Private ruling: Entitlement to refund of goods and services tax (GST)
Published: May 2013

Ruling: Q1: Are you entitled to a refund (or decreasing adjustment) of GST paid in relation to tickets issued to passengers who are 'no shows'? | A1: No.

Relevant facts and circumstances: · You are registered for GST. · You provide domestic travel in the ordinary course of your business. · When a passenger makes a flight booking, you issue the passenger with a ticket containing a unique ticket number and an invoice. · You (or your agents) receive credit card or cash payments from travellers in advance of the required travel. For some corporate passengers ticket fares are charged to the passenger's account for later payment. · You use the date of the booking in the reservation system to prepare your activity statements, and you attribute the GST to the tax period in which the booking is made. · If a passenger does not show or arrives too late for the travel the booking is cancelled. The fare paid is forfeited. · You consider that the payments you have received for booked tickets in these circumstances do not amount to consideration for supplies. · Alternatively, you consider that there is an adjustment event under Division 19 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) because the 'no show' has the effect of cancelling the supply. · You have advised that if a passenger has a booking, in all cases a failure to arrive before a nominated time, without prior request for cancellation, will result in a 'no show' and cancellation. · You have advised that there is an open ticket type offered by you for twelve months where a booking is not made at the time of the ticket. In those circumstances a failure to book and arrive for travel within 12 months will be treated as a 'no show' resulting in forfeiture of the fare. You have advised that this is what the expression 'or is not used within one year of purchase' refers to in your fare rules. · You are aware of the decision in Commissioner of Taxation v Qantas Airways Limited [2012] HCA 41 (the Qantas case), however you are of the opinion that your conditions of carriage mean that a different outcome should apply to you. · In particular, you have advised that you consider that the wording in the contract that a no show or deemed no show ' will result in the Passenger's booking under the Ticket being cancelled ' is significant. Your view is that upon the occurrence of a 'no show' you are entitled under your ticket contract to withdraw your promise and that you in fact do so. You therefore consider that the Qantas case does not apply to you. · You have provided relevant extracts from your conditions of carriage, and we have also considered further the conditions of carriage and fare rules that are available on your website.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 9-5 | Section 9-10 | Section 9-70 | Section 29-5

Reasons for decision: Summary: Summary You are not entitled to a refund of GST on 'no shows'. You have made a supply for consideration, and therefore a taxable supply. You therefore have not overpaid GST. Detailed reasoning | Detailed Reasoning - Background - the Qantas case: The decision in the Qantas case concerned whether an airline made a supply for consideration where the airline passenger does not take a booked flight and any payment made by the passenger is not refundable (or no refund is claimed). The issue in dispute was whether Qantas had made a taxable supply when it received fares for flights booked but not undertaken by prospective passengers. We consider that this is the same general issue as in your circumstances. The majority of the High Court found that the conditions of the carrier 'did not provide an unconditional promise to carry the passenger and baggage on a particular flight. They supplied something less than that. This was at least a promise to use best endeavours to carry the passenger and baggage, having regard to the circumstances of the business operations of the airline. This was a "taxable supply" for which the consideration, being the fare, was received'. The Decision Impact Statement (DIS) for the Qantas case was issued by the Australian Taxation Office (ATO) on 9 November 2012. This outlines the ATO's response to this case, and forms part of the ATO view. In particular, the Commissioner considered that there is nothing in the High Court decision that was inconsistent in a material way with existing ATO views. The decision supports the conclusions about airline tickets in GSTR 2009/3 (Goods and services tax: cancellation fees). Therefore GSTR 2009/3 also continues as the ATO view, but will be updated to take into account the reasoning of the High Court. A key aspect of the decision in the Qantas case is that in cases where a payment is made on entry into a contract which secures rights (whether conditional or not) to a further supply, the Commissioner considers that the payment will be consideration for a supply consisting at least of the provision of those rights (and entry into corresponding obligations), even if the further contemplated supply is not ultimately made (see also GSTR 2009/3 paragraph 24). This is because the GST provisions focus on contractual rights and obligations rather than just actual performance. We acknowledge that you consider that the wording in your contract that a no show or deemed no show ' will result in the Passenger's booking under the Ticket being cancelled ' is significant. Your view is that upon the occurrence of a 'no show' you are entitled under your ticket contract to withdraw your promise and that you in fact do so. You therefore consider that the Qantas case does not apply to you. We do not agree that this alters the general position as considered in the Qantas case . Any withdrawal of offer that you make after your check- in requirements have not been met does not alter the earlier supplies that are made under the booking that exists until that time. We consider that these are taxable supplies, as there is a sufficient nexus between the supply that you make and the consideration that you receive. Your transaction is analysed in greater detail below. | Detailed Reasoning - Supply: A supply for GST purposes means any form of supply. A supply includes a supply of services (section 9-10(2)(b)), a creation or surrender of any right (section 9-10(2)(e)), or an entry into, or release from, an obligation to do anything (section 9-10(2)(g)). It also includes any combination of these things (see section 9-10(2)(h)). A booking is more than a ticket or reservation - it provides rights and obligations to the customer. In particular, it provides a right to receive a further supply. If there is a supply of a right to receive a further supply and that supply would have been taxable, then the supply of the rights will also be taxable (assuming the other requirements of section 9-5 of the GST Act are met, in particular that the supply is for consideration). That is, there is consistent GST treatment between a right to receive a supply and the subsequent satisfaction of that right. This analysis is not affected by the mere fact that the relevant rights might be conditional in some way. Even where goods or services contemplated by the contract are not supplied, it does not mean that the GST treatment of the transaction will necessarily be affected. It is the customer who fails to take full advantage of their rights under the contract. You remain obliged, until their actions make it no longer possible, to fulfil your commitments under the contract. Where you cancel a ticket due to the customer's failure to meet your check in requirements (or present at all in the case of a no show) you have argued that the cancellation of the ticket means that you no longer promise from that point to carry the customer or to use best endeavours to carry the customer. That is, the supply for which the ticket was originally given (the intended supply of travel) is cancelled. However, even if an intended supply is cancelled, your actions and services prior to this point mean that you have still made a supply. All the things that you have done to put yourself in a position to make the intended supply, that is, to facilitate that supply, are a supply (or supplies). This is known as a facilitation supply (see paragraph 23 of GSTR 2009/3). Where you cancel the ticket at the last minute once a no show has occurred, this does not have the effect of withdrawing the previous promises made under the ticket, booking or reservation. We consider that, in accordance with the above statements, you have still made a supply to the customer. It is important to note that an arrangement may involve a series of supplies, although GST will only be payable when consideration is received in connection with the supply or supplies. The consideration for your supplies is considered further below. | Detailed Reasoning - Consideration: In cases where a payment is made on entry into a contract which secures rights (whether conditional or not) to a further supply, the Commissioner considers that the payment will be consideration for a supply consisting at least of the provision of those rights (and entry into corresponding obligations), even if the further contemplated supply is not ultimately made (see paragraph 24 of GSTR 2009/3). You receive consideration, in the form of the forfeited fare, from the customer for your supplies. The consideration provided by the customer is in connection with your supply of the provision of rights to travel and your entry into certain obligations. Some may also be in connection with the services you provide to give effect to your cancellation (such as a cancellation fee, administration fee, service fee or similar), in which case this will also be in connection with a supply that you make. You therefore make a taxable supply. The amount of GST on the taxable supply is 10% of the value of the taxable supply (see section 9-70 of the GST Act). | Detailed Reasoning - Attribution: Under section 29-5 of the GST Act, GST is attributable to the tax period in which any of the consideration is received for the supply, or when the invoice is issued if that is beforehand. If more than one supply is created by an agreement or arrangement (as we have advised we consider is the case in these circumstances) GST is still payable only once, and at the time of the first payment or invoice. | Detailed Reasoning - Adjustment: As stated in the DIS for the Qantas case , the Commissioner considers that the mere failure of a ticket holder to utilise their rights to transport or of entry to an event does not have the effect of cancelling a supply that is made on the sale of the ticket. As per our previous comments, before this time you have not cancelled your promise to the passenger. Rather, the passenger has not taken you up on the promise by not meeting their rights and/or obligations under the arrangement. Your revoking of any future promise after this time does not have the effect of cancelling the supplies already made. As the supply made by you is not cancelled, and the consideration you have received is not changed, there is no adjustment event. | Detailed Reasoning - Conclusion: For the reasons considered above we do not consider that you have made an overpayment of GST, or that you have a decreasing adjustment. GST is payable on the taxable supplies that you have made.