• The impact of this case on ATO policy is discussed in Decision Impact Statement: TT-Line Company Ltd v Commissioner of Taxation (Published 1 September 2011).

TT-LINE COMPANY PTY LTD v FC of T

Judges:
Emmett J
Edmonds J
Perram J

Court:
Full Federal Court, Sydney

MEDIA NEUTRAL CITATION: [2009] FCAFC 178

Judgment date: 18 December 2009

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Emmett J

Introduction

1. This appeal concerns the construction of provisions of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) ( the GST Act ). Specifically, it involves the meaning of s 9-15(3)(c), which is concerned with an exemption for payments made by one government related entity to another government related entity, where the payment is specifically covered by an appropriation under an Australian law. It also involves the meaning of s 9-15(1), which defines consideration for the purposes of the GST Act.

2. The appeal arises out of a dispute between the appellant, TT Line Company Pty Limited ( TT Line ), and the respondent, the Commissioner of Taxation (the Commissioner ), concerning the liability of TT Line for goods and services tax ( GST ) under s 9-40 of the GST Act. Under s 9-40, an entity must pay the GST payable on any taxable supply that the entity makes. Under s 9-5, an entity makes a taxable supply if, relevantly, the entity makes the supply for consideration. Under s 9-15(1), consideration includes any payment or any act or forbearance in connection with a supply of anything. Under s 9-70, the amount of GST on a taxable supply is 10 % of the value of the taxable supply. Section 9-75 provides for the calculation of the value of a taxable supply.

3. However, s 9-15(3)(c) provides that a payment made by a government related entity to another government related entity is not the provision of consideration if the payment is specifically covered by an appropriation under an Australian law. It is common ground that TT Line is a government related entity for the purposes of s 9-15(3)(c).

4. TT Line commenced a proceeding in the Court in which it sought a declaration that it is not liable to pay GST in accordance with s 9-40 in relation to payments made by the Commonwealth of Australia to TT Line under the Bass Strait Passenger Vehicle Equalisation Scheme ( the Scheme ) or that it is exempt by reason of the operation of s 9-15(3)(c). The proceeding was conducted on the basis of agreed facts. On 18 June 2009, a judge of the Court declined to make the declarations and ordered that the application be dismissed. By agreement between TT Line and the Commissioner, no order was made concerning the costs of the proceeding. By notice of appeal filed on 9 July 2009, TT Line appealed from the orders of the primary judge.

The Scheme

5. In September 1996, the Commonwealth established the Scheme. The stated aim of the Scheme was to reduce the costs associated with the transport by sea of passenger vehicles across Bass Strait. When the Scheme was first promulgated, the then Minister for Transport and Regional Services stated in a press release that sea travel between Tasmania and the mainland would be cheaper with the introduction of a proposed rebate on fares for motorists accompanying their vehicles across Bass Strait. The press release stated that the rebate would be provided against the fare charged by a ferry operator for a driver plus passenger vehicle to travel by sea across Bass Strait. The proposed rebate was to be calculated to ensure that the net fare for a vehicle plus driver travelling in standard share cabin accommodation on a Bass Strait crossing would be comparable to the notional cost of driving an equivalent distance on a highway. The rebate was to be provided to the driver of a passenger vehicle as a reduction in the fare charged by the relevant ferry operator and the ferry operator would be reimbursed on a monthly basis by the Commonwealth Department of Transport and Regional Services ( the Department ).

6. The Scheme currently operates under Ministerial Directions of 21 September 2002 ( the Directions ). Clause 2 of the Directions states that the aim of the Scheme is to reduce the cost of seagoing travel for eligible passengers. An eligible passenger is a passenger accompanied by an eligible passenger vehicle on a Bass Strait service, being the driver of that passenger vehicle. A passenger vehicle is a motor vehicle or bicycle designed for the carriage of passengers. An eligible passenger vehicle is a passenger vehicle that accompanies an eligible passenger on a Bass Strait service. Bass Strait service is a commercial shipping service engaged in the carriage of passengers and passenger vehicles on a direct sea voyage between a port in Tasmania and a port on the Australian mainland and vice versa .

7. Clause 7.1 of the Directions provides that a rebate provided by a service operator to an eligible passenger is to take the form of a reduction to the passenger ' s vehicle fare. Upon taking a booking for the carriage of a passenger, a service operator must determine whether the passenger is an eligible passenger for the purposes of the Scheme. Under clause 7.3, where a service operator determines that a passenger is an eligible passenger, the operator must, concurrently with the payment for a booking, deduct from that person ' s passenger vehicle fare a rebate determined in accordance with Schedule 1 to the Directions. At all relevant times, the standard passenger vehicle rebate applicable under the Scheme was $ 168 each way.

8. Under clause 8.1 of the Directions, where a passenger has not received a rebate from a service operator, the passenger may claim a rebate directly from the Department. Clause 9.1 provides for the submission of claims for reimbursement by a service operator to the Deputy Secretary of the Department. A service operator may make a claim for reimbursement for an eligible passenger who has travelled within the previous 12 months. The Directions also provide for recovery of all over payments made to an operator.

The Appropriation

9. Schedule 1 to the Appropriation Act (No 1) 2007-2008 (Cth) ( the Appropriation Act ) specifies services for which money is appropriated. Under that schedule, $ 720,706,000 was appropriated for the Department. The sum of $ 720,706,000 included an amount of $ 451,981,000 for:

" Outcome 1: Fostering an efficient, sustainable, competitive, safe and secure transport system. "

10. Figure 3.2 in the 2007-08 Budget Statements for the Transport and Regional Services Portfolio ( the Budget Statements ) deals with:

" Outcome 1 - Outputs and administered expense programs for 2007-08. "

Output Group 1.4 is for " Transport Services " . Output 1.4.1, which is for " Maritime and Land Transport " , specifies the Scheme. Table 3.2.1 in the Budget Statements includes the sum of $ 32,000,000 as budget estimate for 2007-08 for the Scheme in relation to Outcome 1.

11. Thus, the payment of rebates under the Scheme is provided for in the Appropriation Act. Thus, the payment of the rebate is covered by an appropriation under an Australian law.

The rebate in question

12. TT Line operates a passenger vehicle and freight ferry service between Tasmania and the Australian mainland under the trading name " Spirit of Tasmania " . At the time of making an internet booking for a Bass Strait crossing with TT Line, a prospective passenger must check a box to confirm that the passenger has read and accepts the fare conditions and the terms and conditions of carriage relating to the proposed voyage. Those conditions make no reference to the Scheme. However, on the page of the TT Line ' s internet site that deals with fares, the following statement appears:

" The prices listed include the deduction of the Bass Strait Passenger Vehicle Equalisation Scheme Rebate of [ $ 168 ] for a standard car. "

13. On 17 April 2008, a Mr Egan made an internet booking with TT Line for a Bass Strait crossing for two adults. Mr Egan ' s booking included the transport of a motor vehicle. Mr Egan was an eligible passenger and his motor vehicle was an eligible passenger vehicle. The total fare was $ 574, including GST. Upon completion of his internet booking, Mr Egan was provided with a reservation confirmation, which confirmed the details of the reservation and a total price of $ 574, including GST. A document entitled " Reservation Confirmation " , which was generated by TT Line for internal purposes but which was not provided to Mr Egan, showed that the gross amount paid by Mr Egan was $ 574. The document also referred to the rebate of $ 336 payable under the Scheme. It follows that the total fare payable by Mr Egan, before any reduction for the rebate, was $ 910.

14. On 27 May 2008, TT Line submitted a claim for reimbursement, in accordance with clause 9 of the Directions, for the period from 28 April 2008 to 25 May 2008. The total amount of the claim for that period was $ 1,958,729, which included $ 336 in respect of Mr Egan ' s transport. On 4 June 2008, TT Line received payment of the sum of $ 1,958,729 by way of reimbursement under the Scheme for the period of 28 April 2008 to 25 May 2008. That sum included the sum of $ 336 in respect of Mr Egan ' s transport. Thus, there was, at least in one sense, a payment by one government related entity ( the Department ) to another government related entity ( TT-Line ).

The issues

15. The issue in the proceeding is whether TT Line is liable to pay GST in respect of the transport services supplied by it to Mr Egan by reference to:

• • the amount it actually received from Mr Egan as payment for those services; or
• • that amount, together with the amount of the rebate paid to TT Line by the Commonwealth under the Scheme, in respect of those services.

That issue turns upon two questions as follows:

• • whether the amount received by TT Line from the Commonwealth by way of reimbursement under the Scheme was consideration in connection with the supply of transport services to Mr Egan within the meaning of s 9-15(1) of the GST Act;
• • whether the amount received by TT Line from the Commonwealth by way of reimbursement under the Scheme of the rebate allowed by TT-Line to Mr Egan, in respect of the services provided to Mr Egan, is a payment made by one government related entity to another government related entity specifically covered by an appropriation under an Australian law within the meaning of s 9-15(3)(c) of the GST Act.

The primary judge answered the first question in the affirmative and the second question in the negative, with the consequence that the proceeding was dismissed.

The consideration received by TT-Line

16. There can be no doubt that TT Line supplied transport services to Mr Egan. The first question that is raised is whether the payment of $ 336 made by the Commonwealth to TT Line was consideration received by TT Line in connection with the supply of those services.

17. The Scheme provides a rebate to eligible passengers, not to operators. A passenger does not actually pay the full fare to TT Line. Rather, the Scheme contemplates that an operator such as TT Line will charge a passenger the net fare after deducting the amount of the rebate, on the basis that the operator will then claim reimbursement from the Commonwealth of the rebate allowed to the passenger. Mr Egan was an eligible passenger and his vehicle was an eligible passenger vehicle. Accordingly, under the Scheme, Mr Egan was entitled to a rebate in order to reduce the cost to him of travelling across Bass Strait to Tasmania and return. TT Line had no entitlement to the rebate. Rather, it was entitled to be reimbursed for the amount of the rebate that it allowed to Mr Egan. Mr Egan received the benefit of the rebate, since he paid to TT Line only the net fare, calculated after deducting the rebate.

18. The correct analysis of the arrangement is that the fare for the transport services provided by TT Line to Mr Egan was, in aggregate, $ 910, being $ 574 paid by him plus the rebate of $ 336 given to Mr Egan by the Commonwealth. That is the consideration received by TT Line for providing the transport services to Mr Egan. Accordingly, that is the amount upon which GST should be calculated. That is to say, the sum of $ 336 received by TT Line from the Commonwealth was part of the consideration for the supply of transport services to Mr Egan. The primary judge was correct in concluding that the payment received by TT Line from the Commonwealth was a payment in connection with the supply by TT Line of transport services to Mr Egan.

Operation of s 9-15(3)(c)

19. The GST Act arose in part from an inter-governmental agreement on the reform of Commonwealth/State financial relations entered into in 1999 ( the Financial Relations Agreement ). The parties to that agreement were the Commonwealth and the six States and the two Territories. The Financial Relations Agreement stated that the objectives of certain proposed reforms set down in it included the achievement of a new national tax system, the provision to State and Territory Governments of revenue from " a more robust tax base that can be expected to grow over time " and an improvement in the financial position of all State and Territory Governments.

20. Clause 5 of the Financial Relations Agreement provided that the parties would undertake all necessary steps to have appropriate legislation enacted to give effect to several stated reform measures. The first step was that the Commonwealth would legislate to provide for all of the revenue from the proposed GST to be given to the States and Territories. By clause 7, the Commonwealth was to make GST revenue grants to the States and Territories equivalent to the revenue from the GST, subject to the arrangements in the agreement. GST revenue grants were to be freely available for use by the States and Territories for any purposes. Clause 17 of the Financial Relations Agreement stated that the parties intended that the Commonwealth, States, Territories and local government and their statutory corporations and authorities would operate as if they were subject to the proposed GST legislation in the same way as non-government organisations.

21. The exemption in s 9-15(3)(c) was included by way of amendment to the Bill for the GST Act in order to provide that appropriations by an Australian government agency would not be subject to GST. A memorandum published in connection with the proposed amendment stated that the Bill currently made no special provision for government appropriations and that the amendment was to establish that appropriations between and within governments would not be subject to GST. The proposed s 9-15(3)(c) was to provide that appropriations from one Australian government agency to another would not constitute the provision of consideration under the GST Act. No further rationale was advanced. Indeed, the rationale is by no means clear, in the light of the stated intention in the inter-governmental agreement that all levels of government agencies would operate as if they were subject to the proposed GST.

22. The effect of s 9-15(3)(c) is that a payment will not constitute the provision of consideration if the payment satisfies two pre-requisites, namely, that:

• • the payment is made by a government related entity to another government related entity; and
• • the payment is specifically covered by an appropriation under an Australian law.

The first pre-requisite is satisfied in a sense, in that the reimbursement by the Department to TT Line in respect of Mr Egan ' s transport services was a payment made by one government related entity, namely the Commonwealth, to another government related entity, namely TT Line. Further, the Appropriation Act is an Australian law and there was clearly an appropriation under the Appropriation Act in respect of the amount of the rebate paid in respect of Mr Egan ' s transport services.

23. However, while the item in the Output 1.4.1 section of figure 3.2 in the Budget Statements refers to the Scheme in specific terms, it does not refer to TT Line. Thus, any operator would have the same commercial benefit as TT Line has in relation to the rebate under the Scheme. On the other hand, an operator that was not a government related entity could not satisfy the first prerequisite of s 9-15(3)(c). Thus, if TT Line ' s claim that it is not liable to pay GST were accepted, there would be an anomalous result as between TT Line, on the one hand, and another operator that is not a government related entity, on the other hand. That is to say, TT Line would have the benefit of the exemption but the other operator would not.

24. The object of the exemption in s 9-15(3)(c) is to ensure that there will be no GST where the purpose of the relevant appropriation is to provide funds to a government related entity. To satisfy the provision, it must be clear that the appropriation is for the benefit of a government related entity. That is not the effect of the appropriation in figure 3.2. As the Direction makes clear, the appropriation is to provide a benefit to eligible passengers in respect of the carriage of eligible passenger vehicles. It was Mr Egan who received the benefit of the rebate, not TT-Line. TT-Line was no more than a conduit for the providing of the rebate to Mr Egan. The payment was not a payment by one government related entity to another in the relevant sense whether or not it was specifically covered by the appropriation under the Appropriation Act. I do not consider that the requirements of s 9-15(3)(c) were satisfied in relation to the subsidy paid by the Department in respect of Mr Egan ' s Bass Strait crossing.

Conclusion

25. The primary judge did not err in answering the questions as indicated above. The appeal should be dismissed.