Private ruling: GST and supply of travel packages
Published: February 2013

Ruling: Q1: How do you account for goods and services tax (GST) on the travel package that you supply which consists of taxable and GST-free components? | A1: You must determine the value of the taxable supply on which the amount of GST is calculated. Refer to the 'Reasons for decision'.

Relevant facts and circumstances: You are a registered for goods and services tax (GST). You are a travel agent selling predominantly cruise holidays. In many instances, you repackage cruise with other holiday components such as flights, hotel accommodation, car hire, land tours, transfers and insurance. You act as an agent for suppliers from which you receive commission for selling their products. You also act as a principal where you purchase other components of the travel package and sell them at a mark up. The products that you sell can be wholly international, wholly domestic or partly international and partly domestic. You provided us an example of a travel package that you supplied and which consisted of the following: 1. Cruise (international voyage) (GST-free) 2. Hotel accommodation in Australia after the cruise (taxable) 3. Domestic flight after the cruise (taxable) 4. Mark-up You supplied the cruise and the hotel accommodation as an agent for which you received commissions. You purchased the flight and supplied it as a principal. Your mark up related to the cruise and the hotel accommodation. There was no mark up on the cost of the flight.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 9-5, | A New Tax System (Goods and Services Tax) Act 1999 section 9-70, | A New Tax System (Goods and Services Tax) Act 1999 section 9-80 and | A New Tax System (Goods and Services Tax) Act 1999 section 38-355.

Reasons for decision: Summary: GST is payable on a taxable supply. Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states: You make a taxable supply if: a) you make the supply for *consideration; and b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and c) the supply is *connected with Australia; and d) you are *registered, or *required to be registered. However, the supply is not a *taxable supply to the extent that it is *GST-free or input taxed. (*denotes a term defined under section 195-1 of the GST Act). According to section 9-70 of the GST Act, the amount of GST on a taxable supply is 10% of the value of the taxable supply. If a supply (the actual supply) is partly a taxable supply and partly a supply that is GST-free or input taxed, section 9-80 of the GST Act provides that the value of the taxable supply is the proportion of the value of the actual supply that the taxable supply represents. Cruise The transport of passengers to, from or outside Australia is GST-free under item 1 in the table in subsection 38-355(1) of the GST Act (the table). The transport of passengers on domestic legs of international sea voyage is GST-free under item 4 in the table. Arranging transport covered by items 1 and 4, among other items in the table is GST-free under item 7 of the table. You advised that the cruise included in the travel package was GST-free. You supplied the cruise as an agent for which you received a commission. Therefore, the commission that you received was not consideration for a taxable supply that you made in arranging the cruise. Accordingly, you are not liable to pay GST on the commission that you received from the supplier of the cruise. Hotel accommodation The supply of accommodation in commercial residential premises such as hotels is a taxable supply provided the requirements of section 9-5 of the GST Act are met. You advised that the supply of the hotel accommodation included in the travel package was a taxable supply. You supplied the hotel accommodation as an agent for which you received a commission. As you supplied the hotel accommodation as an agent, it is the principal that is liable to pay the GST on the supply. However, you are liable to pay GST on the commission that you received. | Detailed Reasoning - Domestic flight: Generally, the transport of a passenger within Australia by air is a taxable supply provided the requirements of section 9-5 of the GST Act are satisfied. However, the transport of a passenger within Australia is GST-free if it is part of a wider arrangement, itinerary or contract for transport by air involving international travel and such transport within Australia formed part of a ticket for international travel, or was cross referenced for to such a ticket issued at the time. The transport of a passenger within Australia by air would also be GST-free if the passenger is a non-resident and the supply was purchased while the passenger was outside Australia. You advised that the flight included in the travel package was taxable. You purchased the flight and supplied it as a principal. As you supplied the flight as a principal, you are liable to pay the GST included in the price. You are also entitled to claim the GST that you paid in acquiring the flight Mark-up Mark-ups form part of the consideration payable for a supply. If a single mark-up amount forms part of the consideration for a supply that is partly taxable and partly GST-free or input taxed, the consideration that was represented by the mark-up must be apportioned to determine the value of the taxable supply. Goods and Services Tax Ruling GSTR 2001/8 provides methods and examples on how to apportion the consideration for a supply that includes taxable and non-taxable parts. There is no legislative provision specifying a basis for apportionment, you may use any reasonable method to apportion consideration to the separately identifiable taxable part of a mixed supply. The apportionment must be supported by the facts in the particular circumstances and be undertaken as a matter of practical commonsense. According to paragraph 94 of GSTR 2001/8, you may use a direct or indirect method when apportioning the consideration for a mixed supply depending on your circumstances. Paragraph 95 of GSTR 2001/8 further provides that the method you choose should be based on a consideration of all the circumstances and not because it gives you a particular result. You may need to use different methods, or a combination of methods, for different supplies to ensure the appropriate amount of GST is payable. Where consideration is apportioned in a manner that cannot be justified in terms of reasonableness, the general anti-avoidance provisions of the GST Act may apply. In the example that you provided, you advised that the mark-up related to the cruise and the hotel accommodation and that there was no mark-up on the price of the flight. Provided that you keep records of how the mark-up was calculated, we consider, for the purpose of this ruling, that the mark-up was not for the entire travel package but for the specified components of the travel package. Accordingly, the mark-up must be apportioned between the cruise (a GST-free supply) and the hotel accommodation (a taxable supply). If you chose to apportion the mark-up based on the proportion of the price of the taxable supply (the hotel accommodation) to the total price of the cruise and the hotel accommodation, the taxable portion of the mark-up would have been calculated as follows. $hotel accommodation ÷ ($cruise + $hotel accommodation) = % taxable proportion $mark-up x % = portion of the mark-up represented by the taxable supply. $taxable portion of the mark-up ÷ 11 = GST on the mark-up This private ruling does not confirm that the GST amount calculated above is the actual GST payable on the mark-up. As mentioned, you must decide which method to use in apportioning the consideration (represented by the mark-up) to calculate your GST liability. GSTR 2001/8 is available from the ATO website at www.ato.gov.au for you reference.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.