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Federal Court GST ruling set to impact services sector

Friday, 2 September 2011 | By Myrian Robin

In a ruling that will have wide implications for Australian service industries, Qantas Airways won a decision yesterday against the Australia Taxation Office, with the court ruling that GST is not payable when passengers miss or cancel flights.

 

The full Federal Court in Sydney ruled that as no service had been provided, no GST should be paid.

 

Qantas, as well as its subsidiary Jetstar who the ruling also applied to, will not have to repay customers any refunded GST amounts, as the terms and conditions of many of its flights state the whole fare is forfeited if a customer chooses not to fly.

 

The ATO has 28 days to decide whether to appeal the decision. A spokesman this morning said they would be making a statement once that decision has been made.

 

GST expert and partner at Balazs, Lazanas & Welch Gina Lazanas said she expects the ATO will appeal to the High Court.

 

“I think it would be a surprise to a lot of people that this was the outcome,” she told SmartCompany this morning.

 

The decision overturns an earlier ruling in the Administrative Appeals Tribunal, as well as the first appeal of that ruling, that found a service had been provided as the passenger had paid the airline for the reservation as well the flight itself.

 

Yesterday, Justices Richard Edmonds, Nye Perram and Margaret Stone all agreed that this “artificial split” was not justified in the provision of what was a single service.

 

“It is plain that what each customer pays for is carriage by air,” the ruling said.

 

In 2009, the law was changed so that companies could only seek refunds for GST if they intended to repay these to customers.

 

The ruling dealt specifically with claims from July 1, 2007 to June 30, 2008. Qantas lodged the GST refund claim with the ATO in 2008.

 

The fact that this predates the law change means Qantas will be able to pocket the money.

 

In future however, it is expected the ruling will have differing implications.

 

Companies can seek GST refund revisions reaching back up to four years.