Saga Holidays Ltd v Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Federal Court of Australia (NSD 657 of 2006)
Judgment date: 20 December 2006
Date published: 17 June 2011

Summary of decision:
Outlines the Tax Office's response to this case which concerned whether the accommodation component of a tour package provided by a non resident was 'real property' as defined for GST purposes, and the Commissioner's claim for costs.

Overview of facts:
1. Saga, the Appellant, was a UK package tour operator, with no premises or employees in Australia. | 2. Saga sold 'all inclusive' Australian package tours to UK residents incorporating flights, insurance, transport, guides, excursions and accommodation at specified hotels in Australia. | 3. Saga contracted with AOT (an Australian company) to provide various components of the tours. In turn, AOT entered into contracts with Australian suppliers, including the hoteliers. | 4. Saga was registered for GST in Australia and entitled to input tax credits for acquisitions from AOT relating to the supply of components of the tours, including accommodation, but argued that it was not liable for GST on the supply of the accommodation. | 5. The tour brochures listed particular Australian hotels as those at which guests would be accommodated, with a stipulation that other, similar standard, hotels could be substituted. Room allocations were not made until the day the tour group arrived at the hotel. | Issues decided by the court or tribunal | 1. Whether the accommodation component supplied by the Appellant to overseas tourists was a supply of 'real property' as defined or a supply of a right or part of a bundle of rights. | The Court held that the supply was a supply of 'real property' as defined, being a supply of a 'contractual right exercisable in relation to land'. It followed that the supply was connected with Australia and therefore a taxable supply. | 2. Whether the factors taken into account by the primary judge, namely: a) that the litigation was in the nature of a test case; and b) the Commissioner's concession immediately before the hearing that the provision of meals in the particular circumstances of the case did not form part of the supply of the accommodation justified a departure from the general rule that costs should follow the event. | a) that the litigation was in the nature of a test case; and b) the Commissioner's concession immediately before the hearing that the provision of meals in the particular circumstances of the case did not form part of the supply of the accommodation | justified a departure from the general rule that costs should follow the event. | The Court held that, even if it might have decided differently, the decision of the primary judge involved the exercise of a wide discretion which should not be disturbed as the Court was not satisfied that a significant error in the exercise of the discretion had occurred. The Court awarded the Commissioner the costs in the appeal to the Full Court.

Issues decided:
1. Whether the accommodation component supplied by the Appellant to overseas tourists was a supply of 'real property' as defined or a supply of a right or part of a bundle of rights. The Court held that the supply was a supply of 'real property' as defined, being a supply of a 'contractual right exercisable in relation to land'. It followed that the supply was connected with Australia and therefore a taxable supply. 2. Whether the factors taken into account by the primary judge, namely: a) that the litigation was in the nature of a test case; and b) the Commissioner's concession immediately before the hearing that the provision of meals in the particular circumstances of the case did not form part of the supply of the accommodation justified a departure from the general rule that costs should follow the event. a) that the litigation was in the nature of a test case; and b) the Commissioner's concession immediately before the hearing that the provision of meals in the particular circumstances of the case did not form part of the supply of the accommodation justified a departure from the general rule that costs should follow the event. The Court held that, even if it might have decided differently, the decision of the primary judge involved the exercise of a wide discretion which should not be disturbed as the Court was not satisfied that a significant error in the exercise of the discretion had occurred. The Court awarded the Commissioner the costs in the appeal to the Full Court.

ATO view of decision:
Supply of accommodation | The decision of the Court is consistent with the Commissioner's view as set out in Goods and Services Tax Determination GSTD 2004/3: Is a supply of rights to accommodation a supply of real property for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 ? | The GST treatment endorsed by the Court has since been confirmed by the Tax Laws Amendment Act (2005 Measures No. 1) Act 2005 which amended section 9-25 in relation to supplies made from 1 October 2005. | The Tax Office also notes the Court's confirmation that the purposive approach to interpretation of the GST Act takes into account not only the syntax of the legislative provisions under consideration but also the policy and the surrounding legislative context, which includes the nature of GST as 'a practical business tax'. | Costs | The Commissioner accepts the Court's view that the decision not to award costs in the particular circumstances of this matter was within the proper ambit of the primary judge's broad discretion in relation to costs. | In that regard, the Commissioner notes that the primary judge's decision was informed by both Commissioner's concession in respect of the meals component and the primary judge's acceptance of the Appellant's submission that the case was in the nature of a test case. | While the appropriate approach will be determined on a case by case basis, other than where the Tax Office has approved test case funding, it will continue to be the usual practice of the Commissioner to seek costs where the Commissioner is successful in respect of the substantive issue in a case. In particular, the Commissioner will submit that the Court should not depart from the general rule that costs follow the event if the only distinguishing factor is that the case resolves a question of construction that is also relevant to other taxpayers' affairs.

Administrative treatment:
Implications on current Public Rulings & Determinations | Addendums issued to the following GST rulings to reflect the outcomes of this case. | An Addendum to GSTD 2004/3 issued on 10 October 2007. | An Addendum to GSTR 2003/7 issued on 24 April 2007. | An Addendum issued to GSTR 2000/31C on 17 October 2007

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 (Cth) 9-5(c) 9-10 9-25 96-5 96-10 195-1 Tax Laws Amendment (2005 Measures No. 1) Act 2005 (Cth) The Act Value Added Tax Act 1994 (UK) The Act
Case references: International Harvester Company of Australia Pty Ltd v Carrigan's Hazeldene Pastoral Company (1958) 100 CLR 644 Scott v Davis (2001) 204 CLR 333 CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 Commissioner of Taxation v The Distribution Group Ltd (2003) 130 FCR 517 2003 ATC 4691 53 ATR 448 Chaudhri v Commissioner of Taxation (2001) 109 FCR 416 2001 ATC 4214 47 ATR 126 ACP Publishing Pty Ltd v Commissioner of Taxation (2005) 142 FCR 533 2005 ATC 4151 59 ATR 98 Customs and Excise Commissioners v Pippa-Dee Parties Ltd [1981] STC 495 [1982] TR 243 Customs and Excise Commissioners v Diners Club Ltd [1989] 2 All ER 385 American Express International Inc v Commissioner of State Revenue (2003) 52 ATR 285 Commissioner of Customs and Excise v Plantiflor Ltd [2002] 1 WLR 2287 Commissioners of Customs and Excise v Sinclair Collis [2001] STC 989 Swedish State v Stockholm Lindopark AB [2001] STC 103 Radaich v Smith (1959) 101 CLR 209 Livingston v Commissioner of Stamp Duties (Qld) (1960) 107 CLR 411 Commissioner of Stamp Duties (Qld) v Livingston [1965] AC 694 112 CLR 12 HP Mercantile Pty Limited v Commissioner of Taxation (2005) 143 FCR 553 2005 ATC 4571 60 ATR 106 Sterling Guardian Pty Limited v Federal Commissioner of Taxation (2005) ATC 479 60 ATR 502 Allina Pty Ltd v Federal Commissioner of Taxation (1991) 99 ALR 295 91 ATC 4195 21 ATR 1320 Interlego AG v Croner Trading Pty Limited (1992) 39 FCR 348 39 FCR 348 Faaborg-Gelting Linien A/S v Finanzamt Flensburg [1996] ECR I-2395 Beynon and Partners v Commissioner of Customs and Excise [2005] 1 WLR 86 [2004] 4 All ER 1091 Burton v Honan (1952) 86 CLR 169 Customs and Excise Communities v Madgett and Baldwin (t/a Howden Court Hotel) [1998] STC 1189 Card Protection Plan Ltd v Customs and Excise Commissioners (No 2) [2002] 1 AC 202 [2001] 2 All ER 143
Subject references: GST taxable supply real property costs awarded