The Commissioner of Taxation had a solid win in the High Court last week in the Qantas litigation. The airline unsuccessfully argued it was not liable to the Commissioner for the GST it collected on tickets sold to customers who forfeited their flights.
As summarised by the High Court: "Flights were sold and bookings taken on the basis that Qantas would use its best endeavours to carry the passenger and baggage, having regard to the circumstances of the business operations of the airline. Consequently, even if the passenger did not actually travel, there was a taxable supply incurring GST liability and Qantas was liable to remit the GST received on fares for unclaimed flights to the Commissioner."
This decision clarifies the GST treatment of similar situations involving pre-sold tickets, such as services provided by tour operators, concert and sporting event promoters. Just because someone doesn't turn up or forfeits their ticket, the company cannot hold on to that GST, they still have to pay it to the Commissioner. This is a sensible outcome, as the alternative would see the company receiving a GST windfall that the customers have funded.
Perhaps there is also a silver lining of sorts for those customers who are out of pocket, because the GST component of the amount they forfeited will at least find its way to State government coffers via the Commissioner.
The case has also complicated the concept of supply by placing such emphasis on the contractual terms rather than the true essence of the supply. In time this may prove to be an issue that the Parliament will need to revisit.
Robert Jeremenko CTA is Senior Tax Counsel of The Tax Institute.
The Tax Institute is Australia’s leading professional association in tax. Its 13,000 members include tax agents, accountants and lawyers as well as tax practitioners in corporations, government and academia.