16 March 2020

Interest on overpaid GST – Commissioner seeks special leave in Travelex

This article was written by Michael Perez, Sarah Silk and Hilary Taylor.

The Commissioner of Taxation (Commissioner) has sought special leave to appeal to the High Court the decision of the Full Federal Court in Commissioner of Taxation v Travelex Limited [2020] FCAFC 10 (Travelex). 

On 14 February 2020, the Full Federal Court dismissed the Commissioner of Taxation’s (Commissioner) appeal regarding when interest accrues on overpayments of GST.  The case is a detailed consideration into the ‘labyrinth of obscure provisions’ concerning when the Commissioner owes a GST refund and when he should pay interest on it.[1] 

Steward J (with whom Kenny J agreed) found that the taxpayer, Travelex, was entitled to be paid interest for a refund paid in July 2012 on an amount credited to its Running Balance Account (RBA) in respect of the November 2009 tax period.

The decision was noted by Steward J as being a result of the unique circumstances and particular matters of fact and law that had been agreed by the parties about the existence of an RBA surplus and that the surplus arose in December 2009.[2]  

Background

The taxpayer's business included supplying foreign currency on the departure side of the customs barrier at international airports in Australia.  In September 2010, the High Court held that that such supplies were GST-free.  As a result, the taxpayer had overstated its GST liability for the November 2009 tax period, amongst others.  The taxpayer sought a refund of the overpayment.

The Commissioner eventually credited the taxpayer's RBA with the overpaid amount, creating an RBA surplus activating a refund which he paid to the taxpayer in July 2012.  The credit amount giving rise to the RBA surplus was nominated as having an ‘effective date’ of 16 December 2009, being the date the taxpayer lodged the November 2009 BAS.

Travelex sought declarations that it was entitled to be paid interest on the credit amount from around the time that it lodged the November 2009 BAS.  

Decision

First instance

The Commissioner argued that interest should only run from July 2012, the date on which Travelex had provided sufficient details from which he could calculate the amount of the refund.

Wigney J held that there was no requirement to give any notification to the Commissioner and that interest on the taxpayer’s overpaid GST began to accrue 14 days after the RBA surplus arose.

Appeal

Before the Full Federal Court, the Commissioner adopted a different argument. He submitted that no interest was payable because Travelex’s entitlement to a refund had never crystallised, despite that he had already paid an amount representing the refund to the taxpayer.  This was because the Commissioner had credited the RBA without receiving a return from the taxpayer or without issuing an assessment, which is how (it was argued) a claim for a refund is activated. 

The majority (Steward J with Kenny J agreeing) held that the existence of the agreed RBA surplus triggered an obligation to pay a refund, despite there being been no return filed or assessment issued to support the existence of the RBA surplus.[3]  The Commissioner’s allocation of the credit and nomination of 16 December 2009 as the ‘effective date’ of allocation was legally effective and therefore interest was payable on the resulting RBA surplus by the Commissioner after 14 days.  

Derrington J dissenting held that as Travelex’s right to a refund had not yet accrued, no interest had accrued.  Derrington J considered that the Commissioner’s allocation of the amount credited to the RBA was without legal consequences, as the Commissioner did not have the power to amend a BAS and did not otherwise have a legal power to allocate the amount to the RBA.[4]

The sole point of difference between the majority and dissenting judge Derrington J was whether an RBA surplus arose from the allocation of a credit, irrespective of whether the credit was one to which the taxpayer was legal entitled. 

In the agreed facts, the parties had admitted that there was an RBA surplus that arose on the ‘effective date’.  The Commissioner did not resile from this admission, but rather attempted to argue it was legally misconceived.  According to Steward J, despite no legal basis for their being a credit and a resulting RBA surplus, the Commissioner’s obligation to refund an RBA surplus depended only on whether the surplus existed in fact.[5]  As the fact that an RBA surplus had arisen had been agreed by the parties, the legal basis for the RBA surplus was not of circumstance.

Observations

The majority decision is helpful in that it endorses the view that, where the Commissioner allocates a credit to an RBA account with an ‘effective date’ which precedes the date of the making of the credit, interest on the overpayment will accrue from the ‘effective date’ and not from the later date of the credit.  This is despite the fact that, absent an amendment to the BAS and an amended assessment reflecting the refund, there is no basis at law for the Commissioner to make the credit.

It is unknown how widespread the Commissioner’s practice of crediting an RBA without a return or an amendment and backdating the ‘effective date’ of the credit.  The majority decision would give legal effect to such credits and any resulting RBA surplus from the nominated date.  

What is clear is that this area of the law is in desperate need of clarity and reform.[6]

A further update will be provided on the outcome of the Commissioner’s special leave application.


[1] [163].

[2] [159].

[3] [164].

[4] [95]-[97], [102].

[5] [166] considering section 8AAZLF of the Taxation Administration Act 1953 (Cth).

[6] [163].

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