High Court orders Qantas unable to pocket $34m in GST on forfeited flights

QANTAS will be unable to pocket $34 million in GST it collected from customers who forfeited flights, following a High Court defeat against the tax office.

QANTAS will be unable to pocket $34 million in GST it collected from customers who forfeited flights, following a High Court defeat this morning against the tax office.

The airline had argued it did should not have to hand over the GST it collected on tickets for customers who did not show up for flights because it did not supply a service.

But a majority of the High Court this morning ruled that Qantas made a taxable supply which attracted GST when it received fares whether or not the passenger took the flight that was booked.

The High Court said in a summary this morning: "Flights were sold and bookings taken on the basis that Qantas would use its best endeavours to carry the passenger and baggage, having regard to the circumstances of the business operations of the airline.

"Consequently, even if the passenger did not actually travel, there was a taxable supply incurring GST liability and Qantas was liable to remit the GST received on fares for unclaimed flights to the Commissioner."

Qantas had argued the ATO should refund $34.2m it had handed over in GST on forfeited fares. About $26.6m related to Qantas and Jetstar fares where the customer did not turn up and no refund was permitted, and $7.6m related to Qantas fares where a refund was permitted but the customer failed to claim the fare.

The Tax Institute's senior tax counsel Robert Jeremenko said the decision would impact tour operators, concert and sporting event promoters and other businesses that sold non-refundable tickets.

''Just because someone doesn't turn up or forfeits their ticket, this decision means the company cannot hang on to that GST, they still have to pay it to the tax office,'' he said.

He said he believed the case had delivered a small silver lining for taxpayers, because 10 per cent of the amount they forfeited would at least find its way to state government coffers.

''The alternative would have been that the company, in this case Qantas, had a windfall of the GST. At least this way it goes to the Commissioner of Tax,'' he said.

The High Court has overturned a ruling by the full Federal Court, which had held that as actual travel was the sole purpose of the transaction, there was no taxable supply if the travel did not occur. This meant a GST liability was not incurred.

Qantas says that while it is disappointed by the High Court's decision, it will have no financial impact on its balance sheet as the it has already paid the $34 million to the tax office.

''Qantas is disappointed with the High Court's decision,'' the airline said in a statement on Tuesday.

''The decision will have no financial impact on the Qantas Group because the relevant GST has already been paid to the tax office.''