Edited version of private advice

Authorisation Number: 1052275450307

Date of advice: 16 July 2024

Ruling

Subject: GST and supply of domestic air tickets to non-resident passengers

Question

Are you making a GST-free supply of domestic air tickets to non-resident passengers who are outside Australia at the time of the supply?

Answer

You facilitate the purchase of domestic air tickets for non-resident passengers.

The supply of domestic air tickets to non-resident passengers will be GST-free if the domestic air tickets are purchased while the non-resident passengers are outside Australia at the time of the purchase.

Please refer to the reasons for decision for more details.

Relevant facts and circumstances

You are carrying on an enterprise of providing travel agency services and registered for goods and services tax (GST).

You as a travel agent facilitate the purchase of domestic air tickets from Australian airlines and local suppliers and provides those domestic air tickets to a non-resident company.

The non-resident company provides the domestic air tickets to non-resident passengers who wish to travel to Australia.

The non-resident company is not registered for GST and has no branch office with employees in Australia.

Each domestic air ticket contains detailed itinerary including the city of departure and destination, flight date, airline, flight number, departure and arrival times, ticket price, passenger name, gender and the airline confirmation code.

You receive request to purchase both international and domestic air tickets from the non-resident company through a reservation system. All the air tickets are purchased in the name of the overseas passengers.

Both international and domestic air tickets are purchased under one itinerary. When you provide these tickets to the non-resident company, you treat the sale as GST-free and does not claim GST on the purchase of these air tickets. These type of air tickets are less frequently issued compared to standalone domestic air tickets.

For domestic air tickets purchased for overseas passengers, you treat the sale as GST-free and claim the GST paid to the Australian airlines and other travel agents.

Domestic air tickets are not purchased separately when they are part of the international travel itinerary.

You have entered into an agreement with the non-resident company and according to the agreement:

•         You will provide air ticket issuance services to the non-resident company.

•         You will provide the non-resident company with the reservation system and access to inquiry and booking functions.

•         The non-resident company will submit passengers' itineraries, passport information and local contact details through the reservation system.

•         You are responsible for the routine maintenance of the reservation system.

•         The non-resident company will settle ticket funds to you on time as per the agreed settlement period.

You have provided few tax invoices issued to you by another travel agent. These tax invoices are issued for the sale of the domestic air tickets to passengers. GST is included in the sale price of the domestic air tickets.

When the domestic air tickets are purchased, the passengers' passport information, passengers' overseas phone number and the payment details such as bank card, RMB cash etc are provided to the airline.

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 11-5, 11-15

A New Tax System (Goods and Services Tax) Act 1999 section 38-355, 38-360

Reasons for decision

You are liable to pay GST on any taxable supply you make.

Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), you make a taxable supply:

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

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

(c) the supply is connected with the indirect tax zone (Australia); 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 are carrying on an enterprise of providing travel agency services and has entered into an agreement with a non-resident company to provide air ticket issuance services.

You arrange or facilitate the purchase of domestic air tickets from the airlines and other travel agents for those overseas passengers who wish to travel to Australia. When an airline supplies the domestic air tickets, the airline is liable to pay GST on the supply and the tickets are issued in the name of the passengers and not in the name of the travel agent.

When you facilitate the purchase of the domestic air tickets, you pass on the cost of purchasing the domestic air tickets including GST to the non-resident company. When you pass on the cost of purchasing the domestic air tickets to the non-resident company, you are not required to pay GST as the supply of domestic air tickets was made by the airlines and not by you.

The supply of domestic air tickets by the airline will satisfy the requirements of section 9-5 of the GST Act and therefore the supply will be subject to GST.

The supply of domestic air tickets will not be an input taxed supply under GST Act. However, the supply may be GST-free under other GST provisions provided the supply satisfies the requirements of the GST-free provisions.

Supply of domestic air tickets to non-resident

Subsection 38-355(1) of the GST Act provides a list of items where the supplies of transport and related matters will be GST-free.

Item 3 in the table in subsection 38-355(1) of the GST Act provides that a supply of domestic air travel to non-resident would be GST-free provided that the transport of the passenger within Australia by air, but only if:

(a) the passenger is a non-resident; and

(b) the supply of air travel was purchased while the passenger was outside Australia.

You facilitate the purchase of domestic air tickets on behalf of the non-resident passengers who wish to travel to Australia. The domestic air tickets are purchased in the name of the non-resident passengers who are not in Australia at the time of purchasing these domestic air tickets. You provide the details of the non-resident passengers such as passport information, passengers' overseas phone number and the payment details to the airline or another travel agent.

The supply of these domestic air tickets by the airline will satisfy the requirements under item 3 in the table in subsection 38-355(1) of the GST Act. Hence, the supply of these domestic air tickets to the non-resident passengers who are outside Australia at the time of purchasing the domestic air tickets would be GST-free.

However, if the domestic air tickets are purchased while the non-resident passengers are in Australia, the supply of these domestic air tickets by the airline will be taxable. Therefore, it is important that you are required to confirm the airlines when you facilitate the purchase of the domestic air tickets that the passengers are not in Australia at the time of purchasing these tickets to enable the airlines to treat the sale as GST-free under item 3 in the table in subsection 38-355(1) of the GST Act.

Supply of domestic legs of international flights

Item 2 in the table in subsection 38-355(1) of the GST Act provides that the transport of passenger within Australia by air of a domestic legs of international flights would be GST-free only if:

(a) the transport is part of a wider arrangement, itinerary or contract for transport by air involving international travel; and

(b) at the time the arrangement, itinerary or contract was entered into, the transport within Australia formed part of a ticket for international travel or was cross referenced to such a ticket issued at that time.

When an airline operator makes supplies of transport on the domestic leg of an international flights and the domestic air ticket is issued separately but sold in conjunction with and cross referenced to the international flight ticket, the domestic air ticket will be GST-free under item 2 in the table in subsection 38-355(1) of the GST Act.

The airline operator will be making a GST-free supply of domestic air tickets of an international flight. This transport is part of an itinerary in conjunction with the international air transport. Although the domestic air tickets may be issued separately and at a different time from the international air tickets, it should be cross referenced to the international air tickets.

You do not facilitate the purchase of domestic air tickets separately when purchasing international air tickets for the non-resident passengers. The domestic air tickets are purchased under one itinerary in conjunction with the international air tickets. Therefore, the supply of domestic legs of an international flight to non-resident passengers will be GST-free under item 2 in the table in subsection 38-355(1) of the GST Act.

Example:

Ahmed is a non-resident intending to holiday in Australia. He purchased a flight from Sydney to Cairns while he was in his home country. The supply of the flight is GST-free.

If he purchased the flight after he arrived in Australia, the flight would be subject to GST.

Example of Domestic air travel of an international flight

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 through a travel agent from a domestic airline, GST will be included in the price of the domestic air ticket.

Supply of travel agency services to non-resident passengers

Section 38-360 of the GST Act provides that a supply of arranging overseas travel by a travel agent will be 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.

Both paragraphs (a) and (b) of section 38-360 of the GST Act should be satisfied.

You will be receiving commission for arranging or facilitating the purchase of both domestic and international air tickets. The commission received in relation to arranging or facilitating the purchase of an international air tickets will be GST-free under section 38-360 of the GST Act. However, the commission received by you for arranging or facilitating the purchase of a domestic air tickets will be subject to GST.

Please note that section 38-360 of the GST Act will only apply to the supply of arranging overseas travel where the effective use or enjoyment take place outside Australia. Although, the supply of international air tickets to Australia will be GST-free as explained above, the commission received in relation to arranging this travel will be subject to GST, as the effective use or enjoyment would take place in Australia.

However, since you have entered into an agreement with the non-resident company to provide the travel agency services (air ticket issuance services) to the non-resident company and receive commission from the non-resident company, the supply of travel agency services to the non-resident company would be GST-free under item 2 in the table in subsection 38-190(1) of the GST Act.

Item 2 in the table in subsection 38-190(1) of the GST Act provides that a supply of a thing (other than goods or real property) made to a non-resident is GST-free if it is made to a non-resident, who is not in Australia when the thing supplied is done, and:

(a) the supply is neither a supply of work physically performed on goods situated in Australia when the work is done, nor a supply directly connected with real property situated in Australia; or

(b) the non-resident acquires the thing in carrying on the non-resident's enterprise but is not registered or required to be registered for GST

Where the requirement of paragraphs (a) or (b) of item 2 is satisfied, the supply will be GST-free.

According to the facts, the non-resident company is not registered for GST and has no presence in Australia. The non-resident company will be acquiring the supply of travel agency services in carrying on their enterprise overseas. Therefore, the supply of travel agency services by you to the non-resident will be GST-free under item 2b in the table in subsection 38-190(1) of the GST Act.

Claiming GST credits

You are entitled to claim GST credit for your creditable acquisition. Under section 11-5 of the GST Act, you make a creditable acquisition if:

a) you acquire anything solely or partly for a creditable purpose; and

b) the supply of the thing to you is a taxable supply; and

c) you provide or are liable to provide consideration for the supply; and

d) you are registered or required to be registered.

Under section 11-15 of the GST Act, you acquire a thing for creditable purpose to the extent that you acquire it in carrying on your enterprise.

You as a travel agent would acquire the domestic air tickets for the non-resident passengers and does not acquire them to be used in your enterprise. The supply of domestic air tickets is a taxable supply to the passengers and not to you. The non-resident passengers are liable to provide consideration for the purchase of these domestic air tickets. Therefore, you are not entitled to claim GST on the purchase of the domestic air tickets as the purchase does not satisfy the requirements of a creditable acquisition.

You may be entitled to claim GST credits on any acquisition made in relation to the supply of travel agency services, provided the acquisition satisfy the requirements of section 11-5 of the GST Act.

Additional information:

Correcting GST errors

If you make a mistake when reporting GST on an earlier business activity statement, you can correct that error on a later business activity statement if you meet certain conditions.

For more information, please refer to: https://www.ato.gov.au/businesses-and-organisations/gst-excise-and-indirect-taxes/gst/in-detail/managing-gst-in-your-business/reporting-paying-and-activity-statements/correcting-gst-errors.