17 March 2021

High Court rules no interest payable on overpaid GST in Travelex – clarifies how amounts can be allocated to running balance accounts

In Federal Commissioner of Taxation v Travelex Limited [2021] HCA 8, the High Court of Australia has unanimously held that the Commissioner of Taxation (Commissioner) was not obliged to pay interest on a refunded GST amount because an “RBA surplus” in law had not arisen.

The decision overturns findings of the Federal Court and Full Federal Court (see our previous article here).

Background

The taxpayer, Travelex Limited, supplied foreign currency on the departure side of the customs barrier at international airports in Australia. In 2010, the High Court held that these supplies were GST-free. Consequently, the taxpayer sought a refund for the overpayment of GST for the November 2009 tax period.

The Commissioner had an administrative practice of processing documents lodged by taxpayers purporting to be amended or revised GST returns or BAS.[1] In line with this practice, the Commissioner amended the taxpayer’s GST return, credited its RBA, and treated this amount as an RBA surplus which he paid to the taxpayer. The credited amount to the RBA was nominated as having an ‘effective date’ of 16 December 2009, being the date that the taxpayer lodged its November 2009 BAS.

The taxpayer considered that it was entitled to be paid interest on the credited amount from 31 December 2009 under the Taxation (Interest on Overpayments and Early Payments) Act 1983 (Cth) (TIOEP Act), being 14 days after the date on which the RBA surplus was believed to have arisen. It sought a declaration to this effect in the Federal Court. As part of that proceeding, the parties agreed by way of a Statement of Agreed Facts that the amount credited by the Commissioner constituted an RBA surplus.

Decision

Federal Court

At first instance, Wigney J held that interest was payable from 31 December 2009. However, his Honour held that the Commissioner did not have any statutory authority to amend the GST return.[2]

Full Federal Court

On appeal, the Full Court of the Federal Court unanimously agreed that the Commissioner did not have statutory authority to amend the GST return however, the court was divided as to what was the correct consequence.

Steward J (Kenny J agreeing) held that the Taxation Administration Act 1953 (TAA) operated to give the balance recorded in the RBA legal efficacy even if the balance is erroneous.[3]

Derrington J in dissent held that the credit allocated to the RBA failed to reflect an underlying entitlement of the taxpayer to a refund of a net amount under the GST legislation. Therefore, his Honour concluded that it was incapable of resulting in an RBA surplus and the Commissioner was not obliged to pay interest. The agreed ‘fact’ that an RBA surplus arose should have been rejected because the parties were legally mistaken.[4]

High Court  

The Appeal

The High Court allowed the Commissioner’s appeal and held that the Commissioner was not obliged to pay interest on the refunded amount under the TIOEP Act.

The High Court concluded that an RBA surplus (which gives rise to the obligation for the Commissioner to pay a refund) cannot result from the Commissioner allocating an amount to an RBA that the Commissioner is not obliged to pay under a taxation law.[5] It is notable that in requesting special leave to appeal to the High Court, the Commissioner was permitted to resile from its position in the Statement of Agreed Facts adopted at first instance that an RBA surplus had arisen.

The ‘balance’ recorded in an RBA must only be refunded by the Commissioner as an RBA surplus or paid to the Commissioner as an RBA deficit debt if the balance is the product of allocations of amounts which accurately reflect obligations of the Commissioner and of the taxpayer under taxation laws.[6]

The Notice of Contention

By Notice of Contention, the taxpayer argued in a ‘last-ditch attempt’ that the Full Federal Court erred in failing to find that the Commissioner had made an assessment that there was a negative net amount for the November 2009 tax period.[7] In dismissing the argument as ‘untenable’, the High Court held that recharacterizing a process of correspondence and calculation as having legal consequences of an assessment, as the taxpayer sought to do, would result in confusion in the administration of taxation laws and had the possibility of stifling co-operative interaction between the Commissioner and taxpayers.[8]

The taxpayer a week before the hearing of the appeal also sought to raise an additional argument by way of an Amended Notice of Contention. The taxpayer sought to challenge the longstanding position, established in Multiflex,[9] that the net amount for a tax period notified to the Commissioner in the approved form of the GST return was fixed upon notification, even if calculated by the taxpayer in error. The High Court declined to grant an extension of time for the taxpayer to file its Amended Notice of Contention noting that to question the authority in Multiflex would cause significant disruption and the GST legislation had changed too much since the November 2009 tax period for the topic to be usefully re-explored by the Court.[10]

Observations

The High Court’s decision clarifies that where the Commissioner does not have the authority to amend a GST return and he credits an RBA, the Commissioner is not required to refund or pay interest on such credits because an RBA surplus will not arise. The decision confirms the importance of an RBA reflecting a ‘parallel liability’ to a primary tax debt.[11]

It will be interesting to see how the Commissioner addresses its administrative practice of processing documents that were not validly amended or revised GST returns or BAS. It would follow from the High Court’s decision that the Commissioner was not obliged to refund amounts to taxpayers as a result of this practice.   

In seeking refunds for overpayments, taxpayers should ensure that there is a statutory basis for an amendment to their GST returns as this will determine whether the Commissioner is obliged to refund, and pay interest on, overpayments.

 

[1] Travelex Ltd v Federal Commissioner of Taxation (2018) 108 ATR 278 at [86]-[87].

[2] Federal Commissioner of Taxation v Travelex Limited [2021] HCA 8 (Travelex) at [12].

[3] Travelex at [16]-[17].

[4] Travelex at [15].

[5] Travelex at [2].

[6] Travelex at [29].

[7] Travelex at [32]-[33].

[8] Travelex at [33].

[9] Federal Commissioner of Taxation v Multiflex Pty Ltd (2011) 197 FCR 580.

[10] Travelex at [34]-[35].

[11] Travelex at [22].

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