Luke Mountford, Partner
Justin Byrne, Special Counsel
A recent full Federal Court decision may path the way for businesses to apply for a GST refund in circumstances where customers have pre-paid for services they don't use.
The case concerned whether or not GST was payable for Qantas flights booked and paid for by customers who subsequently failed to show up for the flight or cancelled the booking.
Here, special counsel Justin Byrne explains how this decision could impact on service providers' claims for GST refunds.
Key points
- In Qantas Airways Limited v Commissioner of Taxation [2011] FCAFC 113, the full Federal Court held that because supply of a service was not made for GST purposes, Qantas was not required to pay GST to the ATO in the circumstances. Because Qantas had already paid GST, the company may now be able to claim a refund.
- This decision has potentially wide ramifications for other industries where the purchase price is paid up front by customers, such as accommodation providers, tour operators, boat cruise charterers and hospitality companies who provide services for weddings, functions and seminars.
- It remains to be seen whether or not the Commissioner of Taxation will appeal the decision to the High Court. However, as the High Court will only agree to hear tax matters on appeal from the Full Federal Court in exceptional cases, there is a good chance that the full Federal Court's decision will stand.
Claiming a GST refund
Please note that the Qantas decision applies in situations where the customer has paid the total price upfront, as opposed to where they have simply paid a deposit which is then forfeited.
Specific rules in the GST law generally state that in certain circumstances, a refund of the GST amount must firstly be made back to the customer before the supplier can claim the refund back from the Commissioner. The Court was not required to consider this issue. Importantly, there is still uncertainty as to the precise application of the refund rules, meaning that the ATO may interpret the rules in such a way as to deny a refund claim.
Where a GST refund potentially applies, taxpayers are generally able to go back four years to make a claim. As a result, the amount of the refund may be substantial in some cases.
Before making any claim for a GST refund, however, we recommend that you obtain legal advice on how the Qantas decision applies to your specific circumstances, as much will depend on the specific terms and conditions between you and your customers.
For more information on the Qantas decision or applying for a GST refund, please contact HopgoodGanim's Taxation and Revenue practice.
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