A legitimate $640,000 GST refund was suspended for nearly a month after the ATO considered and decided to freeze a firm’s trust account.

The money “was caught in the crossfire” of the ATO’s crackdown on GST fraud, said Dave Mulquiney, director of Fortitude Advisory in Newcastle NSW, and the practice said it was “under investigation “.

But the company and its client had no recourse after the bank and the ATO denied responsibility for the freezing of the money.

Mr Mulquiney said the situation was only resolved after the firm filed a formal complaint with the ATO.

And he said the action came as a complete shock.

“When we went to transfer the money from the bank account, they went and phoned the ATO. And then the ATO apparently told them to freeze the account and put us under investigation,” said Mr. Mulquiney.

He said if the customer was a long-time customer, the refund was for a new entity to buy and develop a property.

“He had just bought a government building for $7 million,” he said. “The financiers wanted us to receive the GST refund in our trust account because although they paid the money for the full purchase, they were not going to fund the GST refund and wanted us to receive and pay theirs.

“Normally for a refund of this size for a brand new business, the ATO would ring and ask for an invoice or something to verify it, but it was gotten within days.”

However, once the account was frozen, it was impossible to do anything about it.

“It was a lot of phone calls, people were saying I’m going to escalate this, we’re going to sort this out, but no one would ever call back within the time frame.“, said Mr. Mulquiney.

“So you go on and the ATO would say, ‘No, we’re not freezing the bank accounts.’ Then we’d call the bank and they’d say, ‘We wouldn’t have just frozen it without some kind of indication from the ‘ATO’.

It was only after Mr Mulquiney filed a formal complaint with the ATO that the GST was reviewed, approved and the bank account released. The whole process took about a month, with the refund arriving on April 14 and the customer receiving the money at the end of last week.

He said Fortitude was a small company and the disruption could have been worse.

“We’re just lucky with the time of year more than anything – we didn’t have too many problems at that time. So we were able to cover“, said Mr. Mulquiney.

“I would hate to see what disruption it would have caused to the trust account of a much larger company or if the reimbursement [had gone] directly to the financier’s bank account.

And the incident was a cautionary tale for start-ups that depend on GST refunds, he said.

“This can happen by notifying customers who are making large upfront repayments – and we don’t know what the trigger amount is – you need to be prepared.“, said Mr. Mulquiney.

“If you’re a new business and you just bought some equipment or whatever to get started, and you really need your bank account for cash flow, there’s always the possibility that the first GST refund will be blocked for an indefinite period.”

$640,000 refund caught in GST crossfire

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Last update: May 21, 2022

Posted: May 23, 2022

Philip King

Philip King

Philip King is editor of Accountants Daily and SMSF Adviser, the leading sources of news, information and educational content for professionals in the accountancy and SMSF industries.

Philip joined the Securities in March 2022 and brings extensive experience from various roles at Australian daily newspaper The Australian National Broadsheet, most recently as Automotive Editor. His background also includes spells in various consumer and trade magazines.

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