As we begin another eventful year, it is worth noting that there are specific time limits unique to the application of indirect taxes. Specific provisions were inserted into the Tax Administration Act (TAA) to reflect the distinctive nature of the indirect tax laws. The assessment system for indirect tax laws introduces a new generic assessment framework.
Under the assessment system, the relevant provisions of the GST Act, Fuel Tax Act and Schedule 1 to the TAA reflects that an entity is only obliged to pay, and the ATO is only obliged to refund, amounts which have been crystallised in an assessment. Under self-assessment, an activity statement is treated as being a notice of assessment issued on the day the activity statement is lodged to the ATO. No other notice of assessment will be issued.
- Period of Review
For tax periods and fuel tax return periods commencing on or after 1 July 2012, a four-year period of review applies where the ATO can amend an assessment for GST, Luxury Car Tax (LCT), Wine Equalisation Tax (WET) or fuel tax credit amounts on the activity statement or claim form for a fuel tax return period.
The period of review starts on the day on which the ATO first gives you a notice of the assessment. In most cases, this will be the same day you lodge your activity statement. The period of review ends four years from the day after the notice of assessment is given.
After the period of review ends, an amendment will only be made by the ATO in limited circumstances such as fraud or evasion or where an assessment has been disputed, e.g. to give effect to a decision relating to objections, reviews or appeals.
Where a BAS has been amended due to a particular issue, the assessment that is amended during the period of review is subject to a “refreshed four-year period of review”. However, the refreshed period is only in relation to that particular issue, this does not open the entire activity statement to a further four-year period of review.
A separate refreshed period of review applies for each particular issue that has been amended and the refreshed period of review cannot be extended. Thus it is imperative to keep track of amendments so you can identify whether you are able to apply for any further amendments for a relevant tax period.
- Payments and Refunds
Under the assessment system, the ATO now have unlimited time to recover a debt (subject to the entity being required to register and lodge a return) and there is no time limit on an entity being entitled to be paid an assessed amount in your assessment. However, there are still time limits on entitlement to GST credits and fuel tax credits.
- Time Limit on Entitlement to Credits
An entitlement to an indirect tax credit ceases if it is not taken into account in an assessment during a four-year period. The four-year time period to claim a GST or fuel tax credit ends four years from the due date of the return for the earliest tax period or fuel tax return period in which you would have been able to claim the credit.
An entity can claim the credit in any tax period but it must be included in an assessment that is made within the four years as set out above. If you are neither registered nor required to be registered for GST, and you have not previously claimed a particular fuel tax credit entitlement, you must claim the fuel tax credit within four years from the day you acquired the fuel.
- Correcting BAS to Claim Credits and Refunds
A four-year time limit also applies to correct a BAS to credits and refunds. Where correcting an error results in a refund of GST (a credit error) you can correct it on a current activity statement provided you are within the four-year time limit on GST credits and the period of review.
- Backdating GST Registrations
Where an entity was required to register for GST in a prior period, the ability to backdate their GST registration is limited to four years for tax periods commencing on or after 1 July 2012. GST ceases to be payable for those supplies and GST credits do not arise for those acquisitions made before the date you are required to be registered.
However, where the ATO considers there to be a case of fraud and evasion, they can backdate the GST registration indefinitely.
This means that, in the absence of fraud or evasion, the ATO will no longer backdate your GST registration beyond four years and you are accepted as being not required to be registered prior to that date.
The indirect tax assessment system is particularly nuanced. Where your client has a prior period issue it is particularly important to determine in the first instance whether their issue falls within these time limits, otherwise it may be difficult to proceed further.
If you have any queries in relation to the above, please contact our office on 08 9388 9744.