Tax refunds are, for many people, a sacrosanct part of the tax system. Many people just simply assume they will get a tax refund at the end of the year after they lodge their tax return.
In fact, rightly or wrongly, many people and businesses rely on getting a tax or GST refund, so any delay in getting one can create problems.
While many people (and companies) will get refunds, the oft-heard cry “Where’s my tax refund?” may take on a new meaning after recent changes to the law.
The changes have provided the Tax Commissioner with a new discretion to withhold what are called “high risk” tax refunds pending refund “integrity checks” of a taxpayer’s claim. The refunds affected include income tax and/or GST and some other taxes.
I outline below how the new law works.
The new discretion is intended to allow the Commissioner to consider the correctness of the information provided by the taxpayer before refunding an amount. It is not intended that the Commissioner use this discretion to withhold a refund merely where he and the taxpayer disagree about how the law applies to the facts.
In deciding whether to withhold a refund, the Commissioner must have regard to a number of factors, including, but not limited to:
- the likely accuracy of the information provided – things like comparison to industry benchmarks, and size of refund claimed relative to the taxpayer’s turnover may be indicators;
- the impact of withholding the refund on the taxpayer’s financial position. Information relevant to this factor may include evidence of financial hardship for the taxpayer, such that it would compromise the taxpayer’s business viability. The ATO may need to evaluate the impact of a decision to withhold a refund on the taxpayer’s immediate cash flow, solvency and borrowing needs. The size of the amount claimed may also be a relevant consideration in the context of the particular taxpayer’s circumstances;
- whether withholding the refund was necessary for the protection of the revenue;
- any complexity that would be involved in verifying the information e.g. arrangements, involving multiple supply chains and multiple entities;
- the time for which the Commissioner has already retained the amount. The ATO acknowledges that undue delay in an investigation considered in the light of new information may in some cases be a factor against retaining the refund;
- the likelihood that there is fraud or evasion, or intentional disregard or recklessness as to the operation of a taxation law.
It should be noted that no single factor is to be determinative and the applicability of each factor will depend on the specific circumstances of each case.
If the Commissioner decides to withhold a refund, he must inform the taxpayer within a short initial period (14 days for a RBA (Running Balance Account) surplus or 30 days for other credits). If the taxpayer is not informed, the amount must be paid by the day after the end of that period.