GST refunds: Beware of time limits

Businesses can be entitled to refunds of GST from time to time. However, under the law, there is a four-year time limit on claiming those refunds.

The four-year limit commences on the day the business was required to lodge a return (or activity statements) for the tax period to which the refund would be attributable.

This time limit is critical and missing it means an otherwise allowable GST refund can be denied. This was the situation that confronted a taxpayer in a recent AAT case and is a salutary reminder to SMEs to be aware of the refund time limit.

The taxpayer in that case carried on a retail upholstery business. He lodged Business Activity Statements (BASs) in his own name for the tax periods ending September 30, 2005 through to December 31, 2006 inclusive resulting in GST net amounts of $5,634.

In May 2011, he lodged a number of revised BASs for the relevant tax periods, the result of which was to reduce the net GST amount to nil. The AAT said the revisions came about largely because a number of directors’ fees had incorrectly been characterised as business income by the man’s accountant and the accountant had incorrectly lodged BASs for the relevant tax periods in the man’s own name (instead of that of his business).

The result of the revisions was that the taxpayer was seeking refunds of approximately $5,560 for the relevant tax periods.

The Tax Commissioner reviewed the BASs and came to the view that the taxpayer was not entitled to the refunds of $5,560 on the basis that the taxpayer’s notice to the Commissioner of his entitlement to the refunds for the relevant periods was lodged outside of the relevant four-year period.

The AAT held the notice of entitlement to a refund, being the revised activity statements, was lodged by the taxpayer on May 18, 2011, which was outside of the four-year period in respect of each of the relevant tax periods.

The four-year period in respect of each of the relevant tax periods ended on September 30, 2009, December 31, 2009, March 31, 2010, June 30, 2010, September 30, 2010 and December 31, 2010, respectively.

So, May 18, 2011 was simply too late.

The AAT said prior to May 18, 2011 the taxpayer did not provide notice to the Commissioner of his entitlement to the refunds and, accordingly, the taxpayer was not entitled to the refunds. If the taxpayer had given such notification within the times noted above, he would have had a valid claim to the refunds.

Four years might seem like a long time, but it can pass by very quickly. SMEs should make note of the time limitation and be sure they don’t get caught out.

Terry Hayes is the Editor-in-Chief of tax news reporting at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.