Claiming GST credits – be aware of strict time limits

A recent case before the Administrative Appeals Tribunal (AAT) is a useful reminder to all businesses, including SMEs, of the time limits that apply in the tax laws. This case concerned the claiming of GST input tax credits.

The company in question imported goods into Australia. It made an error in calculating its entitlement to input tax credits under the GST law which were claimed in its original Activity Statements. It should have claimed just over $100,000 more in credits than it did. The company first became aware of its error in 2005 at which time its accountant advised that there was “plenty of time” to remedy the situation.

The company however, did not lodge revised Activity Statements for the relevant tax periods until August 6, 2009, increasing its claims for input tax credits on creditable importations from $640,289 to $746,602.

The creditable importations in question were made in May 2005 and June 2005. In its BAS for the quarterly tax period ending June 30, 2005, the company understated its entitlement to input tax credits for the importations by a little over $100,000. While it became aware of the error in that year, it only lodged a revised BAS on the aforementioned August 6, 2009.

The AAT said that the relevant tax law (s 105-55(1) of Sch 1 to the Taxation Administration Act 1953) requires a taxpayer to notify the Commissioner within four years after the end of a tax period or an importation that they are entitled to input tax credits in respect of the tax period of the importation.

While AAT accepted that the company gave a valid notice to the Commissioner to claim the credits, it found that the notice was not given within the required timeframe. The end of the relevant tax period was June 30, 2005, and therefore a period of more than four years had elapsed between that period and the lodgment of the revised Business Activity Statement.

The AAT affirmed that the company was not entitled to claim additional input tax credits relating to creditable importations because the four year time limit for doing so had expired.

In the AAT’s view, the relevant law means that the expiry of the four year time limit puts an end to the right of a company to notify the Commissioner of an entitlement to an input tax credit.

The company was only entitled to a credit for the additional input tax credits if it had given the Tax Commissioner notice of its entitlement within four years after the tax periods or the importations to which the credits related. This did not happen.

The AAT also considered that neither the Commissioner nor the AAT itself had the discretion to extend the time period in which the company was required to give notice of its entitlement to claim the additional credits.

Even though the company was technically entitled to the credits under the law, it failed to claim them within the required timeframe, so it missed out on a credit for $106,313. A hard lesson to learn. The message is simple – don’t delay in claiming input tax credits. A business might have four years to lodge its claim, but that’s it, no extension beyond that is possible.

Some might suggest that the law should be amended to allow the Commissioner a discretion to extend that period. However, the issue of discretions in the tax law is a somewhat controversial topic. There are many – some favour the taxpayer, some do not. And there is concern that the Tax Commissioner should not be given more discretions because they can delay decision-making and create uncertainty.

Of course, the way to avoid all this is to know what the law allows. If in doubt, ask your accountant or adviser.

Terry Hayes is the senior tax writer at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.

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