The PSLA sets out a number of requirements necessary to enable a recipient to retain the ITC, namely:
- a supply has incorrectly been treated as taxable to any extent
- the supplier is registered for Goods and Services Tax (GST) and has overpaid GST
- the supplier has issued a tax invoice to the recipient
- the recipient has treated the acquisition as a creditable acquisition but would have been entitled to claim that input tax credit if the supply had been a taxable supply
- should the supplier request a refund on the basis that the supply was not taxable, section 105-65 of Schedule 1 to the Taxation Administration Act 1953 would deny a refund to the supplier
- the Commissioner has not given a refund to the supplier.
This appears to be a logical approach and effectively mirrors the position the Commissioner adopts in respect of wash transactions.
By contrast, the issue of fiscal neutrality was raised in an Administrative Appeals Tribunal of Australia (AATA) decision in March 2013 in respect of Brookdale Investments.
The basic facts of the case were that a property sale was treated as the supply of a going concern, however, the Commissioner assessed the seller on the transaction, treating the consideration as tax inclusive.
However, the Commissioner maintained that the acquisition remained GST-free in the hands of the purchaser thereby denying the purchaser an ITC, but also noting that any refund would have been outside the 4 year time requirement of the TAA 1953.
That said, no regard was given to section 133 of the GST Act which provides for decreasing adjustments where additional consideration is provided under a gross-up clause.