Contractual promises can have GST implications

In a 4:1 majority decision (Justice Heydon dissenting), the High Court has held that Qantas Airways Limited was liable to pay GST when it received fares on unclaimed flights. In doing so, the Court allowed the Commissioner’s appeal against the Full Federal Court decision in Qantas Airways Ltd v FCT (2011) 81 ATR 816. The Full Federal Court had unanimously allowed an appeal by Qantas against an earlier Administrative Appeals Tribunal decision that the airline makes a supply for GST purposes when a passenger cancels his or her flight booking, or does not show for the flight, and no refund is either available or claimed.

The High Court said the Qantas conditions and the Jetstar conditions did not provide an unconditional promise to carry the passenger and baggage on a particular flight. “They supplied something less than that”, the Court said. “This was at least a promise to use best endeavours to carry the passenger and baggage, having regard to the circumstances of the business operations of the airline. This was a ‘taxable supply’ for which the consideration, being the fare, was received.”

The High Court said the GST payable for that taxable supply was attributable to and included in the calculation of the Qantas net amount for the tax periods in issue in the litigation and the assessments objected to were not shown to be excessive.

It therefore allowed the Commissioner’s appeal and held that the orders of the Full Federal Court be set aside, and the proceeding in that Court be dismissed with costs.

FCT v Qantas Airways Limited [2012] HCA 41, www.austlii.edu.au/au/cases/cth/HCA/2012/41.html