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Decision Impact Statement

SAGA Holidays Limited v Commissioner of Taxation

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Venue: Full Federal Court
Venue Reference No: NSD 657 of 2006
Judge Name: Gyles, Stone and Young JJ
Judgment date: 20 December 2006
Appeals on foot:
No

Administrative Treatment (Implication on current Public Rulings and Determinations)

Relevant Rulings/Determinations:

Subject References:
GST
taxable supply
real property
costs awarded

This document is not a public ruling, but provides a statement of the Commissioner's position in relation to the decision and how the law will be administered as a consequence of the decision. Any proposals for changes in the law are matters for government and it is not appropriate for the Commissioner to comment.

Précis

Outlines the Tax Office's response to this case which concerned whether the accommodation component of a tour package provided by a non resident was 'real property' as defined for GST purposes, and the Commissioner's claim for costs.

Brief Summary of Facts

1. Saga, the Appellant, was a UK package tour operator, with no premises or employees in Australia.

2. Saga sold 'all inclusive' Australian package tours to UK residents incorporating flights, insurance, transport, guides, excursions and accommodation at specified hotels in Australia.

3. Saga contracted with AOT (an Australian company) to provide various components of the tours. In turn, AOT entered into contracts with Australian suppliers, including the hoteliers.

4. Saga was registered for GST in Australia and entitled to input tax credits for acquisitions from AOT relating to the supply of components of the tours, including accommodation, but argued that it was not liable for GST on the supply of the accommodation.

5. The tour brochures listed particular Australian hotels as those at which guests would be accommodated, with a stipulation that other, similar standard, hotels could be substituted. Room allocations were not made until the day the tour group arrived at the hotel.

Issues decided by the Court or Tribunal

1. Whether the accommodation component supplied by the Appellant to overseas tourists was a supply of 'real property' as defined or a supply of a right or part of a bundle of rights.

The Court held that the supply was a supply of 'real property' as defined, being a supply of a 'contractual right exercisable in relation to land'. It followed that the supply was connected with Australia and therefore a taxable supply.

2. Whether the factors taken into account by the primary judge, namely:

a)

 that the litigation was in the nature of a test case; and

b)

 the Commissioner's concession immediately before the hearing that the provision of meals in the particular circumstances of the case did not form part of the supply of the accommodation

justified a departure from the general rule that costs should follow the event.

The Court held that, even if it might have decided differently, the decision of the primary judge involved the exercise of a wide discretion which should not be disturbed as the Court was not satisfied that a significant error in the exercise of the discretion had occurred. The Court awarded the Commissioner the costs in the appeal to the Full Court.

Tax Office view of Decision

Supply of accommodation

The decision of the Court is consistent with the Commissioner's view as set out in Goods and Services Tax Determination GSTD 2004/3: Is a supply of rights to accommodation a supply of real property for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 ?

The GST treatment endorsed by the Court has since been confirmed by the Tax Laws Amendment Act (2005 Measures No. 1) Act 2005 which amended section 9-25 in relation to supplies made from 1 October 2005.

The Tax Office also notes the Court's confirmation that the purposive approach to interpretation of the GST Act takes into account not only the syntax of the legislative provisions under consideration but also the policy and the surrounding legislative context, which includes the nature of GST as 'a practical business tax'.

Costs

The Commissioner accepts the Court's view that the decision not to award costs in the particular circumstances of this matter was within the proper ambit of the primary judge's broad discretion in relation to costs.

In that regard, the Commissioner notes that the primary judge's decision was informed by both Commissioner's concession in respect of the meals component and the primary judge's acceptance of the Appellant's submission that the case was in the nature of a test case.

While the appropriate approach will be determined on a case by case basis, other than where the Tax Office has approved test case funding, it will continue to be the usual practice of the Commissioner to seek costs where the Commissioner is successful in respect of the substantive issue in a case. In particular, the Commissioner will submit that the Court should not depart from the general rule that costs follow the event if the only distinguishing factor is that the case resolves a question of construction that is also relevant to other taxpayers' affairs.

Administrative Treatment

Implications on current Public Rulings & Determinations

Addendums issued to the following GST rulings to reflect the outcomes of this case.

An Addendum to GSTD 2004/3 issued on 10 October 2007.

An Addendum to GSTR 2003/7 issued on 24 April 2007.

An Addendum issued to GSTR 2000/31C on 17 October 2007

Implications on Law Administration Practice Statements

None

Your comments

We invite you to advise us if you feel this decision has consequences we have not identified, or if a precedential decision such as a Public Ruling or an ATO ID requires reconsideration or amendment. Please forward your comments to the contact officer by the due date.

Date Issued:	8 March 2007
Due Date:	3 May 2007
Contact officer:	Robert Olding
Email address:	robert.olding@ato.gov.au
Telephone:	(07) 3213 8731
Facsimile:	(07) 3213 8465
Address:	10 Banfield Street, Chermside 4032

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999 (Cth)
9-5(c)
9-10
9-25
96-5
96-10
195-1

Tax Laws Amendment (2005 Measures No. 1) Act 2005 (Cth)
The Act

Value Added Tax Act 1994 (UK)
The Act

Case References:
International Harvester Company of Australia Pty Ltd v. Carrigan's Hazeldene Pastoral Company
(1958) 100 CLR 644

Scott v. Davis
(2001) 204 CLR 333

CIC Insurance Ltd v. Bankstown Football Club Ltd
(1997) 187 CLR 384

Commissioner of Taxation v. The Distribution Group Ltd
(2003) 130 FCR 517
2003 ATC 4691
53 ATR 448

Chaudhri v. Commissioner of Taxation
(2001) 109 FCR 416
2001 ATC 4214
47 ATR 126

ACP Publishing Pty Ltd v. Commissioner of Taxation
(2005) 142 FCR 533
2005 ATC 4151
59 ATR 98

Customs and Excise Commissioners v. Pippa-Dee Parties Ltd
[1981] STC 495
[1982] TR 243

Customs and Excise Commissioners v. Diners Club Ltd
[1989] 2 All ER 385

American Express International Inc v. Commissioner of State Revenue
(2003) 52 ATR 285

Commissioner of Customs and Excise v. Plantiflor Ltd
[2002] 1 WLR 2287

Commissioners of Customs and Excise v. Sinclair Collis
[2001] STC 989

Swedish State v. Stockholm Lindopark AB
[2001] STC 103

Radaich v. Smith
(1959) 101 CLR 209

Livingston v. Commissioner of Stamp Duties (Qld)
(1960) 107 CLR 411

Commissioner of Stamp Duties (Qld) v. Livingston
[1965] AC 694
112 CLR 12

HP Mercantile Pty Limited v. Commissioner of Taxation
(2005) 143 FCR 553
2005 ATC 4571
60 ATR 106

Sterling Guardian Pty Limited v. Federal Commissioner of Taxation
(2005) ATC 479
60 ATR 502

Allina Pty Ltd v. Federal Commissioner of Taxation
(1991) 99 ALR 295
91 ATC 4195
21 ATR 1320

Interlego AG v. Croner Trading Pty Limited
(1992) 39 FCR 348
39 FCR 348

Faaborg-Gelting Linien A/S v. Finanzamt Flensburg
[1996] ECR I-2395

Beynon and Partners v. Commissioner of Customs and Excise
[2005] 1 WLR 86
[2004] 4 All ER 1091

Burton v. Honan
(1952) 86 CLR 169

Customs and Excise Communities v. Madgett and Baldwin (t/a Howden Court Hotel)
[1998] STC 1189

Card Protection Plan Ltd v. Customs and Excise Commissioners (No 2)
[2002] 1 AC 202
[2001] 2 All ER 143