On 5 April, 2017, the Inspector-General of Taxation (IGT), Mr Ali Noroozi, announced terms of reference for his review into the Goods and Services Tax (GST) refund verification process.
Extract from the ‘Terms of Reference’
Historically, the ATO retained GST refunds, under its general powers of administration (s356-5 of the Sched 1 of the TAA), until verification checks were completed. However, in the 2011 Multiflex case [2011] FCAFC 142, the Full Federal Court ruled that GST refunds could not be retained any longer than the time needed to process the GST return. As a result, verification had to be conducted within a restricted period of time if it was to be done before refunds were issued.
Following that decision, legislation was enacted (s8AAZLGA of the TAA) to allow the ATO to retain GST refunds for a longer period of time provided there were reasonable grounds to do so and the relevant taxpayer was notified within certain timeframes. Such taxpayers were also granted a right of review.
Stakeholders have indicated to the Inspector-General of Taxation (IGT) that, generally, the administration of the GST refund process works well. However, concerns have been raised with the GST refund verification process through the IGT’s complaints handling service and in submissions to his current work program. These concerns include:
- a lack of clarity on the scope and nature of verification activities, including information requests;
- inadequate engagement with taxpayers and their representatives;
- inaccurate risk identification processes and inappropriate administration of the retention provisions including unexpected offsetting of GST refunds against future liabilities; and
- the adverse financial and emotional impact on taxpayers, particularly where the ATO does not fully appreciate their commercial arrangements as well as cash flow, working capital and profit margin implications.
This IGT review will consider the GST refund verification process, in particular the above concerns, in order to identify improvement opportunities, which minimise adverse impact on taxpayers whilst ensuring that the ATO has sufficient time to adequately address risks to government revenue.
[IGT website: Media Release, Terms of Reference; LTN 64, 5/4/17]