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Partial GST win for Australian inbound tour operator

ATS Pacific Pty Ltd v Commissioner of Taxation [2013] FCA 341

Partial GST win for Australian inbound tour operator5 June 2013: Latest news 
The taxpayer has filed a notice of appeal against the whole of the judgment outlined below.The date for the hearing of the appeal by the Full Court of the Federal Court is expected to be fixed following the Full Court call-over scheduled for 17 July 2013.

15 April 2013:
The Federal Court has ruled on the GST characterisation of supplies made by an Australian resident inbound tour operator (ATS) to non-resident travel agents.


Broadly, ATS’s enterprise comprised contracting for and making supplies to non-resident travel agents in relation to various Australian products and services (such as hotel accommodation, airport transfers, tours, car hire, guides, meals, and other tour package components) which were then provided by Australian providers to the clients of the non-resident travel agents (non-resident tourists) once the non-resident tourists arrived in Australia. 

ATS charged the non-resident travel agents a fee comprising the cost of the tour package components booked and a margin to cover ATS’s cost of arranging the bookings.   

ATS had remitted GST in respect of its supplies to the non-resident travel agents, but contended that as its supplies were fully or, alternatively, partially GST-free, it had overpaid GST to the ATO and was entitled to a refund.

Federal Court’s decision

The Federal Court rejected ATS’s contention that the supply it made to each non-resident travel agent was only the provision of booking/arranging services (that were not consumed in Australia).

Having regard to the entirety of the relationship between ATS and the non-resident travel agents, the court held that ATS supplied the non-resident travel agents with a promise that ATS would provide or ensure provision of the booked tour package components, and that such a term was implied in the written contract between them. 

The court said that in order to fulfil its obligations, ATS supplied the non-resident travel agents with a contractual right or promise that the Australian providers would provide the tour package components booked by ATS to the non-resident travel agents’ clients, the non-resident tourists. The court further held that the supply of this right or promise by ATS did not qualify for exemption from GST under s.38-190 of the A New Tax System (Goods and Services Tax) Act 1999 and was thus a taxable supply and subject to GST.

The court decided, however, that the margin component of the fee charged by ATS to the non-resident travel agents was GST-free, not taxable. This followed from the court’s further finding that the booking/arranging service provided by ATS to the non-resident travel agents was a distinct supply from the supply of the promise that the tour package components would be provided to the non-resident tourists. The booking/arranging service was held to be not merely incidental to the supply of the promise that the tour package components would be provided to the non-resident tourists, but was a service sought for its own sake.

The court went on to consider the ‘passing on’ provision in s.105-65 of Schedule 1 of the Taxation Administration Act 1953, in particular whether the provision applied to enliven the Commissioner of Taxation’s discretion to refuse to refund such amount of GST as ATS had overpaid. The court concluded that the passing on provision did confer such discretion on the Commissioner in the present case, and that the matter should be remitted to the Commissioner to decide whether to exercise the discretion to refuse to refund the GST amount overpaid by ATS.    

Consequences of the decision

It is not yet known whether the parties will reach agreement on the passing on issue, such that GST refunds flow from this decision or whether further litigation may be required on this aspect. The Commissioner may also choose to appeal the technical point concerning the characterisation of the booking/arranging service as a separate, and therefore GST-free, supply.  

In the meantime, we recommend that both local tour operators and foreign tour operators should review their terms of business to see whether the decision might apply to their circumstances and, if appropriate, consider lodging a ‘stop the clock’ notification with the Australian Taxation Office to preserve potential refund entitlements. 

To discuss this, or the implications of the decision more generally, please contact our GST tour operator specialist, Doug Tredinnick, on +61 2 9322 7701

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