GST is only levied on “taxable supplies”. The difficulty in determining what is a taxable supply is illustrated by a recent Qantas case.
The case involved $26.5m in forfeited air fares over three years. GST on this amount was over $7.6 million.
When people book and prepay for flights, they are often entitled to a refund of their advance payments if they don’t actually make the flight. The essence of the dispute was whether Qantas, in taking prepayments, made a supply or whether it did not until it actually carried its passengers.
A taxable supply is defined as a supply made for consideration in the course or furtherance of an enterprise that is connected with Australia, made by people registered or required to be registered for GST purposes.
Qantas argued there could be no taxable supply if someone to whom it sold a ticket did not actually travel.
The High Court, however, noted that Qantas’s conditions did not provide an unconditional promise to carry a passenger on a particular flight. It only promised to use its best endeavours to carry the passengers. This was the “taxable supply” for which the fare had been paid. GST was payable on the issuing of a ticket, not on its usage.
The case may have more widespread significance. GST is a transaction tax and is not just levied on day-to-day transactions. It might be levied on sales of real estate, for example, or commercial and domestic settlements and financial transactions. The key to applying the GST is not to look at the commercial substance of a transaction but to its legal form.
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