A taxing issue: Beware of time limits in seeking GST refunds

The tax law contains time limits for doing all sorts of things, including applying for GST refunds.

Broadly speaking, under the GST law, an entity is not entitled to a GST refund unless the Tax Commissioner is notified (e.g. via the lodgment of a BAS) within four years after the end of the relevant tax period that a refund is due. The four-year time limit applies irrespective of how the entitlement to the refund arises, including where there is a reduction in an entity’s liability.

A recent case before the Administrative Appeals Tribunal (AAT) saw the application of this four-year rule deny a taxpayer a refund of around $7500 in GST.

The Tax Commissioner had refused the refund on the basis that the application was made after the four-year cut-off date for the June 2004 quarter (i.e. July 28, 2008). The taxpayer lodged his June 2004 quarter BAS in June 2011.

The AAT refused the taxpayer’s request for an extension of time to apply for review of the Tax Commissioner’s objection decision refusing the GST refund.

The taxpayer told the AAT he felt hard done by because he said he established a business of car rentals, and bought a boat in 2003-04, so that he could fly advertising banners over the water. He experienced bad luck in his business in that the cars he bought were repossessed, his boat was stolen, and what followed was a protracted court case about ownership of the boat. He said as part of the ongoing litigation, he also lost his unit. The taxpayer also suffered ill health, being bi-polar disorder and depression.

The taxpayer argued that the four-year period did not run from June 2004 to 28 July 2008 as submitted by the Commissioner, because his business was not finalised till September 7, 2009, and the police had impounded his boat. He also argued that he was not making a fresh claim for a refund, but was merely amending an earlier claim.

The taxpayer told the AAT that due to his illness, and the troubles in his business, he did not get around to lodging tax returns and other documents till 2011, although he said that all his tax returns were now up to date.

The Tribunal noted the taxpayer had lodged the information for his June 2004 BAS on June 11, 2011. The Commissioner acknowledged that the taxpayer was owed a refund for $7659 (and had recommended the taxpayer approach the Department of Finance and Deregulation to obtain an act of grace payment), but submitted that pursuant to the relevant tax law, there was no discretion which could be exercised in his favour because more than four years had elapsed from the time he could have claimed the money.

On the basis of the Tax Commissioner’s recommendation, the taxpayer did approach the Department of Finance and Deregulation in January 2012 to obtain an act of grace payment. Notwithstanding that the Commissioner wrote to the Department supporting the taxpayer being given the payment, and recognition that the taxpayer would have been entitled to receive the $7,659 refund if he had lodged his BAS within the required four years, the Department refused the act of grace payment. The AAT did not elaborate on why the Department refused the payment.

The Commissioner acknowledged that the taxpayer was owed a refund of $7659 GST, but argued that pursuant to the relevant law, there was no discretion which could be exercised in his favour because more than four years had elapsed from the time he could have claimed the money. Even though the Tax Commissioner had apparently granted the taxpayer an extension of time to lodge his business activity statement (BAS), he did not submit documents within the time frame required. By lodging his BAS as late as he did, he lost his entitlement to a refund.

As there is no discretion to refund GST if the Commissioner is not notified of the entitlement to a refund within four years after the end of the tax period, the AAT concluded that the taxpayer’s case was “without merit”, and in the circumstances, it was not reasonable to grant an extension of time for him to lodge his application for review.

If the taxpayer had lodged his BAS within the specified time frame, the refund would have been given. The ATO acknowledged this, but the law gave the Commissioner and the AAT little room to move, and despite the taxpayer’s genuinely difficult circumstances, the GST refund claim was made too late.

Knowing and understanding the time limits that apply in the tax law is important. Failure to act promptly on tax claims can mean a business misses out on an otherwise allowable claim. If difficult circumstances arise that might delay a claim, the taxpayer should inform the Tax Office immediately.

For those interested in knowing more about how the GST system operates, the Thomson Reuters Australian GST Handbook 2013-14 contains an excellent explanation of the GST system, covering all aspects of the GST legislation – simply visit our website for details.

Terry Hayes is the Editor-in-Chief of tax news reporting at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.