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Ruling

Subject: GST and agents arranging overseas supplies

Question 1

In the circumstances set out below, are the services provided by T GST-free supplies under section 38-360 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes.

Relevant facts and circumstances

In Australia there are various different capacities in which a travel agent may act. A supply of travel product may involve more than one travel agent, for example there may be a travel agent in the wholesale distribution channel and one in the retail channel. In each case each of the parties is acting in the capacity of a travel agent. In the course of carrying on its business as a travel agent T enters into various contracts with providers and airlines (Travel Supplier) to facilitate the supply of those services by the product provider/airline to consumers..

For each booking made with the Travel Supplier T will be entitled to receive a commission. The commission may consist of various components. The commission may also be described in various ways. In almost all cases the commission will be calculated as a percentage of the bookings made by customers. Typically the commission will not be paid until the actual supply of the travel product is made.

In some cases, T will receive specific payments for marketing services. These marketing contributions are treated separately for GST purposes and this ruling request is not concerned with the GST treatment of those payments.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 38-360

Reasons for decision

Summary

In the circumstances as outlined in your submission, the services provided by T are GST-free supplies under section 38-360 of the GST Act.

Detailed reasoning

Section 38-360 of the GST Act provides that:

A supply is GST-free if:

(a) the supplier makes it in the course of *carrying on an *enterprise as a travel agent; and

(b) it consists of arranging for the making of a supply, the effective use or enjoyment of which is to take place outside Australia.

Travel agents supply services to domestic travel wholesalers. The services include arranging the supply of overseas land product to a traveller. For this service they receive commission from the domestic travel wholesaler who is the supplier of the land product to the traveller.

'Travel Agents'

In this instance the term 'travel agent' need not be limited to registered travel agents but can cover other tourism enterprises, such as airlines, hotels and professional conference organisers, who arrange domestic and overseas travel on behalf of another person or persons.

'Commission'

Travel agents receive fees such as commissions for arranging transport and land content. A 'commission' in this instance can be any type of payment for agency services.

Where an overseas product provider supplies overseas products direct to a local tour operator, that supply is generally not a taxable supply, depending on the particular circumstances.

Where the domestic wholesaler uses the services of a travel agent to arrange the sale of the overseas product there is a supply from the travel agent to the domestic wholesaler. This supply is GST-free under section 38-360 of the GST Act because the travel agent makes the supply in the course of its enterprise and the effective use or enjoyment of the overseas product takes place outside Australia.

As stated above, the term 'travel agent' is not limited to registered travel agents.

With reference to the 'carrying on an enterprise as a travel agent' requirement of section 38-360 of the GST Act, it does not matter whether T is the only travel agent (e.g. direct bookings) or T is one of two or more travel agents who facilitate the booking . In all T cases submitted the 'carrying on an enterprise as a travel agent' requirement is satisfied.

This indicates that the commission is payable for the services of T arranging for the making of a supply (by the Travel Provider).

T is paid a commission in respect of the booking when the supply occurs.

Therefore, it is considered that T's services meet the 'arranging for the making of a supply' requirement of section 38-360 of the GST.

Your application for this ruling is only concerned with commission charged to Travel Suppliers in respect of the supply of land product that is for use outside Australia and/or international transport. The only exception is the provision of international travel insurance, which by its nature is a product for use outside Australia where the risk insured is outside Australia. Therefore, the requirement of section 38-360 of the GST Act that the supply is for the 'use and enjoyment' outside Australia is satisfied as the services are, by their nature, services supplied to customers for use outside Australia.