The case was concerned with the question whether an airline makes a supply for consideration, for GST purposes, 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 High Court held, by majority, that Qantas did make a taxable supply and was liable to pay GST on the fares paid.
In the view of the ATO, the key issue of principle was whether there could only be a “supply for consideration” in circumstances where the “essence or purpose” of the transaction was fulfilled. The majority in the High Court implicitly reject this proposition. Instead, they accept that consideration could be in connection with more than one supply, but emphasise that the GST would only be payable once. It is apparent from the majority approach that in establishing that there is a supply for consideration, it is sufficient for just one of the supplies, to which the consideration is connected, to occur. In the case, it was the promise by Qantas to use “best endeavours” to carry the passenger and baggage. There is no need for the “essence or purpose” of the transaction to be fulfilled.
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 GSTR 2009/3, paragraph 24).
The decision does not cause any significant change in the way the Commissioner approaches “supply”, or the nexus between supply and consideration. Obviously, it is necessary in any case where a payment is made to consider the particular facts and circumstances to determine whether there is anything supplied, and if so whether the payment has a sufficient nexus to be consideration for what is supplied.
The decision also has implications for the characterisation of supplies, and the application of the adjustment provisions.
Following the decision of the Full Court of the Federal Court, a number of notification of entitlement to refund forms were lodged with the Commissioner, concerning possible refund claims based on the reasoning in that decision. The Commissioner will now write to the entities concerned to ask whether they still intend to pursue a refund claim notwithstanding the High Court decision.
In the meantime, those entities that no longer intend to pursue a refund claim may also write to the Commissioner at PO Box 3524 Albury NSW 2640 or per fax 1300 139 031, with reference to the notification of entitlement to GST refund form lodged, and advise that they will not be pursuing the refund claim referred to in the notice and that the notice is withdrawn.