In Naidoo, the Commissioner argued that the taxpayer:
- was not carrying on an enterprise;
- could not be registered for GST; and
- was not entitled to claim any input tax credits.
The Commissioner also argued (unsuccessfully) that the taxpayer was not entitled to a refund of the GST it had paid (it had a positive net amount). Presumably, had the Commissioner been successful, the recipient would have been entitled to retain the input tax credits it had claimed on those supplies. It is expected that the Commissioner will appeal the decision.
If Tax Laws Amendment (2013 Measures No. 4) Bill 2013 is enacted (it is currently before Parliament, and will lapse if Parliament is dissolved before the next sitting in August) the Commissioner’s arguments would likely apply to GST refunds for tax periods starting on or after 17 August 2012. That is, if the Bill passes, taxpayers in the same circumstances as Naidoo would not be entitled to a refund of any GST incorrectly paid unless the taxpayer had reimbursed the recipient for the GST passed on.
Until the Commissioner’s appeal rights have been exhausted, taxpayers should consider adopting a dual track approach:
- objecting to Commissioner’s decision to apply section 105-65 to the refund (although based on Naidoo, the decision cannot be objected to); and
- seeking an administrative review of that decision under the Administrative Decisions (Judicial Review) Act 1977 within 28 days of the Commissioner’s decision.
Taxpayers may wish to consider other remedies such as pursuing a claim against the Commissioner in debt and or seeking injunctive relief (as was pursued in Multiflex).
If you would like to discuss this further, please contact me or your local KPMG indirect tax adviser.