The High Court of Australia has held that GST is payable by an airline on the sale of a plane ticket even if the customer does not turn up for the flight.


The case Commissioner of Taxation v Qantas Airways Ltd [2012] HCA 41 involved the sale of a ticket by Qantas (or Jetstar) for domestic air travel that did not oblige Qantas to carry the customer on the booked flight. Instead, the terms of the ticket provided that Qantas would use best endeavours to carry the passenger. For various reasons (such as cancellation of the ticket, or missing the flight), the customer never arrived to board the plane. Therefore there was no carriage of the customer.

Issue: is there a taxable supply?

Under the Australian GST legislation, GST is payable on a taxable supply. A supply includes any supply whatsoever and also includes a creation, grant, transfer, assignment or surrender of any right, as well as an entry into, or release from an obligation to do anything. The issue was whether entry into the contract evidenced by the ticket was sufficient for there to be a supply or whether it was necessary for the customer to take the flight.

Taxpayer’s argument

Qantas argued that the only supply was the actual travel. It followed that if the customer did not take the flight, there was no taxable supply, and therefore GST was not payable in respect of that fare.

This argument was accepted by the Full Federal Court, on the basis that what was relevant for identifying a taxable supply for GST was the purpose of the transaction – namely, travel.

Decision of the High Court

The High Court rejected a ‘purpose based’ approach and decided the question of taxable supply in accordance with the terms and conditions of the ticket and a literal reading of the definition of “supply”.

The majority of the High Court held that the terms of the ticket did not give the prospective passenger any right to be carried on a particular flight. It gave the customer something less than that, being “a promise to use best endeavours to carry the passenger and baggage, having regard to the circumstances of the business operations of the airline.” Despite the fact that there was no right to travel or obligation to provide the travel, the High Court held there was a “taxable supply for which the consideration, being the fare, was received.

This decision highlights that it may not always be clear what is being paid for when entering a contract and there may be differences between what is perceived to be the purpose of the supply and what is the actual taxable supply. Significantly, the majority of the High Court took the concept of supply one step further in that it didn’t require that there even be an obligation for the supplier to do something. However, in dissent, Heyden J adopted an interpretation that conforms more closely to practical reality and agreed with the Full Federal Court that the customer paid to get actual travel and if that did not take place, there was no taxable supply.