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02 Oct 1212 Airline liable to pay GST on "no shows" - Qantas Airways

The High has, by majority (Gummow, Hayne, Kiefel and Bell JJ; Heydon J dissenting) upheld the appeal of the Commissioner from the decision of the Full Federal Court in Qantas Airways Ltd v FCT [2011] FCAFC 113 (1 September 2011) and held that Qantas Airways Limited ("Qantas") was liable to pay GST when it received fares on unclaimed flights operated by Qantas and its subsidiary, Jetstar.

The Commissioner assessed a GST liability on the fares received for flights not taken. The AAT affirmed the assessment. On appeal, the Full Court of the Federal Court held that as actual travel was the sole purpose of the transaction, there was no taxable supply if the travel does not occur. This meant a GST liability was not incurred.

By special leave, the Commissioner appealed to the High Court of Australia. The High Court held, by majority, that Qantas made a taxable supply which attracted GST when it received fares whether or not the passenger took the flight that was booked. 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.

The majority rejected the taxpayer's argument, based on the High Court's decision in FCT v Reliance Carpet Co Pty Ltd [2008] HCA 22 (22 May 2008), that "it was necessary to extract from the transaction between the airline and the prospective passenger the 'essence' and 'sole purpose' of the transaction". Qantas argued that the 'essence' and 'sole purpose' of the transaction was the supply of air travel.

The majority concluded, at paras 33-34:

"The Qantas conditions and the Jetstar conditions 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 GST payable for that taxable supply was attributable to and included in the calculation of the Qantas net amount for the tax periods in issue in this litigation and the assessments objected to were not shown to be excessive."

FCT v Qantas Airways Ltd [2012] HCA 41 (High Court; Gummow, Hayne, Heydon, Kiefel and Bell JJ; 2 October 2012).


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