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To apply GST or not to apply GST, that is the eternal question...

By Steve Heller, DFK ANZ

When to apply GST to travel bookingsRecently I was approached by AFTA on behalf of one of its members with a question in relation to GST and domestic air fares connecting to an international cruise.

GST and International travel is an area where many travel agents and accountants are still confused as to which items GST is to be applied and which items are exempt from GST although the rules have been in place for almost 15 years now.

Thus, below is a simple clarification of the workings of the GST regime in relation to the travel industry.

The transport of a passenger is GST – free if it is:

  • From the last place of departure in Australia to a destination outside of Australia
  • From a place outside Australia to the first place of arrival in Australia or
  • From a place outside Australia to the same or another place outside Australia

In addition to this air transport within Australia will be GST- free if:

  • The transport is part of a wider arrangement, itinerary or contract for air transport involving international travel, and
  • At the time the arrangement, itinerary or contract was entered into, the transport formed part of a ticket for international travel

An example of this is where you need to fly from Melbourne to Sydney to connect with an international flight that flight will be GST free however the ticket though must be part of the original overseas booking.

If a non-resident purchases a ticket for flights within Australia, if this ticket is purchased whilst the non-resident passenger was overseas, the ticket would also be GST free.

International Sea voyages are also exempt for journeys from Australia however the rules in relation to obtaining domestic flights to join that cruise are subject to GST for Australians, however if a flight is booked by a non-resident outside of Australia to join that cruise than that flight is GST exempt.

If a cruise starts say in Sydney and then travels to Hobart and the passenger subsequently travels overseas on the same cruise then the trip between Sydney to Hobart would be exempt however if the local part of the cruise was booked on another cruise line then it would be subject to GST.

In relation to the booking of a sea voyage outside of Australia there must be a specific destination outside of Australia. The mere travelling in International waters with no specific location where the passengers may leave the ship does not constitute does not satisfy the GST – free status of the trip.

Note that if an overseas resident purchases other forms of transport within Australia such as Rail or Bus tickets, even if it is purchased overseas these are not exempt fro GST.

It is no wonder that travel agents end up being totally confused as to what items are subject to GST and what items are exempt.

If a travel agent arranges overseas supplies for its client those supplies are GST free as well as the income the agent receives on those supplies are GST free.

These supplies can include such things as accommodation, car hire, rail transport and sight seeing tours. Insurance that is in relation to the overseas component of travel is also GST – free as well as the commission that the agent earns on this.

It must be remembered that for a non resident the purchase of any travel related products must be made whilst that person is still overseas, if they are made once the person arrives in Australia they automatically become subject to GST.

I hope that this has made the treatment of GST a little easier to understand, the tax office has issued a number of determinations in relation to this which can be viewed on their website, or if you have any further questions in relation to GST any of the DFK member firms can help you with this.

Steve HellerSteve Heller

Phone: +61 2 9264 5400

DFK firms provide plain English advice, profit improvement plans, in-depth business coaching, board advice and much more to grow your travel business – please contact us today for a discussion.

Steve Heller is a Fellow of the Australian Society of CPAs. He joined DFKLV, a Sydney based firm in 2000 after having practiced as a sole practitioner for a number of years.

In addition to Steven being the Information Technology specialist at DFKLV, Steve conducts a busy practice of Accounting, Taxation and Audit clients with a speciality in the Travel industry.