GST Update for Management Rights Operators

In the February edition of Resort News, I wrote an article advising that business operators in the accommodation industry – management rights, hotels, motels and caravan parks –

may be exempt from paying GST on cancellation fees and that GST refunds from the Australian Taxation Office may be forthcoming by amending prior BAS returns.

This information pertained to a Federal Court decision in the case of Qantas Airways Ltd v Commission of Taxation [2011] FCAFC 113.

On 25 September 2012, the High Court of Australia ruled that Qantas will have to pay the Australian Taxation Office over $34 million in GST it collected from passengers who booked tickets but then failed to turn up for their flights.  In this landmark ruling, the High Court of Australia determined Qantas had still provided a service to those customers and therefore owed the ATO the outstanding GST.

The ATO claimed Qantas (and its budget subsidiary Jetstar) owed $26.6 million in GST collected on unused tickets, and that the flying kangaroo owed a further $7.6 million on fares for which no refunds were ever claimed. Qantas said that as it never actually provided the flights to those particular passengers, it did not owe the tax to the ATO.

But the ATO, whose claim related to GST collected in the first eight years of the GST legislation, successfully argued the airline had provided a service by keeping the fares for its customers.

The case could have implications for other businesses that charge GST on non-refundable services, such as accommodation providers, tour companies and other transport operators.

The High Court ruled by majority that Qantas made a “taxable supply” whenever it received a booking. “Flights were sold and bookings taken on the basis that Qantas would use its best endeavours to carry the passenger and baggage” the judgment says.  “Consequently, even if the passenger did not actually travel, there was a taxable supply incurring GST liability.”

That meant Qantas had to hand over the tax passengers paid.

Qantas originally appealed to the Federal Court when the ATO demanded GST payment, and it ruled in favour of Qantas; however the taxation commissioner launched another appeal to the High Court, leading to the landmark decision. It appears that this may not be the end of the matter, with Qantas considering further appeal options.  So at this stage, for management rights operators, it’s business as usual (so far as GST on non-refundable booking fees is concerned).  We will, of course, keep you abreast of any further developments.

 Travel agents’ commission, GST and management rights – Many management rights operators accept reservations from on-line accommodation reservation agencies, predominantly based within Australia.  However, not all on-line accommodation reservation agencies are Australian-based – is based in Amsterdam, the Netherlands – adding confusion to the manner in which GST is treated. operates as a “travel agent” as defined by the Australian Taxation Office.

Travel Agents supply services to domestic operators.  These services include arranging the supply of “land product” to a traveller.  For this service they receive commission from the domestic operator who is the supplier of the land product to the traveller.

Note:  The term “travel agent” is not limited to registered travel agents, but can cover other tourism enterprises such as airlines, hotels, management rights operators and professional conference organisers – who arrange domestic and overseas travel on behalf of another person or persons.

Note:  The term “land product” includes accommodation, transport other than air transport (such as travel by train, car or sea), car hire, tickets to exhibitions or entertainment events and other similar tourism services other than air transport.

Issue – How is commission treated for GST purposes as it relates to commission paid to an overseas travel agent from a domestic operator in respect of an Australian travel package?

Decision – Where an overseas land product provider supplies Australian land product direct to a domestic operator, that supply is generally not a taxable supply, depending on the particular circumstances.

Where the domestic operator uses the services of an overseas travel agent to arrange the sale of the Australian land product there is a supply from the travel agent to the domestic operator.  This supply is GST-free under Section 38-360 because the overseas travel agent makes the supply in the course of its enterprise that takes place outside Australia.

For those in the accommodation industry, the most common example is has experienced a meteoric rise in popularity in recent times. You will note that invoices issued by do not include GST and you should not be claiming GST on these payments.

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