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Qantas case: Commissioner wins High Court appeal

Qantas liable for GST on fares received from ‘no-show’ passengers

Commissioner of Taxation v Qantas Airways Limited [2012] HCA 41

Qantas case: Commissioner wins High Court appealLatest news: High Court decision

2 October 2012

The Commissioner of Taxation has successfully appealed to the High Court against the Full Federal Court’s decision that Qantas was not liable to pay GST on domestic airfares in instances where passengers booked and paid for a flight but failed to travel (see further below for details of the Full Federal Court decision). 

By a 4:1 majority, the High Court held that Qantas made a taxable supply which attracted GST when it received fares, whether or not passengers took the flight they had booked. The Court rejected the emphasis placed by the Full Federal Court on the High Court’s decision in the Reliance Carpet case. According to the majority, Reliance Carpet provides no support for the proposition that it is necessary to extract from transactions between Qantas and customers the ‘essence’ and ‘sole purpose’ of those transactions. The majority had particular regard to the Qantas ‘Conditions of Carriage’, and the fact that they did not provide an unconditional promise to carry the passenger and their baggage on the flight booked. Rather, 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, the majority said, even if the passenger did not actually travel, there was a taxable supply giving rise to GST liability and Qantas was liable to remit the GST received on fares for unclaimed flights. 

The High Court’s decision puts an end to Qantas’ claim for a refund of approximately $34 million of GST previously remitted in respect of flights not taken by passengers. 

Is the High Court’s decision of wider relevance? The decision includes very little by way of reasoning. GST taxpayers had expected this to be a landmark decision establishing principles about the meaning of ‘supply’ and ‘consideration’. In our opinion, the decision is of little precedential value for taxpayers outside the airline industry. 

The ATO has indicated that a Decision Impact Statement will be published shortly.

Commissioner pursuing High Court challenge

10 February 2012

The High Court has granted the Commissioner of Taxation special leave to appeal against the decision of the Full Federal Court. The appeal is likely to be heard in May or June this year.

Full Federal Court decision 

1 September 2011

The Full Federal Court has allowed Qantas' appeal against the decision of the Administrative Appeals Tribunal.

At issue was whether Qantas had made a taxable supply in circumstances where a passenger reserved and paid for a domestic flight, but the passenger later cancelled the reservation or failed to present themselves for travel, in either case without obtaining a refund of the fare from Qantas.

The Full Court ruled unanimously that the relevant supply was the actual travel. As that supply had "failed", there was no taxable supply and no GST liability was incurred by Qantas. The Full Court rejected the Tribunal's approach, in the face of the failure of the outcome contemplated by the contract formed once the reservation was made, of searching for and finding earlier acts of Qantas to be the taxable supply (i.e. the reservation itself).

The Full Court considered it appropriate to consider the purpose of the transaction between Qantas and the passenger when identifying the relevant supply. It was plain, the Full Court said, that what passengers pay for is carriage by air and that this is the essence and sole purpose of the transaction. Even if any of the antecedent acts of Qantas constituted a 'supply', they were not something for which the passenger paid the consideration.


The request for refund of overpaid GST underpinning this dispute only covers the period up to 30 June 2008. Amendments to s.105-65 of Schedule 1 to the Taxation Administration Act 1953 (Cth) that took effect from 1 July 2008 appear likely to limit the circumstances in which the Commissioner would refund GST overpaid in the same circumstances since 1 July 2008.

That said, there may still be opportunities (subject to the four year time limit) for other taxpayers to recover GST overpaid in comparable circumstances before 1 July 2008, and not only in the context of airline travel. Any situation in which customers have made a reservation and provided payment, subsequently cancelled the reservation or failed to present themselves for the purpose contemplated by the transaction, and have not been provided with a refund should be carefully reviewed to identify whether an opportunity to obtain a GST refund exists.

Tribunal decision

6 December 2010

The Administrative Appeals Tribunal has handed down its decision in the Qantas case. The dispute between Qantas and the Commissioner of Taxation centres on whether GST is refundable to Qantas in circumstances where a passenger has booked and paid for domestic airline travel but the passenger subsequently cancels the booking or fails to show up for their flight and Qantas does not refund the fare.

The Tribunal concluded that Qantas is not entitled to a GST refund in such circumstances.

Fundamental to the resolution of the dispute was the issue of whether Qantas had made a 'supply' for GST purposes (i.e. for which the retained fares could be regarded as consideration in circumstances where there was no supply of actual travel made).

The Tribunal rejected Qantas' argument that airline bookings are made for the sole purpose of travel, and that when there is no travel there is no supply.

Supply made by Qantas under section 9-10(2)of the GST Act

The Tribunal analysed Qantas' Conditions of Carriage, concluding that they give rise to an enforceable contract between Qantas and each passenger and that this contract involves the creation of rights and the entry into obligations to do things (within the meaning of the extended definition of 'supply' in section 9-10(2)(e) and 9-10(2)(g)) when the booking is made or shortly after. These include the right in Qantas to retain payments made for reservations in certain circumstances and the obligation on Qantas to take all reasonable measures necessary to carry the passenger. The Tribunal noted that the mutual promises or the fare payment provide consideration for them.

The Tribunal went on to consider the fact that the contract creating the rights and obligations was executory but not executed. The Tribunal concluded that there was no basis for qualifying the words of section 9-10(2) so that they only have effect if the obligation is performed or the right exercised.

In the alternative, the Tribunal expressed the view that Qantas made a supply of a service within the meaning of section 9-10(2)(b), when it held itself ready to take all reasonable measures necessary to carry the passenger and their baggage and to avoid delay in doing so.

Contact one of our Indirect Tax specialists to discuss the Qantas decision in more detail.

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