ATO backs down from controversial time limit ruling

The ATO has recently withdrawn Draft Miscellaneous Taxation Ruling MT 2018/D1 on the time limit for claiming input tax credits and fuel tax credits. Generally, under s 93-5 of the GST Act, the right to claim an input tax credit expires after 4 years and commences on the day on which the entity was required to lodge a return for the tax period to which the input tax credit would be attributable. Section 47-5 of the Fuel Tax Act has a similar provision which limits claims to 4 years after the date which taxpayers were required to give the Commissioner a return. 

The withdrawn draft ruling created much controversy for its strict stance on the four-year time limit rules for claiming the credits. The effect of the draft ruling was that if the Commissioner’s decision on an objection or amendment request is made outside the 4-year period (but the request by the taxpayer is lodged within the 4-year period), the taxpayer would not have been entitled to the tax credits even if the decision is favourable to the taxpayer.

After the draft was issued however, the Federal Court in Coles Supermarkets Australia Pty Ltd v FCT [2019] FCA 1582 did not quite agree with the ATO stance. It accepted Coles’ submissions that s 47-5 is only intended to prevent an ongoing entitlement to claim credits in a later return where a return has not been lodged or credits not claimed. The Court noted that once a return has been lodged and objected to, there is no scope for the operation of s 47-5 to disentitle a taxpayer to fuel tax credits as the right of the Commissioner and taxpayer are protected by various sections of the TAA. 

In a decision impact statement following the judgement, the ATO acknowledged that the Court’s observations were contrary to its views and conceded that MT 2018/D1 was no longer current and was withdrawn. While the Coles decision only refers to fuel tax credits, given the similarity of the provisions between fuel tax credits and the GST Act, and the Court’s observations regarding the right of the Commissioner and taxpayer being protected by TAA, it would stand to reason it would also apply to input tax credits. Thus, the ATO is planning to issue a new ruling that takes into account the Federal Court’s observations in early 2020.

In the meantime, taxpayers will no longer be automatically denied input tax credits and/or fuel tax credits where the Commissioner makes a decision on an objection or requests for amendment outside the 4-year period. Any taxpayer that the draft ruling has affected may contact the ATO for further advice.