TT-Line Company v. Commissioner of Taxation
Transport companies need to ensure they are correctly paying GST when they receive any form of government rebate. Not all government payments will attract GST.
The Tax Office recently published a Decision Impact Statement on the GST implications of the Federal Court decision in TT-Line Company v. Commissioner of Taxation.
TT-Line operated a ferry service over Bass Strait. The Commonwealth Government provided rebates to eligible passengers to encourage people to use the ferry service. The rebate was calculated so that passengers using the ferry service paid about the same price as if they were driving on a highway.
Mr Egan, (an eligible passenger) booked a ticket on the ferry and was entitled to a rebate. TT-Line automatically calculated the rebate that Mr Egan was entitled to and charged him the net amount (that is, the full value of the ticket price less the rebate). The total ticket price was $910. TT-Line received a rebate of $336 from the Government. The remaining $574 was paid by Mr Egan.
TT-Line was a government related entity, which was relevant to an issue raised in the appeal.
Issues argued in the appeal
The question was whether TT-Line had to account for GST on the price paid by Mr Egan ($574) or the total amount received by TT-Line ($910). This raised two issues:
- Did the rebate form part of the price?
- As TT-Line was a government related entity, was the rebate specifically covered by an appropriation and therefore not part of the price?
Decision of the Full Court
The Full Court found that GST was to be calculated on the total payments received by TT-Line – $910, even though the amount paid by Mr Egan, the recipient of the ferry services, was $574.
The Full Court held that it was irrelevant whether the rebate was paid directly to TT-Line – it was still part of the total consideration for the ferry services provided to Mr Egan.
On the appropriation issue, the Full Court found that the payments were not specifically covered by an appropriation.
This analysis was influenced by the fact that while TT-Line was a government related entity, it was operating in competition with private transport operators. If the rebate was covered by an appropriation, this would have meant that private transport operators paid GST on the total amount (including the rebate) while government related entities would have paid GST only on the amount paid by the passenger. The policy of including government entities in the scope of GST was to ensure that this kind of discrimination did not take place.
Tax Office view of the decision
The decision was favourable to the Tax Office. However, the decision on the appropriation issue is also favourable to private operators competing with government entities.
What should you do?
The decision is a timely reminder for transport operators to review whether they are correctly accounting for GST on rebates.
With the recent TT-Line decision clarifying the law, the Tax Office may increase its compliance activities in this area.
The TT-Line case shows that in some cases the rebate will form part of the base on which GST is calculated. However, in other cases, such as where the rebate is in the form of compensation, it will not be included in calculating your GST liability.