Sale of foreign currency on departures side of Customs barrier was GST-free - Travelex Ltd
30 Sep 2010
By a majority of three to two, the High Court has held that a sale of foreign currency on the departures side of the Customs barrier at Sydney International Airport was a GST-free supply under s 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act). The High Court allowed the taxpayer's appeal from the decision of the Full Court of the Federal Court.
Item 4(a) of s 38-190(1) of the GST Act provides that, except to the extent that it is a supply of goods or real property, a supply that is made in relation to rights is GST-free if the rights are for use outside Australia.
In November 2007, an employee of Travelex Ltd flew from Sydney to Fiji. After clearing Customs, he went to the Travelex counter in the departure hall and purchased F$400 in bank notes. Travelex sought a declaration in the Federal Court that it was exempt from paying GST on the sale of foreign currency to a passenger who had passed through Customs.
The primary judge and, on appeal, a majority of the Full Court of the Federal Court had rejected Travelex’s argument that the supply was a supply :in relation to" rights, and therefore a GST-free supply. Both the primary judge and the majority of the Full Court took the view that the relevant supply was the supply of bank notes and that the rights attaching to those bank notes, as legal tender in Fiji, were merely incidental to that supply.
The majority of the High Court, observing that the value of bank notes is in the rights that attach to them, characterised the transaction as a supply by which the purchaser acquires the rights that attach to the bank notes, rather than simply a supply of bank notes.
The majority held that:
- the sale of foreign currency constitutes a supply, because there is a transfer of ownership, the subject of which is money
- the sale of foreign currency is a "financial supply", because there is a disposal (by Travelex) of an interest in (the ownership of) the currency of a foreign country
- when the supplier sells the foreign currency to the acquirer, the acquirer obtains the rights that attach to, or are constituted by, the ability to use the currency. Because the supply is a supply of property in the currency, the supply is a supply "in relation to" the rights that attach to the currency, without which property in the currency would be worthless
- a supply constituted by a sale of foreign currency is a supply in relation to the rights that attend upon ownership of that currency.
The minority in the High Court held that the supply of Fijian bank notes made by the taxpayer was not "a supply that is made in relation to rights" within item 4(a) of s 38-190(1).
The court made a declaration that the sale was a supply of or in relation to rights and a GST-free supply under the GST Act: Travelex Ltd v FCT  HCA 33 (High Court; French CJ, Hayne and Heydon JJ - Crennan and Bell JJ dissenting; 29 September 2010).