specified.
Context of amendments
Scheme of the GST Act
3.4 The scheme of the GST Act is premised on the following
principles (see Chapter 1 of the Executive Summary in the Explanatory
Memorandum to the A New Tax System (Goods and Services Tax)
Bill 1998):
· GST is remitted by suppliers who make supplies in carrying
on their enterprise. Suppliers do not bear the GST because
the tax is included in the price of what they supply;
· GST is effectively borne by private consumers when they
acquire anything that is subject to GST; and
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Tax Laws Amendment (2013 Measures No. 4) Bill 2013
· to ensure that GST is effectively borne by private consumers,
any entity that is registered is generally entitled to an input
tax credit for the GST on what they acquire or import for the
purpose of their enterprise.
3.5 The GST Act envisages that the supplier `passes-on' the GST to
the recipient of the supply. If GST is passed-on but there is a refund of
the GST to the supplier, the supplier will have a windfall gain unless it
reimburses the recipient of the supply. Accordingly, a provision to restrict
refunds of excess GST is appropriate to prevent windfall gains and
provide an incentive for the supplier to reimburse their customer.
Restriction on refunds under section 105-65
3.6 Currently, section 105-65 operates to ensure that taxpayers do
not obtain a windfall gain by restricting the circumstances in which the
Commissioner may be required to refund an overpaid amount of GST.
3.7 The provision applies to amounts of GST that have been
overpaid by a taxpayer in certain circumstances, either as a result of
taxpayers remitting more than they are legally required to pay under
section 33-3 or 33-5, or because an amount under section 35-5 has not
been refunded or applied under Division 3 of Part IIB of the TAA 1953
(subsection 105-65(2)).
3.8 This Schedule proposes to overcome some deficiencies and
uncertainties in the operation of section 105-65 by replacing the section
with Division 142 in the GST Act.
Commissioner's discretion to refund
3.9 Section 105-65 provides that the Commissioner is not required
to refund an overpayment that would otherwise be refundable if either:
· the taxpayer does not reimburse a corresponding amount to
the recipient of the supply (subparagraph 105-65(1)(c)(i)); or
· the recipient of the supply is registered or required to be
registered for GST (subparagraph 105-65(1)(c)(ii)).
3.10 The provision states that the Commissioner `need not' pay a
refund in particular circumstances. This language has caused some
uncertainty and conjecture about whether this is a discretion to refund, or
a discretion not to refund. The Commissioner has maintained the view
that the provision provides a residual discretion to refund, rather than a
discretion not to refund.
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3.11 The uncertainty surrounding the nature of the provision was
identified by the Board of Taxation in its Review of the Legal Framework
for the Administration of the Goods and Services Tax. Accordingly,
recommendation 45 of the Board's report stated that the law should be
amended to clarify that the Commissioner has a discretion to refund the
GST where appropriate.
Overpayments of GST under section 105-65
3.12 A taxpayer may overpay an amount of GST by incorrectly
treating a supply (or arrangement) it makes as a taxable supply, where that
supply (or arrangement) is not a taxable supply to any extent. This
includes incorrectly apportioning the taxable and non-taxable components
of a mixed supply.
3.13 In a typical transaction the taxpayer will include an amount of
GST in the price of the supply, and then include that amount of GST on
the tax invoice issued to the recipient of the supply, after which that
amount of GST is remitted to the Commissioner. This may, however,
depend on the specific facts and circumstances of each case.
3.14 A taxpayer may also overpay an amount of GST as a result of a
miscalculation, for example, errors made:
· in calculating the GST amount under the margin scheme,
under Division 75; or
· in calculating the `global GST amounts' under Division 126.
Concerns with section 105-65
3.15 Prior to the Federal Court of Australia's decision in Sportsbet5
handed down on 26 July 2011, the Commissioner considered that
section 105-65 applied to miscalculations (as well as mischaracterisations)
of the GST payable.
3.16 The effect of the Sportsbet decision is that the restriction in
section 105-65 does not apply where the supply is always correctly
characterised and treated by the supplier, but an overpayment of GST
arises from a miscalculation of the GST payable. This includes situations
where a taxpayer miscalculates the amount of GST in applying the GST
margin scheme.
5 International All Sports v Commissioner of Taxation [2011] FCA 824 (Sportsbet).
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Tax Laws Amendment (2013 Measures No. 4) Bill 2013
3.17 The decision in Sportsbet gives rise to the potential for windfall
gains for taxpayers remitting GST if an overpayment arises as a result of a
miscalculation and the full amount of GST paid is passed on. This is
inconsistent with the policy intent that taxpayers should not obtain a
windfall gain from an overpayment irrespective of how the overpayment
arises.
3.18 There have been a number of other areas of uncertainty relating
to the application of section 105-65 that have been raised in consultation
forums. These include:
· whether section 105-65 should be taken into account by the
Commissioner in an assessment;
· what rights of review are available in a court or the
Administrative Appeals Tribunal where a taxpayer is
dissatisfied with a decision about the application of
section 105-65, including the Commissioner's approach to
the discretion; and
· whether section 105-65 is capable of applying to GST
overpaid in circumstances where the net amount has actually
been understated, for example because input tax credits have
been overclaimed.
Summary of new law
3.19 Schedule 3 amends the GST law to allow taxpayer to determine
whether they are entitled to a refund by reference to objective conditions,
rather than having to rely on the Commissioner to exercise the discretion
to refund an excess amount of GST.
3.20 A refund of overpaid GST can be claimed by taxpayers if it has
not been passed on to another entity. Alternatively, if the excess GST has
been passed on to another entity then a refund can be claimed following
reimbursement of that amount.
3.21 However, the Commissioner's discretion is retained for
exceptional circumstances where the Commissioner considers that treating
GST as payable would be inappropriate, having regard to the principle
that excess GST is not to be refunded if it would give an entity a windfall
gain.
3.22 The amendments also address the impact of the Federal Court's
decision in Sportsbet by ensuring that overpayments of GST resulting
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Refunding excess GST
from a miscalculation of the GST payable are subject to the restriction on
refunding excess GST.
3.23 Because the amendments in Schedule 3 impact on the assessed
net amount, taxpayers are able to challenge the application of the
amendments as part of an objection to their assessment under Part IVC of
the TAA 1953. Specific review rights are introduced where the
Commissioner refuses to exercise the discretion in the provision.
Comparison of key features of new law and current law
New law Current law
Restrictions on refunds
The restriction applies to excess GST, The restriction only applies where the
including as a result of incorrectly: overpayment is a result of the
· treating a supply as fully or partly taxpayer incorrectly treating a supply
taxable; or or arrangement as taxable to any
extent.
· calculating the amount of GST
payable on a supply.
However, the restriction on GST
refunds does not apply unless the
excess GST is also passed on to
another entity. Where the restriction
does not apply a refund of the excess
GST is available.
GST always payable
An amount of excess GST is taken to A taxpayer is not entitled to a refund
have always been payable and on a of an overpaid amount of GST if:
taxable supply if it has been passed · the taxpayer has not reimbursed
on to another entity. the recipient of the supply; or
There is no restriction on refunding · the recipient is registered or
excess GST where the overpayment required to be registered for GST.
has not been passed on to another
entity.
If the taxpayer has not passed on that
amount to the recipient, excess GST
is not taken to have always been
payable and is therefore refundable.
An amount of excess GST that has
been passed on is taken to have
always been payable, until the
recipient of the supply has been
reimbursed.
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Tax Laws Amendment (2013 Measures No. 4) Bill 2013
New law Current law
Excess GST does not include an
amount that is correctly payable but
covered by a decreasing adjustment
attributable to a later tax period, or is
correctly attributable to a different tax
period.
Commissioner's discretion
Taxpayers determine their entitlement The Commissioner may exercise a
to a refund of excess GST against discretion to refund an amount, even
specified conditions. If these if the conditions under which the
conditions are not satisfied, taxpayers Commissioner need not pay a GST
are not entitled to a refund of the refund in section 105-65 are met.
excess GST.
However, the Commissioner retains a
discretion to refund an amount if the
denial of a refund would be
inconsistent with the principle that
excess GST should not be refunded if
this gives an entity a windfall gain.
Where the recipient is reimbursed
Where a taxpayer reimburses excess Where a taxpayer reimburses
GST to the recipient, the provision overcharged GST to an unregistered
stops deeming the excess GST to be recipient, section 105-65 does not
payable. This is accounted for as an prevent a refund.
adjustment event for the supplier. If
the recipient is registered, there may
also be an adjustment event for the
recipient.
Adjustment provisions
The restriction on refunds provision No current law.
establishes that the adjustment
provisions in Division 19 apply
without restriction. Although, where
the adjustment event effectively
cancels a supply, the supplier is only
entitled to a decreasing adjustment to
the extent that they have reimbursed
the corresponding GST to the
recipient. There is a corresponding
rule for increasing adjustments for
recipients.
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Refunding excess GST
Detailed explanation of new law
3.24 Schedule 3 replaces existing section 105-65 with a new Division
in the GST Act to ensure that where the taxpayer's assessed net amount
for a tax period takes into account an amount of GST exceeding that
which is payable, the excess GST is only refundable in certain
circumstances. [Schedule 3, item 10, section 142-1 of the GST Act, item 15,
section 105-65 in Schedule 1 to the TAA 1953]
Excess GST
3.25 Excess GST is an amount of GST that has been taken into
account in an assessed net amount, but is not in fact payable. [Schedule 3,
item 10, subsection 142-5(1) of the GST Act]
3.26 It does not matter how the excess arose -- whether, for example,
by a mischaracterisation of a transaction as a taxable supply, a
miscalculation of the amount of GST payable, an accounting or reporting
error.
3.27 In practice, excess GST can arise as a result of a range of
circumstances including:
· incorrectly treating a GST-free or input taxed supply as a
taxable supply (including incorrectly apportioning the taxable
and non-taxable components of a mixed supply);
· incorrectly treating something which is not a supply as a
taxable supply;
· miscalculating a GST liability under the GST law, for
example, under the margin scheme or on gambling supplies;
or
· incorrectly reporting an amount of GST on a GST return.
3.28 Overpaid GST can be refunded without restriction under the
amendments if it has not been passed-on to another entity. It can also be
refunded if passing on has occurred, but the other entity has been
reimbursed for the overpayment. If, for example, the overpayment simply
occurs as a result of an error in preparation of a GST return, it will be
clear that the excess GST has not been passed on. Here, refunding excess
GST would not result in a windfall gain. [Schedule 3, item 10, section 142-10 of
the GST Act]
3.29 The provisions ensure that the excess GST is always payable
and on a taxable supply where that excess has been passed on to another
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Tax Laws Amendment (2013 Measures No. 4) Bill 2013
entity. Because an amount is considered as always payable no refund
arises as the GST is taken to have been correctly payable. If an amount of
excess GST has not been passed on then no restriction on refunding the
excess GST applies and a refund can be claimed. [Schedule 3, item 10,
section 142-10 of the GST Act]
3.30 If an amount of excess GST that has been passed on is
reimbursed, the excess amount stops being treated as payable on a taxable
supply. The reimbursement is an adjustment event either because it has
the effect of changing the consideration for a supply and in some cases
because the supply is no longer treated as a taxable supply. [Schedule 3,
item 10, section 142-10 of the GST Act]
Example 3.1: Amount paid under Division 33
James is registered for GST. On 28 April 2014, James lodged his
quarterly GST return for the tax period ending 31 March 2014. His
assessed net amount for that tax period is $3,500. James pays this
amount to the Commissioner under section 33-3.
On 16 September 2014, James realises that because of a transcription
error he incorrectly included an additional amount of GST of $100 in
his net amount for the tax period ending 31 March 2014. As his
assessed net amount for that tax period has taken into account the
$100, the additional GST of $100 exceeds what is payable. Therefore,
the $100 is an amount of excess GST. However, the amendments do
not apply because the amount has not been passed on. Therefore,
James is entitled to a refund.
Example 3.2: Amount applied under running balance account
Retro Robynne is registered for GST. On 21 October 2014, Retro
Robynne lodges its monthly GST return for the tax period ending
30 September 2014. Retro Robynne's assessed net amount for that tax
period is a refund of $4,000. The Commissioner applies this amount
against an outstanding tax debt of $1,500 on Retro Robynne's running
balance account and refunds the balance of $2,500 to Retro Robynne.
On 2 July 2015 Retro Robynne realises that it incorrectly included an
amount of $2,000 as GST payable on its GST return (as a result of
double counting in a particular taxable supply). Had it correctly
reported the GST payable on its return, its assessed net amount would
have been a refund of $6,000. As Retro Robynne's assessed net
amount for that tax period takes into account the $2,000, the additional
GST of $2,000 exceeds what is payable. The $2,000 is an amount of
excess GST.
The excess amount has not been passed on because only one amount of
GST was passed on for the particular taxable supply, not two.
Therefore Retro Robynne is entitled to a refund of the excess GST.
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Refunding excess GST
3.31 Excess GST may also arise where the excess is included in an
amendment to an assessed net amount. Section 155-80 in Schedule 1 to
the TAA 1953 provides that an amended assessment of a net amount is an
assessment for the purposes of any taxation law.
3.32 The application of these amendments does not depend on
whether a taxpayer has paid (under Division 33), or been refunded (under
Division 35), the assessed net amount. Rather, it depends on whether the
taxpayer has included an amount of excess GST in their assessed net
amount. For instance, if an amount of excess GST has been included in
the taxpayer's assessed net amount but that amount was not passed on to
another entity then that amount is considered to have never been payable
under the amendments. Therefore the taxpayer can lodge an amendment
to remove the excess GST from their assessed net amount where this
excess has been discovered before, or after, it has been paid to the
Commissioner.
Excess GST unrelated to adjustments
3.33 In working out the amount of excess GST, the following
amounts are disregarded:
· an amount of GST that is correctly payable and attributable
to the tax period, but which later becomes the subject of a
decreasing adjustment; or
· an amount of GST that is payable, but is correctly
attributable to a different tax period.
[Schedule 3, item 10, subsection 142-5(2) of the GST Act]
Excess GST related to decreasing adjustments
3.34 The concept of `excess GST' is intended to apply to amounts
that were treated as GST in a GST return, but were never payable. Where
an amount was correctly payable as GST, but the liability for GST was
later changed because of an adjustment event, the change in GST payable
is accounted for by way of an adjustment to the net amount. Adjustments
can arise because of adjustment events such as cancelling a supply,
changing the consideration for a supply or causing a supply to stop being
a taxable supply.
3.35 An adjustment that arises due to a change in consideration does
not generally give rise to a windfall gain since the change in GST payable
would be proportionate to the change in consideration.
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Tax Laws Amendment (2013 Measures No. 4) Bill 2013
3.36 Where an adjustment event in a later tax period results in a
decreasing adjustment for the supplier that is attributable to that later tax
period, the amount of the decreasing adjustment is disregarded. Thus, the
amendments do not prevent the claiming of a decreasing adjustment.
[Schedule 3, item 10, paragraph 142-5(2)(a) of the GST Act]
Example 3.3: Decreasing adjustment, not excess GST
In June 2015, GCorp pays $330,000 to JCorp for services provided in
that quarter.
On 28 July 2015, JCorp lodges its quarterly GST return for the tax
period ending 30 June 2015. JCorp's assessed net amount for that tax
period takes into account the $30,000 GST payable on the services
supplied to GCorp.
In August 2015, GCorp complains to JCorp about the cost of the
services and gets a refund of $44,000 from JCorp. The change in
consideration for the supply is an adjustment event. JCorp has a
decreasing adjustment of $4,000 (that is, 1/11th of $44,000). JCorp
issues an adjustment note to reflect the change to the consideration for
the supply.
The excess GST for the June 2015 tax period is zero (the $4,000 which
is subject to a decreasing adjustment, is disregarded when working out
whether there is any excess GST). JCorp instead attributes the
decreasing adjustment of $4,000 to the September 2015 quarterly tax
period.
Excess GST attributable to another tax period
3.37 An amount of GST that is correctly payable but has been
attributed to an incorrect tax period does not give rise to any excess GST
in that incorrect tax period. This scenario could occur in an audit situation
where the taxpayer has attributed an amount in a particular tax period but
the Commissioner assesses the amount as being correctly attributable to a
different tax period. [Schedule 3, item 10, paragraph 142-5(2)(b) of the GST Act]
Example 3.4: Amount attributable to another tax period
Pete Enterprises is registered for GST. On 1 April 2015, Pete
Enterprises makes a taxable supply to Alan for $66,000 and issues him
with a tax invoice that includes an amount of GST of $6,000.
On 21 April 2015 Pete Enterprises lodges its monthly GST return for
the tax period ending 31 March 2015, which incorrectly includes the
GST of $6,000 relating to the taxable supply made to Alan.
On 3 September 2015 the Commissioner conducts an audit and
determines that Pete Enterprises has incorrectly attributed the GST of
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Refunding excess GST
$6,000 to the March tax period instead of the April tax period. The
Commissioner amends the assessments for the monthly tax periods
ending March 2015 and April 2015. The overpaid GST in the March
tax period does not give rise to an amount of excess GST as it is
correctly attributable to a different tax period (that is, April).
Refunding excess GST
3.38 So much of the `excess GST' which has been passed-on to
another entity is taken to have always been payable and always on a
taxable supply, until such time as the taxpayer reimburses the other entity
for the passed-on GST. [Schedule 3, item 10, section 142-10 of the GST Act]
3.39 Only in exceptional circumstances do taxpayers need to ask the
Commissioner to exercise the discretion to refund an amount that has been
overpaid. Instead, taxpayers determine their entitlement to a refund of
excess GST by reference to the following conditions, where all or part of
the excess GST:
· has not been passed on, the taxpayer is entitled to a refund of
the excess GST not passed on; and
· has been passed on by the taxpayer, the taxpayer is entitled to
a refund to the extent that they have reimbursed the other
entity for the amount of the excess GST.
[Schedule 3, item 10, section 142-10 of the GST Act]
3.40 If the taxpayer can establish that either of the above conditions
are satisfied, they are entitled to a refund of the excess GST. If this is
because the GST has not been passed-on, the taxpayer may seek a refund
from the Commissioner by applying for an amendment of the relevant
assessment or objecting to the relevant assessment (subject to applicable
time limits).
3.41 If the taxpayer reimburses the passed-on GST, generally this
means that they have a decreasing adjustment and the other entity may
have an increasing adjustment. [Schedule 3, item 10, note 1 in section 142-10 of
the GST Act]
3.42 Where GST has been paid in respect of a supply and then
reimbursed, there is an adjustment event under one or more of the
paragraphs in subsection 19-10(1). The reimbursement has the effect of
changing the consideration for a supply. In some cases there is an
adjustment event because upon reimbursement, the amendments cease to
treat the supply as a taxable supply. [Schedule 3, item 10, section 142-10 of the
GST Act]
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Tax Laws Amendment (2013 Measures No. 4) Bill 2013
3.43 In determining the amount of the adjustment, the previously
attributed GST amount includes an amount of GST that was treated as
payable by operation of these amendments. This is compared to the
`corrected GST amount', which is the correct GST payable once these
amendments cease to apply.
3.44 In some cases a taxpayer may treat an arrangement as giving rise
to a taxable supply, where there is no actual supply. In such cases, if the
taxpayer subsequently discovers their mistake and reimburses the excess
GST to the other entity, then that amount is treated as never having been
payable or made in relation to a taxable supply. The taxpayer may seek a
refund from the Commissioner by applying for an amendment of the
relevant assessment or objecting to the relevant assessment. There is no
adjustment event in these circumstances, because there is no supply to
which Division 19 can apply. [Schedule 3, item 10, subsections 142-15(1) to (3) of
the GST Act]
Example 3.5: Excess GST not passed on
Melissa leases an office tower to Bank Ezy. The lease requires
$120,000 rent including GST to be paid monthly. Bank Ezy pays the
correct amount but Melissa incorrectly records the transaction as
$220,000 in her records and pays GST on $220,000.
Six months later Melissa realises her accounting error. As the excess
GST (on the additional $100,000) has not been passed on Melissa can
apply to the Commissioner to amend her assessment for the period in
which she included the excess GST.
Example 3.6: Excess GST reimbursed
John buys a set of spectacles from Joe's Optics and pays GST on the
total price of the spectacles. Joe's Optics had passed on the GST to
John. The proprietor of Joe's Optics is advised by the Commissioner
following an audit that the lenses are GST-free and that Joe's Optics
had overpaid GST.
The excess GST is taken to have always been payable under the
amendments until Joe's Optics reimburses John for the passed-on GST.
When John returned for his annual sight check-up he was advised of
the error and was reimbursed for the excess GST. As John has been
reimbursed for the passed-on GST, the amendments do not apply and
the excess GST is no longer taken to be payable.
Joe's Optics would account for the reimbursement to John as a
decreasing adjustment, attributable to the tax period in which the
reimbursement was made.
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Joe's Optics would not be entitled to amend the assessments for the
original tax period to remove the excess GST from its net amount.
This is because these amendments treat the excess GST as payable
until the time it is reimbursed.
Example 3.7: Excess GST reimbursed -- business to business
transaction
In the quarter ending 30 September 2015, Bron Co provides debt
collection services to Rob Co at a GST-inclusive price of $22,000.
Rob Co uses those services in its business of making financial supplies,
and is entitled to claim a reduced input tax credit of 75 per cent in
relation to those acquisitions.
Due to a systems error, Bron Co inadvertently charges $3,000 GST
when it invoices Rob Co for the supply. Rob Co pays a total of
$23,000 to Bron Co and calculates its entitlement to an input tax credit
as 75 per cent of $3,000. Bron Co's assessed net amount for the tax
period takes into account the $3,000 GST it charged to Rob Co.
Bron Co later discovers the error and advises Rob Co. Rob Co wishes
to obtain a refund of the overcharged amount and Bron Co duly
reimburses the sum of $1,000 to Rob Co. Accordingly, the
amendments cease to apply and the excess GST is no longer taken to
be payable.
Bron Co would account for the reimbursement to Rob Co as a
decreasing adjustment, and Rob Co would account for its receipt of the
reimbursed amount as an increasing adjustment. Rob Co and Bron Co
would not amend their GST returns for the period in which the GST
and input tax credits were originally attributable. This is because these
amendments treat the GST as payable until the time of reimbursement.
Example 3.8: Excess GST partially reimbursed
Croft Enterprises is registered for GST. On 25 May 2014, Croft
Enterprises makes a supply to Christine which they believe to be
taxable. They charge Christine the amount of $2,200, including GST
of $200. Christine pays the amount of $2,200 to Croft Enterprises.
Christine is neither registered nor required to be registered.
In its quarterly GST return lodged on 28 July 2014, Croft Enterprises
includes GST payable of $200 for the supply to Christine. The $200 is
taken into account in Croft Enterprises' net amount for the tax period
ending 30 June 2014.
On 20 September 2014, Croft Enterprises realises that the supply was
not a taxable supply and therefore the $200 is excess GST. The $200
is taken to have always been payable until Croft Enterprises reimburses
Christine. However, Croft Enterprises only reimburses $150 of the
GST paid to Christine. Therefore, the remaining $50 (being the
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Tax Laws Amendment (2013 Measures No. 4) Bill 2013
difference between the excess GST and what has been reimbursed) is
taken to have been always payable under the amendments. Croft
Enterprises is entitled to a decreasing adjustment of $150 in the tax
period ending 30 September 2014.
Example 3.9: Treating excess GST as GST payable
Shawn is registered for GST and has monthly tax periods. During the
tax period ending 31 July 2014, Shawn makes a number of supplies.
He treats these as taxable supplies and includes GST on these supplies
in his GST return lodged on 21 August 2014. His assessed net amount
is $4,000.
On 9 December 2014, Shawn discovers that some of the supplies he
treated as being taxable supplies are not taxable supplies, and as a
result, he has overpaid $1,000 of GST to the Commissioner. The
$1,000 is excess GST.
If Shawn has passed on the excess GST and not reimbursed the
recipient/s, the excess GST is taken to have always been payable and
no refund entitlement arises.
Amended assessments
3.45 Circumstances may arise where an assessed net amount is
amended (whether by application from the taxpayer, or following audit by
the Commissioner) to include an amount of GST not originally treated as
payable. If this amendment is incorrect, but the taxpayer has not passed
on the excess GST, then the amendments allow the taxpayer to claim a
refund of the excess. This means that if it is later determined that GST
was not payable on that supply, the taxpayer's assessed net amount could
be further amended to reflect this outcome.
Example 3.10: Amended assessment and GST not passed on
Jenny treats a particular supply as GST-free and this is reflected in the
price she charges customers. Her assessed net amount for the tax
period reflects the GST-free treatment of that supply (she does not
report any GST for that supply).
Later, she is audited by the Commissioner, who determines that the
supply she treated as GST-free was a taxable supply. The
Commissioner amends her assessment for that tax period (first
amended assessment).
Jenny objects to the amended assessment on the basis that she
considers that the supply is not taxable and enters into an arrangement
with the Commissioner to pay half of the assessed net amount in
dispute.
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Refunding excess GST
Subsequently, the Commissioner allows her objection in full.
However, in giving effect to the favourable decision, the
Commissioner must consider the application of these amendments.
The amendments apply as Jenny's assessed net amount for the tax
period (the first amended assessment) takes into account an amount of
GST exceeding that which is payable. In applying the amendments, it
does not matter how much, if any, of the assessed net amount Jenny
has actually paid.
As Jenny is able to demonstrate that the price she charged does not
include GST, the Commissioner accepts that she has not passed on the
GST and that the amendments do not apply. Accordingly the
Commissioner further amends Jenny's assessed net amount (second
amended assessment) to reflect the favourable objection decision.
3.46 If an amendment of the assessment results in the taxpayer's
liability being reduced, the amount by which the liability is reduced is
treated as though it was never payable and the Commissioner must apply
that amount in accordance with the running balance account rules under
Divisions 3 and 3A of Part IIB of the TAA 1953.
Exceptions to refunding excess GST
Commissioner's discretion
3.47 The Commissioner has a discretion to allow a refund of excess
GST despite passing-on having occurred and no reimbursement having
been made. The discretion can only be exercised on application by the
supplier in an approved form. The discretion should only be exercised
where the Commissioner is satisfied that a refund of the excess GST
would not provide an entity with a windfall gain. [Schedule 3, item 10,
subsections 142-15(1)and (2) of the GST Act]
3.48 Ordinarily, where GST has been passed-on by a supplier to a
recipient, a refund to the supplier would result in the supplier having a
windfall gain. Although less common, there could also be cases where a
refund could lead to a windfall gain for another entity -- for example, a
recipient that has claimed input tax credits is effectively compensated for
the GST they overpaid, and for whatever reason is able to retain the input
tax credits they claimed.
3.49 In most cases the provisions are self-executing and there is no
need for taxpayers to make an application to the Commissioner. If GST
has not been passed on, the amendments do not apply and a refund of
excess GST can be claimed. If a taxpayer and the Commissioner disagree
about whether GST has been passed on, this is a matter that can be
included in an objection to the relevant assessment. The discretion is not
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Tax Laws Amendment (2013 Measures No. 4) Bill 2013
intended to apply in these circumstances. If GST has been passed on, and
not reimbursed, then ordinarily a refund of the GST would lead to a
windfall to the supplier. In these cases, the application of the amendments
is consistent with the principle that excess GST is not to be refunded if
this would give an entity a windfall gain and hence there is no cause for
the exercise of the discretion.
3.50 However, there are more unusual cases where the application of
the amendments may result in unintended consequences. One of these is
illustrated in Example 3.11 below where strictly the entity has passed on
and overpaid GST, but nevertheless the relevant individuals concerned
would be out-of-pocket if the entity were not entitled to a refund of the
GST overpaid. The discretion is intended to provide the Commissioner
with the flexibility to deal with these sorts of circumstances.
Example 3.11: Commissioner's discretion and wrong entity
Entities Lintoned and Benwell own a commercial property as tenants
in common. Each carries on a separate enterprise and is registered for
GST.
Entities Lintoned and Benwell each sell their 50 per cent interest in the
property (with vacant possession) to Neville Co for a price of $50,000
plus $5,000 GST each. Entities Lintoned and Benwell each remit GST
of $5,000.
Neville Co is registered for GST and claims two input tax credits of
$5,000 each.
The Commissioner reviews the transaction and decides that Entities
Lintoned and Benwell are operating an enterprise as a tax law
partnership. The tax law partnership is a separate entity for GST
purposes. The Commissioner therefore assesses the partnership for
underpaid GST of $10,000. The partnership duly pays the $10,000.
Entities Lintoned and Benwell have each overpaid GST of $5,000 and
they have each passed on that excess GST to Neville Co. However, in
effect, Lintoned and Benwell have remitted the passed-on GST twice,
once through remitting the GST in their own names, and once through
remitting it in the name of the tax law partnership.
In these circumstances it is appropriate for the Commissioner to
exercise the discretion where the Commissioner is satisfied that the
refund of excess GST to Lintoned and Benwell will not result in a
windfall gain for either entity.
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Example 3.12: Commissioner's discretion
Supermarket A introduces a new product which it classifies as subject
to GST, but which is correctly GST-free. It includes GST from the
outset in the price of the product, which it sells to a large number of
customers. The product is also marketed by other supermarkets who
are correctly classifying the product as GST-free, so, after a few
months, Supermarket A finds that it needs to reduce the price it
charges for the product compared to its competitors.
Shortly afterwards, Supermarket A is advised that the product is
GST-free, but it is not cost-effective to try to locate customers to
provide a reimbursement of the overcharged GST.
Supermarket A considers that it has passed on the excess GST. It
makes a request in the approved form for the Commissioner to exercise
the discretion under the amendments to pay a refund of the excess
GST, on the grounds that it was disadvantaged in the market place by
its mistake, and has lost sales and profitability as a result.
In order to exercise the discretion, the Commissioner needs to be
satisfied that applying the amendments would be inconsistent with the
principle that a refund of excess GST should not give an entity a
windfall gain.
The Commissioner forms the view that as the GST has been passed on,
a windfall gain has arisen to Supermarket A. Accordingly, the
Commissioner decides not to exercise the discretion under the
amendments. If Supermarket A is in doubt whether it has passed on
the excess GST, it could ask the Commissioner for a private ruling
about the matter.
GST relating to cancelled supplies
3.51 Where there is an adjustment event as a result of a supply being
cancelled and this results in a decreasing adjustment for the supplier, the
adjustment is reduced to the extent that GST has been passed on to the
recipient of the supply but not reimbursed. [Schedule 3, item 10, section 142-20
of the GST Act]
3.52 Having regard to the decision in Qantas,6 in many cases there is
still a supply where money is paid for goods and services that are
ultimately not provided. However, there might be cases where money is
paid with a mere expectation of a future supply, which does not eventuate.
If this is the case, there could be a decreasing adjustment even if there is
no reimbursement of the consideration paid for the supply that was
6 Commissioner of Taxation v Qantas Airways Ltd [2012] HCA 41 (Qantas).
75
Tax Laws Amendment (2013 Measures No. 4) Bill 2013
cancelled. If the intending supplier had passed on GST to its customer
and not reimbursed the customer, such a decreasing adjustment would
provide it with a windfall gain. This provision prevents such an outcome
by reducing the decreasing adjustment of the supplier to the extent the
GST has been passed on and not reimbursed. The amendments also limit
increasing adjustments for registered recipients.
Example 3.13: Decreasing adjustment, cancelled supply
In September 2014 Bams Co makes a taxable supply of goods to
FT Co for $55,000 and issues a tax invoice, which includes GST of
$5,000.
On 21 October 2014, Bams Co lodges its monthly GST return for the
September 2014 tax period. Its assessed net amount takes into account
the GST payable of $5,000 for the supply made to FT Co.
In November 2014, FT Co returns all of the goods because they are
defective and seeks a refund. Bams Co refunds $55,000. The return of
goods and associated refund cancels the supply. This is an adjustment
event. Bams Co has a decreasing adjustment of $5,000 attributable to
the November 2014 tax period as a result of cancelling the supply,
while FT Co has an increasing adjustment of $5,000.
Since Bams Co has reimbursed all of the passed-on GST of $5,000 its
decreasing adjustment is not reduced to any extent. Similarly, FT Co's
increasing adjustment is not reduced by any extent.
Input tax credits
3.53 A recipient who is registered for GST would ordinarily have
claimed input tax credits on the acquisition of the thing supplied (subject
to the normal GST rules).
3.54 Such a recipient can continue to treat the excess GST in the
same way that they treat the GST payable on the transaction for the
purpose of working out the amount of its input tax credits under
Division 11. This is achieved by treating the excess GST as having
always been payable and always on a taxable supply. This is designed to
preserve the GST outcomes of the original treatment, despite including
excess GST and to clarify that the recipient can claim an input tax credit
in relation to the acquisition. However, the recipient may have an
increasing adjustment where the excess GST is reimbursed to it.
[Schedule 3, item 10, section 142-10 of the GST Act]
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Refunding excess GST
Supplier's creditable purpose
3.55 The amendments guard against the potential for parties to
contrive arrangements that may enable additional input tax credits to be
claimed where there would otherwise be no entitlement. For instance,
where the corresponding GST is not paid to the Commissioner. This is
achieved by providing that the amendments do not apply where the other
entity knows or could reasonably be expected to have known that the
supplier has not paid the excess GST to the Commissioner. [Schedule 3,
item 10, subsection 142-15(5) of the GST Act]
3.56 A supplier who makes input taxed supplies cannot treat those
supplies as taxable supplies in order to claim input tax credits on their
business inputs. Whilst the amendments treat excess GST that has been
passed on as GST payable on a taxable supply, this deeming approach
does not affect the supplier's creditable purpose. Accordingly,
acquisitions by a supplier making input taxed supplies remain acquisitions
that are not made for a creditable purpose under subsection 11-15(2).
[Schedule 3, item 10, subsection 142-15(4) of the GST Act]
Working out whether and when excess GST has been passed-on
3.57 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. [Schedule 3, item 11, section 195-1 of the GST Act]
3.58 A tax invoice issued to or by another entity, that contains
enough information to allow the amount of GST payable in relation to the
supply to be clearly ascertained, is prima facie evidence of the excess
GST having been passed on. This reflects that tax invoices are issued for
taxable supplies recognising that suppliers will have a liability for GST
and would in most circumstances pass the cost of GST onto their
customers. [Schedule 3, item 10, section 142-25(2) of the GST Act]
3.59 GST may have been passed-on even though a tax invoice has not
been issued, or does not specifically or separately identify the GST
component or is not a valid tax invoice for the purposes of the GST Act.
[Schedule 3, item 10, subsection 142-25(1) of the GST Act]
3.60 For example, information contained in a document purporting to
be a tax invoice, but that does not satisfy the requirements under
subsection 29-70(1), or that does not result in the Commissioner treating
the document as a tax invoice under subsection 29-70(1B), may be
sufficient to demonstrate that the excess GST has been included in the
price of a supply and therefore passed on.
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Tax Laws Amendment (2013 Measures No. 4) Bill 2013
3.61 The presumption that GST has been passed on may be rebutted
in a number of ways. For example, despite the supplier having issued a
tax invoice to the recipient, and having paid the excess GST to the
Commissioner, they may be able to demonstrate that the recipient of the
supply has not yet paid the amount shown on the invoice. This is
sufficient to show that the excess GST has not yet been passed on, such
that the amendments would not apply.
3.62 Whether the recipient has actually paid the supplier for the
supply (whether or not an invoice has been issued) is therefore an
important consideration in deciding whether GST has been passed on.
3.63 Some further guidance on the question of `passing-on' can be
obtained from the decision of the High Court in Avon,7 which concerned
the former sales tax regime. In Avon, the High Court noted that a central
feature of the sales tax regime was that `the economic burden of the
impost is generally not intended to be borne by the person liable to remit
it; it is passed-on'.
3.64 The GST regime is similar to the former sales tax regime in that
the entity liable to remit the tax is not intended to be the entity that
actually bears the cost of the tax. As such, a number of judicial
observations can be readily adapted to a GST context:
· in an economy geared to making a profit, GST is expected to
be passed on;
· businesses set prices to cover foreseeable costs;
· GST will be passed on in the usual course of doing business;
· it is inherent in an indirect system that GST will be passed
on; and
· it is for the taxpayer to establish a circumstance out of the
ordinary, namely that the amount of the overpayment has not
been passed on.
3.65 Whether an indirect tax has been passed-on can be a relatively
complex inquiry. This is because prices may be set with reference to a
wide range of factors (including considerations of cost of production,
competitive advantage, operational cash flow and customer goodwill).
However, the seller's pricing policy and practice are the starting point of
that inquiry.
7 Avon Products Pty Ltd v Commissioner of Taxation [2006] HCA 29 (Avon).
78
Refunding excess GST
3.66 The seller's pricing policy and practice is based upon its actual
knowledge at the relevant time. That knowledge includes the belief that
the component of tax which later proves to have been an overcharge is a
real cost of doing business.
Margin scheme
3.67 The margin scheme represents another method by which GST
can be calculated for certain supplies of real property. The GST, as
calculated either under the general rules or under the margin scheme, is a
foreseeable cost that would normally be taken into consideration in the
costing and pricing structures of a business. In this regard, margin scheme
cases need to be considered in the same way as other cases where the
recipient is overcharged. Each case must be considered on its own facts
based on whether the excess GST has been passed on.
3.68 An assertion that GST was not a factor in setting the price is not,
of itself, sufficient to establish that the excess GST has not been passed
on. Instead, a wide range of factors may be relevant to the question of
passing-on in any particular case. In the case of taxable sales of real
property, some of those factors may include the market in which the
taxpayer operates and the contracts under which sales are made.
3.69 However, it is also necessary to consider the seller's pricing
policy and practice, with reference to the actual conduct of the seller in
setting prices based upon its actual knowledge at the relevant time. As
such, that knowledge includes the belief that the component of tax which
later proves to have been an overcharge is a real cost of doing business.
Example 3.14: Where GST has been passed on
Leslie's Developments Co (LD) is a property development company
and is registered for GST. LD makes a taxable supply of real property
to Phe Co (Phe), another developer.
LD and Phe agree in writing on a GST-exclusive price and that an
amount for GST can be charged using the margin scheme in
calculating the GST liability on the supply.
LD provides Phe with a contract of sale that confirms the
GST-exclusive price and that the margin scheme is to apply to the sale.
This indicates that some amount of GST is included in the total
purchase price, which is subsequently paid by Phe to LD.
Notwithstanding that no tax invoice is issued in respect of the supply,
the contract of sale is sufficient to show that an amount of GST has
been passed-on to Phe.
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Tax Laws Amendment (2013 Measures No. 4) Bill 2013
Example 3.15: Where GST may have been passed on
State Co is a State Government entity which supplies both commercial
and new residential premises. It conducts a detailed feasibility study
on a new development project, and this includes estimates of its GST
liability as part of its overall cost recovery and pricing structure. State
Co owned the land before 1 July 2000 and, in calculating its likely
GST liability under the margin scheme, uses a valuation day of
1 July 2000. State Co proceeds with the development of the project in
2014 and pays GST under the margin scheme.
Two years later, State Co discovers that it was entitled to use Item 4 in
the table in subsection 75-10(3) -- that is, it was entitled to make a
valuation as at the day the taxable supply took place (a higher figure
than the valuation as at 1 July 2000). State Co's margin on each sale is
therefore lower and, as a result, it has overpaid GST.
In considering whether State Co is entitled to a refund, it is necessary
to consider whether State Co had passed on the excess GST. Under its
detailed feasibility study, State Co had estimated its GST liability
before the sales using the lower valuation (and thus higher GST) which
it took into account in determining its cost recovery and pricing
structure. The GST component was eventually paid by its customers.
These circumstances tend to indicate that State Co has passed on the
excess GST.
Example 3.16: Where GST may not have been passed on
Toni's Development Co (TD) is a property development company and
is registered for GST. TD undertook a development of 10 residential
apartments.
Each apartment is marketed at a price of $500,000 on the
understanding the purchaser agrees in writing to the vendor's use of
the margin scheme. In working out its pricing structure, TD calculated
a GST component of $11,000 on each apartment.
Within 3 months of the completion of the development, TD sold 9 of
the apartments at the marketed price. In the ensuing months, TD had
difficulty selling the last apartment. In order to sell it and move on to
another development, TD dropped the price of the last apartment to
$450,000 and sold it at that price.
In completing its GST return for the tax period in which the sale was
made, TD included in its net amount $11,000 of GST in relation to the
last apartment. TD has overpaid GST. A range of factors including
TD's approach to pricing, the reduction in price and the application of
the margin scheme indicate that TD has passed-on an amount of GST
of less than $11,000 on the sale of the last apartment and has not
passed on the excess GST.
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Refunding excess GST
Example 3.17: Seeking the Commissioner's discretion
Developer AB carries out multi-staged residential developments
supplying new residential housing in sub-divisions. It acquires land
from another entity under the margin scheme and, as part of its detailed
budget for a new project, considers the pricing structure for the supply
of new houses on that land. AB estimates that the GST component
under the margin scheme would be $11,000 on each of the residences.
AB builds and sells the residences to unregistered individuals who
acquire the property solely for private purposes. AB then remits GST
calculated under the margin scheme.
Due to an audit by the Commissioner, AB is required to change the
basis on which the costs of its original purchase of the land are
allocated between sales of completed sub-divisions (the margin scheme
cost base is changed). This has the effect that AB has underpaid its
GST liability on the sale of some residences and overpaid GST on
other sales.
In this case, Developer AB had factored approximately $11,000 GST
into its cost recovery and pricing structure for each residence. The
total amount of GST payable on the whole development has not
changed -- it is the total sales prices less the total margin scheme cost
base -- but the amount of GST payable on individual sales and, in
turn, the timing of when the GST is payable may change -- more GST
may be payable in one tax period and less in another.
Developer AB considers that the amendments apply to restrict the
refund of the excess GST and that its circumstances warrant seeking
the Commissioner's discretion to refund the excess GST.
Having regard to the facts and circumstances of Developer AB's
situation, and given that there are corresponding overpayments and
underpayments arising from the change to the margin scheme cost
base, the Commissioner considers that it would be inappropriate to
prevent refunds of GST in those tax periods where the GST liability
was overpaid because such refunds would not result in a windfall gain
to any entity. AB needs to remit the additional GST liability in tax
periods where more GST was payable.
Review rights
3.70 These amendments impact on the net amount and therefore the
assessment of that net amount. Accordingly, taxpayers may challenge a
decision by the Commissioner not to refund excess GST by objecting to
the relevant assessment and if dissatisfied with the objection decision,
through review or appeal in the Administrative Appeals Tribunal or
Courts.
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Tax Laws Amendment (2013 Measures No. 4) Bill 2013
3.71 A separate review right has also been introduced for taxpayers
dissatisfied with a decision by the Commissioner to refuse to exercise the
discretion under these amendments. [Schedule 3, item 16, subsection 110-50(2)
in Schedule 1 of the TAA 1953]
Application and transitional provisions
3.72 The amendments in Schedule 3 apply in relation to working out
the net amount for a tax period starting on or after 17 August 2012.
[Schedule 3, subitem 17(1)]
3.73 However, those amendments do not apply in relation to working
out the net amount for a tax period starting on or after 17 August 2012, if,
before the day that the amendments were introduced into Parliament:
· the assessment of the net amount for the tax period is
amended (or such an amendment is applied for) and the
amendment results (or, if made, would result) in the
assessment of that net amount no longer taking into account
all or part of an amount of GST exceeding that which is
payable; or
· an objection is made, in the manner set out in Part IVC of the
TAA 1953, against an assessment of that net amount, and the
objection results (or, if allowed, would result) in the
assessment of that net amount no longer taking into account
all or part of the amount of GST exceeding that which is
payable.
[Schedule 3, subitems 17(2) and (3)]
3.74 17 August 2012 is the date that the Assistant Treasurer first
released draft legislation for public consultation clarifying the
circumstances in which the restriction on GST refunds would apply. To
reflect that the legislation has developed significantly following
consultation with stakeholders, the application date has been altered so
that the amendments apply to refund claims relating to tax periods starting
on or after 17 August 2012 but only for claims lodged on or after the date
of introduction of the Bill to Parliament.
3.75 It is also important that the amendments to the law do not
adversely affect taxpayers who, prior to the introduction of the amending
legislation, had already taken steps under the current law to seek a refund
or to object to a decision made by the Commissioner. The amendments
accordingly provide an appropriate balance between the objective of
providing certainty, whilst not adversely affecting taxpayer's entitlements
82
Refunding excess GST
prior to the introduction of the Bill to Parliament. [Schedule 3, subitems 17 (2)
and (3)]
3.76 This approach strikes an appropriate balance between providing
greater certainty whilst preventing possible exploitation between
introduction of the legislation and its enactment.
3.77 Section 105-65 continues to apply in relation to net amounts for
tax periods commencing prior to 17 August 2012 and for tax periods
commencing from 17 August 2012, where an assessment has been
amended, or an application for an amendment or an objection has been
lodged prior to the date of introduction.
Example 3.18: Tax period commencing before 17 August 2012
Harry Enterprises is registered for GST. On 15 April 2012, Harry
Enterprises makes a supply to Christopher for $5,500 and issues him
with a tax invoice that includes an amount of GST of $500.
Christopher is not registered for GST.
On 21 May 2012, Harry Enterprises treats the supply as a taxable
supply in its GST return for the tax period ending 30 April 2012. On
2 February 2013, Harry Enterprises discovers that the supply is a
GST-free supply, and as a result, it has incorrectly included GST of
$500 in his net amount for the tax period ending 30 April 2012. In
determining whether Harry Enterprises is entitled to a refund of the
overpaid amount, section 105-65 applies.
Example 3.19: Tax period commencing on or after 17 August 2012
Stark Enterprises is registered for GST. On 21 October 2012, Stark
Enterprises lodges its monthly GST return for the tax period ending
30 September 2012. Its assessed net amount for that tax period
includes GST payable of $1,000 for supplies Stark Enterprises treated
as being taxable supplies.
On 1 August 2013, Stark Enterprises realises that those supplies are not
taxable and it has overpaid $1,000 and applies for an amended
assessment on the same day. The $1,000 is excess GST to which the
amendments apply as the claim was made after the date of introduction
of these amendments.
However, if Stark Enterprises had realised its mistake earlier and
applied for an amendment of its assessment on 4 June 2013 (which is
prior to the introduction date of the Bill), then section 105-65 would
have applied in determining whether it was entitled to a refund of the
overpaid amount.
83
Tax Laws Amendment (2013 Measures No. 4) Bill 2013
Consequential amendments
3.78 There are a number of consequential amendments to headings,
notes and other things that need to be repealed or revised due to the repeal
of section 105-65 and the creation of the refunding excess GST
framework. [Schedule 3, items 1 to 9, 12, 13 and 14]
STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS
Prepared in accordance with Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011
Refunding excess GST
3.79 Schedule 3 to this Bill is compatible with the human rights and
freedoms recognised or declared in the international instruments listed in
section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview
3.80 Schedule 3 to this Bill amends the A New Tax System (Goods
and Services Tax) Act 1999 (GST Act), the Income Tax Assessment
Act 1936 (ITAA 1936) and the Taxation Administration Act 1953 (TAA
1953) to ensure that excess goods and services tax (GST) is only
refundable in certain circumstances. The amendments apply to
overpayments of GST, if the overpayment has been passed on.
Human rights implications
3.81 This Schedule does not engage any of the applicable rights or
freedoms.
Conclusion
3.82 This Schedule is compatible with human rights as it does not
raise any human rights issues.
Assistant Treasurer, the Hon David Bradbury
84
Index
Schedule 1: Research and development tax incentive --
targeting access
Bill reference Paragraph number
Item 1, subsection 355-103(1) 1.10
Item 1, subsection 355-103(2) 1.13
Item 1, paragraphs 355-103(2)(c) and (d) 1.14
Item 1, subsection 355-103(3) 1.17
Item 1, subsection 355-103(4) 1.16
Item 2, subparagraph 28D(2)(b)(iii) of the Industry Research and 1.21, 1.22
Development Act 1986
Item 3 1.23
Schedule 2: Quarterly R&D credits
Bill reference Paragraph number
Item 1, paragraph 48-5(1)(b) and section 48-100 2.18
Item 1, section 48-100 2.19
Item 1, paragraph 48-100(c) 2.34
Item 1, section 48-100 (table item 20) 2.35, 2.36, 2.37
Item 1, section 48-105 2.20, 2.181
Item 1, section 48-105 and paragraph 48-10(2)(b) of the ITAA 1997 2.191
Item 1, subsection 48-110(1) 2.26
Item 1, paragraph 48-110(1)(d) 2.27
Item 1, subsection 48-110(2) 2.32, 2.33
Item 1, subsection 48-5(1) 2.38
Item 1, subsections 48-5(1) and 48-10(1) 2.40
Item 1, subsection 48-5(2) 2.43
Item 1, subsections 48-5(3) and 48-15(1) 2.39
Item 1, paragraph 48-10(2)(a) and subsections 48-15(2) and (3) 2.41
Item 1, paragraph 48-10(2)(b) 2.42
Item 1, section 48-200 and subsections 48-210(1) and (2) 2.53
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Tax Laws Amendment (2013 Measures No. 4) Bill 2013
Bill reference Paragraph number
Item 1, paragraph 48-205(1)(c) and subsection 48-205(2) 2.49
Item 1, subsection 48-205(1) 2.52
Item 1, paragraph 48-205(1)(b) 2.50
Item 1, subsection 48-210(2) 2.54
Item 1, subsections 48-210(3) and 48-215(1) 2.59
Item 1, subsection 48-210(4) 2.66
Item 1, paragraph 48-215(1)(a) 2.55, 2.60
Item 1, paragraph 48-215(1)(b) 2.61
Item 1, paragraph 48-215(1)(b) and subsection 48-215(2) 2.62
Item 1, subsections 48-215(3) and 48-220(2) and 2.64
paragraph 48-215(4)(a)
Item 1, subsection 48-215(4) 2.63
Item 1, subsection 48-220(1) 2.56
Item 1, subsection 48-220(3) 2.65
Item 1, paragraph 48-225(1)(a) 2.68
Item 1, paragraph 48-225(1)(b) 2.69
Item 1, subsection 48-225(2) 2.74
Item 1, paragraph 48-225(3)(a) 2.72
Item 1, paragraph 48-225(3)(b) 2.73
Item 1, subsection 48-225(4) 2.75
Item 1, subsection 48-225(5) and section 48-800 2.77
Item 1, subsection 48-225(6) 2.70
Item 1, subsection 48-230(1) 2.83
Item 1, subsections 48-230(2) and (4) and section 48-235 2.84
Item 1, subsection 48-230(3) 2.85, 2.95
Item 1, section 48-800 2.44, 2.67
Item 1, subsection 48-820(1) 2.86
Item 1, subsections 48-820(2) and (3) 2.87
Items 1 and 50, subsection 48-225(4) and subsection 12BB(2) of the 2.88
Taxation (Interest on Overpayments and Early Payments) Act 1983
Item 1, section 48-300 2.91
Item 1, subsections 48-300(2) and 48-230(4) 2.94
Item 1, section 48-305 2.93
Item 1, subsection 48-305(4) 2.96
Item 1, subsection 48-425(3) 2.97
Item 1, subsection 48-350(1) 2.98
86
Index
Bill reference Paragraph number
Item 1, subsections 48-350(1) and (2) and section 48-355 2.99, 2.100
Item 1, paragraph 48-355(1)(a) 2.102
Item 1, subsection 48-355(2) 2.101
Item 1, subsection 48-350(3) 2.103
Item 1, subsection 48-350(4) 2.104
Item 1 subsections 48-350(4) and (5) 2.105
Item 1, subsections 48-400(1) and (3) 2.107
Item 1, subsection 48-400(2) 2.109
Item 1, subsection 48-400(4) 2.108
Item 1, subsections 48-405(1) and (2) 2.110
Item 1, paragraphs 48-405(1)(c) and (d) 2.113
Item 1, subsection 48-405(2) 2.114
Item 1, paragraphs 48-405(2)(c) and (d) 2.115
Item 1, subsection 48-405(3) 2.116, 2118
Items 1 and 47, subsection 48-405(4) and paragraph 298-5(c) 2.119
Item 1, subparagraphs 48-405(2)(d)(i) and (ii) and 2.121
subsections 48-410(1) and (2)
Item 1, paragraph 48-410(1)(b) and subsection 48-410(2) 2.122
Item 1, subsection 48-410(3) 2.123
Item 1, subsection 48-410(4) 2.124
Item 1, subsection 48-415(1) 2.125
Item 1, subparagraph 48-405(2)(d)(ii) 2.126
Item 1, subsection 48-410(6) and section 48-800 2.127
Item 1, subsection 48-410(5) 2.129
Item 1, subsection 48-415(2) and (3) 2.128
Item 1, subsection 48-420(1) 2.130, 2.131
Item 1, subsection 48-420(2) 2.132
Item 1, paragraph 48-420(2)(c) 2.133
Item 1, section 48-420 2.134
Item 1, subsection 48-425(1) 2.136
Item 1, subsections 48-425(2) and (3) 2.137
Items 1 and 50, subsection 48-430(1), and sections 12BA, 12BB, 2.138
12BC and 12BD of the Taxation (Interest on Overpayments and
Early Payments) Act 1983
Items 1 and 50, subsection 48-430(2) and subsection 12BB(2) of the 2.139
Taxation (Interest on Overpayments and Early Payments) Act 1983
Item 1, Subdivision 48-P 2.141
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Tax Laws Amendment (2013 Measures No. 4) Bill 2013
Bill reference Paragraph number
Item 1, section 48-700 2.142, 2.143
Item 1, subsection 48-705(1) 2.146
Item 1, subsection 48-705(2) 2.147
Item 1, subsection 48-705(2) (table item 1) 2.148, 2.149
Item 1, subsection 48-705(2) (table item 2) 2.150
Item 1, subsection 48-705(2) (table item 3) 2.151
Item 1, subsection 48-705(2) (table item 4) 2.152
Item 1, subsections 48-710(1) and (2) 2.153
Item 1, subsection 48-710(2) 2.156
Item 1, subsection 48-710(2) (table item 1) 2.154
Item 1, subsection 48-710(3) 2.155
Item 1, subsections 48-715(1) and (2) 2.158
Item 1, subsection 48-715(3) 2.159
Item 1, subsection 48-715(4) 2.160
Item 1, section 48-720 2.161
Item 1, sections 48-725 and 48-730 2.163
Item 1, section 48-735 2.165
Item 1, section 48-800 2.135
Item 1, subsection 48-840(1) 2.168
Item 1, subsection 48-840(2) 2.169
Items 2, 3 and 5, sections 26A and 28 of the IR&D Act 1986 2.186
Item 4, paragraph 27L(2)(a) of the IR&D Act 1986 2.187
Item 6, paragraph 28A(3)(a) of the IR&D Act 1986 2.174
Item 6, subsection 28A(3) of the IR&D Act 1986 2.175
Item 6, subsections 28A(2) and (3) of the IR&D Act 1986 2.177
Items 6 and 7, sections 28A and 28AA of the IR&D Act 1986 2.173
Item 7, subsection 28AA(2) and paragraph 28AA(1)(d) of the IR&D 2.180
Act 1986
Items 8 and 9, subsection 28C(1) and section 28DA, of the IR&D 2.184
Act 1986
Item 9, section 28DA of the IR&D Act 1986 2.185
Items 10 to 12, subsections 28E(1), (3) and (4) and section 28EA of 2.188
the IR&D Act 1986
Items 13 to 19, sections 28F and 28G of the IR&D Act 1986 2.189
Items 20 to 24, section 28H of the IR&D Act 1986 2.190
Items 25 and 26, section 30A (table items 11 to 13A) and the note to 2.192
subsection 30B(2) of the IR&D Act 1986
88
Index
Bill reference Paragraph number
Item 27, paragraph 32(A)(d) of the IR&D Act 1986 2.193
Items 28 and 29, subsection 47(2A) of the IR&D Act 1986 2.194
Item 30, subsection 262A(2AAF) of the ITAA 1936 2.200
Items 31 to 35, section 355-705 and subparagraphs 355-710(a)(iii) 2.201
and (iv) of the ITAA 1997
Item 33, subsections 355-705(2) and (3) of the ITAA 1997 2.176
Items 37 to 40, subsection 995-1(1) of the ITAA 1997 (definitions of 2.202
`managing entity', `quarterly credit amount', `quarterly credit due
day' and `quarterly credits system')
Item 41, subsection 8AAB(4) of the TAA 1953 (table items 44A to 2.203
44D)
Item 42, subsection 250-10(2) (table items 135A to 135C) 2.204
Items 43 and 44, subsection 286-75(2) 2.206
Item 46, paragraph 288-20(c) 2.89
Item 48, subsection 355-65(4) (table item 6) 2.209
Item 49, subsections 444-120(1) and (6) 2.199
Item 50, subsections 12BB(1) and 12BC(2) and sections 12BA and 2.79
12BE of the Taxation (Interest on Overpayments and Early
Payments) Act 1983
Item 50, sections 12BA, 12BB, 12BD and 12BE of the Taxation 2.80
(Interest on Overpayments and Early Payments) Act 1983
Item 50, paragraphs 12BC(1)(b) and 12BD(1)(b) of the Taxation 2.81
(Interest on Overpayments and Early Payments) Act 1983
Item 50, subsection 12BB(2) of the Taxation (Interest on 2.82
Overpayments and Early Payments) Act 1983
Item 50, sections 12BA and 12BB and subsection 12BC(1) of the 2.78
Taxation (Interest on Overpayments and Early Payments) Act 1983
Items 51 and 52, subsection 2(1) of, and Schedule 3A to, the Tax 2.210
laws Amendment (Research and Development) Act 2011
Subitem 53(1) 2.196
Subitem 53(2) 2.197
Item 54 2.198
Schedule 3: Refunding excess GST
Bill reference Paragraph number
Items 1 to 9, 12, 13 and 14 3.78
89
Tax Laws Amendment (2013 Measures No. 4) Bill 2013
Item 10, section 142-1 of the GST Act, item 15, section 105-65 in 3.24
Schedule 1 to the TAA 1953
Item 10, subsection 142-5(1) of the GST Act 3.25
Item 10, subsection 142-5(2) of the GST Act 3.33
Item 10, paragraph 142-5(2)(a) of the GST Act 3.36
Item 10, paragraph 142-5(2)(b) of the GST Act 3.37
Item 10, section 142-10 of the GST Act 3.28, 3.29, 3.30, 3.38,
3.39, 3.42, 3.54
Item 10, note 1 in section 142-10 of the GST Act 3.41
Item 10, subsections 142-15(1)and (2) of the GST Act 3.47
Item 10, subsections 142-15(1) to (3) of the GST Act 3.44
Item 10, subsection 142-15(4) of the GST Act 3.56
Item 10, subsection 142-15(5) of the GST Act 3.55
Item 10, section 142-20 of the GST Act 3.51
Item 10, subsection 142-25(1) of the GST Act 3.59
Item 10, section 142-25(2) of the GST Act 3.58
Item 11, section 195-1 of the GST Act 3.57
Item 16, subsection 110-50(2) in Schedule 1 of the TAA 1953 3.71
Subitem 17(1) 3.72
Subitems 17(2) and (3) 3.73, 3.75
90