Edited version of private advice

Authorisation Number: 1052060948943

Date of advice: 29 November 2022

Ruling

Subject: GST on commission for travel tickets

Question 1

Is the commission income you receive from airlines for selling domestic airline fares as a travel agent, consideration for a taxable supply under section 9-5 of the A New Taxation System (Goods and Services Tax) 1999 (GST Act)?

Answer

Yes, the commission income you receive from airlines is consideration for a taxable under section 9-5 of the GST Act, if the airline fares are purchased for travel for domestic airfares within Australia.

Question 2

Is the commission income you receive from airlines for selling international airline fares as a travel agent, consideration for a taxable supply under section 9-5 of the GST Act?

Answer

No, the commission income you receive will be consideration for a GST-free supply under section 38-360 of the GST Act.

Question 3

Is the commission income you receive from airlines for selling a mixed supply of domestic and international airline fares as a travel agent consideration for a taxable supply under section 9-5 of the GST Act?

Answer

Where the airline fares are for continuous travel to an overseas destination, the commission income will be consideration for a GST-free supply under section 38-360 of the GST Act. However, if the airline fares involve travelling to another state in Australia, this portion of the flight fare commission may be consideration for a taxable supply.

The scheme commences on:

DD MM YYYY

Relevant facts and circumstances

You are an Australian based company and registered for GST.

You operate as a Travel Ticket Agency and you receive commission income from selling tickets for domestic and overseas travel.

You act as a member agent of an independent travel agency consolidator in order to sell the tickets through their platform. You do not have a contract with them but you received a membership login for which you made an application in 20YY. You started working with them from 20YY.

Most of the tickets are sold at a gross price including GST to the clients who are Australian residents. You then pay the consolidator the net fare (gross less your commission).

You have provided a monthly invoice statement from Travel Partners showing sales made through the platform. The commission received from each passenger varies.

You set the price of things you sell.

You do not disclose your commission to the clients.

Most of your sales are for overseas travel, however some are domestic. You have a record system to keep track of this.

Most of the domestic tickets are sold directly from local airline ticketing platforms such as the airlines where you receive commission direct from the airlines. There is no other transaction in your account for this and the client pays directly through the airline platform for which you receive commission.

You do not arrange accommodation or tour packages on behalf of the clients.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 9-80

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

Reasons for decision

Question 1

Is the commission income you receive from airlines for selling domestic airline fares as a travel agent, consideration for a taxable supply under section 9-5 of the A New Taxation System (Goods and Services Tax) 1999 (GST Act)?

Answer

Yes, the commission income you receive from airlines is consideration for a taxable under section 9-5 of the GST Act, if the airline fares are purchased for domestic travel within Australia.

Detailed reasoning

All legislative references in this ruling are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) unless otherwise stated.

GST is payable on a taxable supply. You make a taxable supply under section 9-5 if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c) the supply is *connected with the indirect tax zone; and

(d) you are *registered, or *required to be registered.

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.

You must satisfy all of the above requirements for your supply to be a taxable supply.

You satisfy paragraphs 9-5(a) to 9-5(d) when you receive commission income from airlines when selling domestic airline fares as:

(a) you make the supply for consideration; and

(b) the supply is made in the course of an enterprise that you carry on; and

(c) the supply is connected with the indirect tax zone as the supply is made through an enterprise that you carry on in Australia; and

(d) you are registered for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. There is no provision under the GST Act that makes your supply input taxed.

We will now consider whether the commission you receive directly from airlines for selling domestic airline fares is GST-free.

Of particular relevance to the commission income you receive as a travel agent, is section 38-360 which 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 the indirect tax zone.

In this case, the supply of domestic travel is not for effective use or enjoyment that takes place outside the indirect tax zone. As such, the commission income you receive as a travel agent will be consideration for a taxable supply under section 9-5 of the GST Act.

Question 2

Is the commission income you receive from airlines for selling international airline fares as a travel agent, consideration for a taxable supply under section 9-5 of the GST Act?

Answer

No, the commission income you receive will be consideration for a GST-free supply under section 38-360 of the GST Act.

Detailed reasoning

Section 38-360 provides that a supply is GST-free if the supplier makes the supply in the course of carrying on an enterprise as a travel agent and the supply consists of arranging for the making of a supply, the effective use or enjoyment of which is to take place outside Australia.

As the supply of international transport of passengers is GST-free under item 1 in the table to section 38-355(1), section 38-360 will be satisfied. Therefore, the commission you receive will be consideration for a GST-free supply.

Where the conditions above are not satisfied the sale is not GST-free.

Question 3

Is the commission income you receive from airlines for selling a mixed supply of domestic and international airline fares as a travel agent consideration for a taxable supply under section 9-5 of the GST Act?

Answer

Yes, where the airline fares are for continuous travel to an overseas destination, the commission income will be consideration for a GST-free supply under section 38-360 of the GST Act.

However, if the airline fares involve travelling to another state in Australia, this portion of the flight fare commission may be consideration for a taxable supply.

Detailed reasoning

The 'GST and international travel' fact sheet on the ato.gov.au website states:

International travel

To and from Australia

International transport is GST-free if you sell it to passengers travelling to or from Australia (by air or sea) and:

•                     their last place of departure in Australia is to a destination outside Australia

•                     it is from a place outside Australia to the first place of arrival in Australia

•                     it is from a place outside Australia to the same or another place outside Australia.

Outside Australia

Transport booked within Australia for travel outside Australia is GST-free. This covers activities such as coach tours, train transport, hire-cars and ferry passages.

Services booked within Australia for use overseas are also GST-free.

Domestic travel - Australian residents

Air travel

You can sell domestic air transport GST-free to Australian residents if it:

•                     is part of an itinerary or arrangement leading to international air transport

•                     formed part of, or was cross-referenced to, a ticket for international air transport when the arrangement was made.

Example: GST-free air travel

Tanya lives in Brisbane and has booked an overseas trip. She will fly from Brisbane to Sydney to connect with a flight to New York. From New York she will fly to London and then back to Australia, landing in Sydney before flying home to Brisbane. All of Tanya's air travel supplied is GST-free if the Brisbane to Sydney and Sydney to Brisbane flights were booked or committed to at the same time as the international flights.

If the Brisbane to Sydney return flights were booked separately but cross-referenced to the international flights, they are still GST-free.

Therefore, your supply of domestic air transport satisfies the requirements in paragraphs (a) and (b) of item 2 and is GST-free under section 38-355.

Where the commission income you receive in relation to the supply of airfare travel includes domestic and international flights, the supply of airfares is a mix of GST-free and taxable supplies.

Where the supply is a mixed supply, the GST liability will only be calculated on the taxable portion as determined in section 9-80 of the GST Act.

An example is a passenger is participating in a convention in London and would like to combine this with a short tour of France. However, before the overseas travel, she wishes to travel to the Gold Coast with her family.

Further, before departing overseas she needs two days at a Sydney hotel to prepare her papers.

You contact various suppliers to arrange a travel package and price suitable for Samantha.

You will receive commissions from the various suppliers. To work out the total amount of GST payable on the consideration for commissions, you must identify the sales that are:

•                     taxable

•                     GST-free

•                     not subject to GST

Samantha's itinerary

1.            Domestic flight - Sydney-Coolangatta-Sydney - taxable sale

2.            Accommodation - Coolangatta - taxable sale

3.            Hire car - Coolangatta - taxable sale

4.            Hotel accommodation -- Sydney two days - taxable sale

5.            Domestic flight Sydney-Melbourne-Sydney (international flight departs and arrives Melbourne) - GST-free sale

6.            International flight Melbourne-London-Melbourne - GST-free sale

7.            Theatre tickets - London - not subject to GST

8.            European flight - London-Paris-London - GST-free sale

9.            Accommodation - Paris - not subject to GST

10.         Car hire - Paris - not subject to GST

Therefore, you must pay GST on commissions received for items 1-4.

Section 9-80 of the GST Act provides a method for calculating the value of supplies that are partly GST-free or input taxed.

Subsection 9-80(1) of the GST Act provides that if a supply is:

•                     partly a taxable supply; and

•                     partly a supply that is GST-free or input taxed;

the value of the part of the supply that is a taxable supply is the proportion of the value of the supply that the taxable supply represents.

Subsection 9-80(2) of the GST Act provides that the value of the mixed supply that represents the actual supply is calculated in accordance with the following formula:

(Price of the supply * 10) / (10 + Taxable proportion)

''Taxable proportion' is the proportion of the value of the supply that represents the value of the taxable supply (expressed as a number between 0 and 1).

You will have to apportion the consideration received between the GST-free part and the taxable part of your commission on a fair and reasonable basis.

Goods and Services Tax Ruling 2001/8 Goods and services tax: apportioning the consideration for a supply that includes taxable and non-taxable parts considers apportioning consideration for a supply that includes taxable and non-taxable parts.

Paragraphs 25-26 of GSTR 2001/8 advises how to apportion the value of the taxable component as follows:

25. GST is payable on a mixed supply that you make, but only to the extent that the supply is taxable. You need to apportion the consideration for a mixed supply between the taxable and non-taxable parts to find the consideration for the taxable part.

26. Apportionment must be undertaken as a matter of practical common sense. You can use any reasonable basis to apportion the consideration. Depending on the facts and circumstances of the supply, a direct or indirect method may be an appropriate basis upon which to apportion the consideration and ascertain the value of the taxable part of the supply. The basis you choose must be supportable in the particular circumstances.

27. You should keep records that explain the basis used to apportion the consideration between the taxable and non-taxable parts of a supply

Domestic Travel - Non-residents of Australia

Air travel

You can sell domestic air transport GST-free to non-residents of Australia, provided they are outside Australia when they purchase those tickets.

For example, Kitty lives in Nepal (non-resident of Australia) and arrives in Australia for a holiday. When she booked her international travel tickets in Nepal, she knew she would like to visit Sydney and purchased a domestic flight to Sydney as part of her itinerary. The entire travel, including the domestic air travel, is GST-free.

However, if Kitty arrives in Australia and, whilst in Sydney, she decides to spend a week in Melbourne and purchases a ticket direct from a domestic airline, GST will be included in the price of the domestic air ticket. Therefore, you will need to pay GST on the commission you receive on this fare.