Travelex Limited v Commissioner of Taxation [2009] FCAFC 133 (29 September 2009)

Last Updated: 29 September 2009

FEDERAL COURT OF AUSTRALIA

Travelex Limited v Commissioner of Taxation [2009] FCAFC 133

TAXATION – A New Tax System (Goods and Services Tax) Act 1999 – s 38-190 – conversion of Australian dollars into foreign currency for use outside Australia – whether transaction attracts GST – whether transaction a "supply in relation to rights"



Words and Phrases: "supply of rights", "supply in relation to rights"


A New Tax System (Goods and Services Tax) Act 1999 (Cth)
A New Tax System (Goods and Services Tax) Regulations 1999 (Cth)


Card Protection Plan Ltd v Customs and Excise Commissioners [1999] 2 AC 601
Federal Commissioner of Taxation v Raymor (NSW) Pty Ltd [1990] FCA 193; (1990) 24 FCR 90
H P Mercantile Pty Ltd v Commissioner of Taxation [2005] FCAFC 126; (2005) 143 FCR 553
Pacific Brands Sport and Leisure Pty Ltd v Underworks Pty Ltd [2006] FCAFC 40; (2006) 149 FCR 395
Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355
Reserve Bank of Fiji Act 1983 (Fiji)
Saga Holidays Ltd v Commissioner of Taxation (Cth) [2006] FCAFC 191; (2006) 156 FCR 256
Sterling Guardian Pty Ltd v Commissioner of Taxation [2005] FCA 1166; (2005) 220 ALR 550














TRAVELEX LIMITED v COMMISSIONER OF TAXATION
NSD 75 of 2009

MANSFIELD, STONE & EDMONDS JJ
29 SEPTEMBER 2009
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 75 of 2009
GENERAL DIVISION

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

TRAVELEX LIMITED Appellant

AND:	COMMISSIONER OF TAXATION Respondent

JUDGES:	MANSFIELD, STONE & EDMONDS JJ
DATE OF ORDER:	29 SEPTEMBER 2009
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The appeal be dismissed with costs.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 75 of 2009
GENERAL DIVISION

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

TRAVELEX LIMITED Appellant

AND:	COMMISSIONER OF TAXATION Respondent

JUDGES:	MANSFIELD, STONE & EDMONDS JJ
DATE:	29 SEPTEMBER 2009
PLACE:	SYDNEY

REASONS FOR JUDGMENT

MANSFIELD J

1 I have had the benefit of reading the reasons for judgment of Stone and Edmonds JJ. I gratefully adopt the description of the relevant facts set out by Stone J and their Honours’ identification of the relevant legislative provisions. I shall not repeat those references, save to the limited extent necessary to explain why I have reached a different conclusion on the appeal.

2 The short issue is whether the appellant’s sale of foreign currency on the departure side of the customs barrier at an international airport in Australia to a person travelling overseas, where the foreign currency is for use overseas, attracts the obligation on the part of the appellant to pay GST on the supply of that foreign currency under the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (the GST Act).

3 It is common ground that the supply of foreign currency was a supply under s 9-10 of the GST Act, being a financial supply: s 9-10(2)(f), and it was for consideration. Stone J has explained why that is so. Section 9-5 specifies what is a "taxable supply". It provides that a supply is not a taxable supply to the extent that it is GST-free or input taxed.

4 Section 9-30 specifies when a supply is GST-free or is input taxed. Section 9-30(1) relevantly says a supply is GST-free if it is GST-free under Division 38 of the GST Act. Division 38, Subdiv 38-E deals with exports and other supplies for consumption outside Australia. Section 38-190 in that subdivision relevantly provides:

Supplies of things, other than goods or real property, for consumption outside Australia

(1) The third column of this table sets out supplies that are GST-free (except to the extent that they are supplies of goods or *real property):

Supplies of things, other than goods or real property, for consumption outside Australia Item Topic These supplies are GST-free (except to the extent that they are supplies of goods or *real property) ... .... 4 Rights a supply that is made in relation to rights if: (a) the rights are for use outside Australia; or (b) the supply is to an entity that is not an *Australian resident and is outside Australia when the thing supplied is done.

5 It is common ground that the supply of foreign currency, in the circumstances, was not a supply of goods. The reasons of the primary judge at [22]-[35] explain why the parties have properly taken that position.

6 Hence, as the appellant identified, the question is whether the supply of the foreign currency, in the circumstances, was a "supply that is made in relation to rights ... for use outside Australia" within the meaning of item 4 of s 38-190(1) of the GST Act.

7 That question is to be resolved having regard to the purpose of the legislation, and the legislative context of the particular provision together with its own text: Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355.

8 Section 7-1 of the GST Act provides that GST is payable on taxable supplies. Section 9-10(1) says that a supply is any form of supply whatsoever, but without limiting that definition s 9-10(2) specifies particular forms of included supply. As the respondent sought to relate the exemption in s 38-190(1) item 4 to the supply specified in s 9-10(2)(e), and to contrast it with a supply specified in s 9-10(2)(f), it is helpful to set out s 9-10(2) in full. It provides that supply includes the following:

(a) a supply of goods; (b) a supply of services; (c) a provision of advice or information; (d) a grant, assignment or surrender of real property; (e) a creation, grant, transfer, assignment or surrender of any right; (f) a financial supply; (g) an entry into, or release from, an obligation: (i) to do anything; or (ii) to refrain from an act; or (iii) to tolerate an act or situation; (h) any combination of any 2 or more of the matters referred to in paragraphs (a) to (g).

9 As noted above, it is common ground that the supply of the foreign currency in this matter was a "financial supply" encompassed within s 9-10(2)(f). The reason why that is so is set out by the primary judge at [10]-[12] and [34] of his Honour’s reasons.

10 Chapter 3 of the GST Act contains the exemptions to the imposition of the GST. Part 3.1 deals with supplies that are not taxable supplies. It has two divisions: Division 38 dealing with GST-free supplies and Division 40 dealing with Input taxed supplies. Part 3.2 deals with non-taxable importations.

11 Much of Division 38 exempts the supply of certain goods and services from being taxable supplies, even though they are supplied within Australia for consumption or use within Australia. They are supplies which, as a matter of policy, the legislature has exempted from the GST. Subdivision 38-E is concerned with "Exports and other supplies that are for consumption outside Australia". It exempts exports of goods, provided certain conditions of export are satisfied. Generally those conditions apparently ensure that the export promptly occurs and is a genuine one, so that the goods are not used within Australia: see s 38-185. It exempts the lease of goods for use outside Australia: s 38-187. It exempts tooling used by non-residents to manufacture goods for export: s 38-188. And s 38-190 exempts supplies of certain things, other than goods or real property, for consumption. A "thing" is defined in s 195-1 as meaning anything that can be supplied or imported.

12 Within s 38-190 there are five items and "topics" addressed: supply connected with property outside Australia; supply to a non-resident outside Australia; supplies used or enjoyed outside Australia; rights (the particular category said to be enlivened by the appellant); and, export of services used to repair etc imported goods. The table then has a column specifying in more detail when the supply which is referred to is GST-free. The broad genus is the supply of the particular thing which directly connects with goods or real property outside Australia, or is to be used or enjoyed outside Australia. The terms of subs 38-190(2), (2A), (3) and (4) appear to be intended to ensure that, if there is an Australian element to the supply of the thing, or its use or enjoyment, that supply will not be GST-free. The respondent has not suggested that any of subs 38-190(2), (2A) or (3) relevantly inform the construction of s 38-190(1) item 4 for present purposes. It is not necessary to address particular refinements in the expressions used, other than in item 4.

13 The purpose of Subdivision 38-E is consistent with the Explanatory Memorandum to the GST Bill, which states at page 6:

Broadly speaking, the GST is a tax on private consumption in Australia. The GST taxes the consumption of most goods, services and anything else in Australia, including things that are imported. Generally the GST will not apply to consumption outside Australia, which is why the GST does not apply to exports.

14 More particularly, the Explanatory Memorandum at par 5.73 says that GST is a tax on consumption in Australia.

15 The primary judge appears to have accepted the respondent’s contention that the phrase "supply in relation to rights" in item 4 of s 38-190(1) should be construed as meaning a "supply of rights", so that item 4 of s 38-190(1) can apply only if the particular supply falls within s 9-10(2)(e), namely the creation, grant, transfer, assignment or surrender of any right. The appellant did not contend that the issue of the foreign currency in this matter came within that provision. As his Honour noted at [46], the rights which the appellant identified, for the purpose of its supply of the foreign currency being "in relation to" rights, were not themselves created, granted, transferred, assigned or surrendered by the appellant. The rights identified by the appellant were the rights to have any debt incurred in Fiji, payable in Fiji, discharged by payment of the Fijian foreign currency, as it was legal tender in Fiji under the Reserve Bank of Fiji Act 1983 (Fiji).

16 His Honour said at [46] that those "rights" were simply incidents of being the holder of bank notes issued by the Reserve Bank of Fiji. He continued at [46] and [47]:

As the owner of a chattel, such as a book, a person is entitled to handle, read and deal with the book, something that the person, if not the owner, could not do without the consent or licence of the owner. A supply of a book would not be a supply that was made in relation to the right to handle or read the book. It would be a supply of goods. A supply in relation to rights must be something more than the supply of goods the ownership of which has incidents that might in some senses be described as rights. An incident that is the consequence of a supply, whether or not that incident can fairly be characterised as a right, is not something in relation to which the supply is made. There is no sufficient connection or association between the supply constituted by the Fijian Currency Transaction within the meaning of the GST Act and the incidents of being the owner or holder of bank notes. The incidents of being the owner or holder of bank notes issued by the Reserve Bank of Fiji are not rights in relation to which a supply of the bank notes is made within the meaning of Item 4. [original emphasis].

17 In taking that step, his Honour observed at [45] that the drafting technique in the GST Act, including by setting things out in tables, results in the use of abbreviations and the absence of finite sentences.

18 The primary judge, by further explanation of his reasons, appears to have taken the further step of accepting the contention of the respondent referred to in [15] above. At [49], his Honour said:

Item 4 only applies to a supply if the essential character or substance of the supply, or of a separately identifiable part of the supply, is one of rights. Item 4 does not apply where the supply of rights is merely integral, ancillary or incidental to another dominant part of the supply, the supply being characterised by the dominant part. Before a supply can be said to be made in relation to a right within Item 4, the right must bind the parties in some way. The word right has a very broad meaning under the general law and might fairly be described as a benefit or claim entitling a person to be treated in a certain way. A supply that does not bind the parties in some way is not a supply that is made in relation to rights. A supply that is made in relation to rights in Item 4 in the table in s 38-190(1) means a supply of the rights by way of the creation, grant, transfer or assignment of the rights or a supply by way of the surrender of the rights. [original emphasis].

That view also reflects the respondent’s Ruling of 30 April 2003, GSTR 2003/8 Goods and Services Tax: Supply of Rights for use outside Australia – subsection 38-190(1), item 4, paragraph (a) and subsection 38-190(2), paragraphs [20] and [76] to [80]. Paragraph [20] of that Ruling also used the test of the "essential character or substance" of the supply being one "of rights".

19 In my respectful opinion, there is no reason to relate the supply referred to in s 9-10(2)(e) to the topic in item 4 of s 38-190(1) in that way. I have referred to the general purpose of the GST Act above. There is no reason, consistent with that purpose, to construe s 38-190(1) in any restrictive way. Nor, in particular, is there any reason to read down the words of item 4 in the way contended for by the respondent. As to the general context of s 38-190(1), I do not consider it supports equating the scope of item 4 with the scope of supply in s 9-10(2)(e). The five topics in Subdivision 38-E are not drawn so as to correspond with sequential subparagraphs of s 9-10(2). The only obvious correspondence is between s 9-10(2)(a) and s 38-185. Nor are the five items and topics in s 38-190(1) drawn so as to correspond with sequential subparagraphs of s 9-10(2). They are referred to in [15] above. In my view, as it is not apparent that the matters addressed in Subdivision 38-E, or in s 38-190(1), do not correspond in any reasonably precise way with the matters addressed in s 9-10(2), it is neither necessary nor appropriate to confine the scope of item 4 in s 38-190(1) to the scope of s 9-10(1)(e) unless, by clear wording, there is an intention to do so. Apart from the matters to which I have referred, I do not discern from the drafting technique generally used in the GST Act a contextual reason for doing so. In the case of items 1, 2, 3 and 5 of s 38-190(1), the drafting does not indicate a laconic abbreviated style of expression but a carefully drawn and detailed expression of the legislative intention.

20 The wording of item 4 is itself not reflective of the wording of s 9-10(1)(e). It would have been easy for the legislature to mirror the wording of s 9-10(1)(e) in item 4 of s 38-190(1) had it been intended that item 4 should operate only in respect of a supply which is the creation, grant, transfer, assignment or surrender of any right. But it does not do so. It does not do so either in the "topic" column of item 4 or in the column describing the supplies which are GST-free within item 4. It may distract from the proper question, in those circumstances, to introduce a test such as the essential character or substance of the supply in determining whether the particular supply is in relation to rights, when such words are not used in the provision itself. Instead it says that a supply that is made in relation to rights, in certain circumstances, is GST-free.

21 It is then necessary to consider whether the supply of foreign currency is, in the circumstances, a supply made in relation to rights, the rights being for use outside Australia.

22 It is common ground that the GST Act must be approached from a "practical and business point of view". I shall not repeat the observations of Stone J on that topic. I respectfully agree with them. Such an approach, however, as her Honour has pointed out, is not necessarily a path to a clear answer in every circumstance. That is illustrated both by the competing submissions of the appellant and of the respondent relying on that approach, and by the fact that I have reached a different view as to the outcome of the appeal from that of Stone and Edmonds JJ.

23 In my judgment, the supply of Fijian bank notes was a supply in relation to rights for use outside Australia, within the meaning of item 4 of s 38-190(1) of the GST Act. As noted, it was a supply of a thing and it was clearly for use outside Australia. There is no element of "consumption" within Australia of those bank notes. The supply of that thing is capable of falling within the description in s 38-190(1). If the bank notes were "goods", so as to come within s 38-185(1), they would have been GST exempt, being exported immediately upon their issue and not re-imported: s 38-185(2). One may ask rhetorically what would be the legislative policy behind a supply of bank notes in the circumstances not being GST-free, when exported goods and services generally are GST-free. None is apparent to me. None was put forward by the respondent.

24 I do not think that analysis of the terms of item 4 by reference to the supply of a different thing, such as a book, provides much guidance to resolving the particular issue. That is simply because a book is goods. It is not permitted to disaggregate the rights which the purchase of a book gives so as to attract item 4 of s 38-190(1) because the introductory words of that provision say that it does not apply to goods. Nor would it be necessary to do so, as the GST-free status of a book would be determined under s 38-185. In the case of a supply that is a financial supply, or more generally of a supply that is of things other than goods or real property, s 38-190(1) comes into play. The supply of Fijian currency is not a supply of goods or real property. It is the supply of Fijian bank notes which, as pieces of paper, have no especial value. Their value derives from the use to which they may be put in Fiji, that is the use as legal tender in Fiji. They were purchased for that purpose (and, on the findings, were intended for use and applied for that purpose). That purpose, in a practical and business sense, was the right to use the Fijian bank notes as legal tender in Fiji. It was not simply because of the pieces of paper or the design or colour or appearance of them. As bank notes which were legal tender in Fiji, they carried that right with them of being used in that manner.

25 In HP Mercantile Pty Ltd v Commissioner of Taxation [2005] FCAFC 126; (2005) 143 FCR 553, Hill J said at 563, [35]:

It was common ground that the words "relates to" are wide words signifying some connection between two subject matters. The connection or association signified by the words may be direct or indirect, substantial or real. It must be relevant and usually a remote connection would not suffice. The sufficiency of the connection or association will be a matter for judgment which will depend, among other things, upon the subject matter of the enquiry, the legislative history, and the facts of the case. Put simply, the degree of relationship implied by the necessity to find a relationship will depend upon the context in which the words are found.

26 Having regard to the purpose of the GST Act, on the present facts, I consider that the relationship between the rights to use the Fijian bank notes as legal tender in Fiji and the supply of the Fijian bank notes is sufficient to conclude that there was a supply of a thing (the Fijian bank notes) which was made in relation to rights which were for use outside Australia. Consequently, as I have said, I consider that that supply was GST-free because it falls within item 4(a) of s 38-190(1).

27 I would allow the appeal and set aside the orders made at first instance. I would also declare that the sale by the appellant of 400 Fijian dollars to Geoffrey Urquhart on 25 November 2007 on the departures side of the Customs barrier at Sydney International Airport was a GST-free supply by reason of item 4(a) of s 38-190(1) of the GST Act. It would also follow that I would order the respondent to pay the costs of the appeal and of the proceedings at first instance.

I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield

Associate:

Dated: 29 September 2009

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 75 of 2009
GENERAL DIVISION

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

TRAVELEX LIMITED Appellant

AND:	COMMISSIONER OF TAXATION Respondent

JUDGES:	MANSFIELD, STONE & EDMONDS JJ
DATE:	29 SEPTEMBER 2009
PLACE:	SYDNEY

REASONS FOR JUDGMENT

STONE J:

28 This appeal raises a question of construction in relation to the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act). The facts which give rise to this question are not in dispute. They are as deposed to in an affidavit made on 21 December 2007 by Mr Geoffrey Urquhart, an employee of the appellant, and as set out fully in [2]-[7] of the reasons of the primary judge; Travelex Limited v Commissioner of Taxation [2008] FCA 1961. For present purposes a brief account will suffice.

29 On 25 November 2007 Mr Urquhart flew from Sydney to Fiji. After check-in with the airline that was to take him to Fiji, he proceeded to the secure area of the departure side of Sydney Airport. He presented his departure form, boarding pass and passport at the Customs barrier and after luggage inspection, was permitted to continue through to the secure departure area (Departure Hall) where he could await his flight.

30 The appellant leases premises in the Departure Hall from the Sydney Airports Corporation Ltd and operates a currency exchange business there. On entering the Departure Hall Mr Urquhart went to the Travelex counter to purchase Fijian currency for use in Fiji. He bought 400 Fijian dollars in bank notes for which he paid $AUD 339.65 which amount included commission of $AUD 8. At [7] of his reasons, the primary judge said:

At the time of entering into that transaction (the Fijian Currency Transaction), Mr Urquhart intended that he would have sufficient Fijian cash on hand at the end of his visit to Fiji to enable him to pay cash for a taxi to the airport and to make other purchases should his flight be delayed. Mr Urquhart departed Australia and travelled to Fiji shortly after entering into the Fijian Currency Transaction. He carried the Fijian banknotes with him. While in Fiji, Mr Urquhart used the Fijian bank notes to pay for taxis, for lunch and water and to purchase office materials to assist him in the work that he was engaged in while he was in Fiji. He also used the Fijian banknotes to purchase pre-dinner drinks during his stay.

31 Before the primary judge Travelex claimed that it was exempt from the payment of GST in relation to the sale of foreign currency to a passenger who has passed through the departure side of the Customs barrier as had Mr Urquhart. The primary judge rejected that claim and refused the declaration sought by Travelex. Travelex now appeals from that decision.

32 The starting point for our consideration of the appellant’s claim is that GST is payable on taxable supplies; s 7-1. The appellant claims that the Fijian Currency Transaction was not a taxable supply because it was GST-free and therefore fell within the exception to the definition of taxable supplies in s 9-5.

Taxable supplies

33 The definition of "supply" in s 9-10(1) of the GST Act is very wide. The term encompasses "any form of supply whatsoever" and includes, without limitation, "a creation, grant, transfer, assignment or surrender of any right" and "a financial supply"; ss 9-10(2)(e) and (f). The elements of a taxable supply are set out in s 9-5:

9-5 Taxable supplies You make a taxable supply 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 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.

34 As previously mentioned the appellant relies on the exception in the last sentence of s 9-5. The provisions regulating whether a supply is GST-free or input taxed are to be found in Division 38 and Division 40 respectively. In brief, a supply that is GST-free attracts no GST however an entitlement to an input tax credit for anything acquired to make the supply is not affected. A supply that is input taxed is similarly free of any obligation to pay GST however there is no right to any input tax credit for anything acquired to make the supply. If a supply falls within both categories then, pursuant to s 9-30(3) it is treated as GST-free.

35 The appellant submits that the Fijian Currency Transaction was a financial supply that was GST-free. As s 40-5 provides that a financial supply is input taxed, to make good this submission, the appellant must not only show that the transaction was a financial supply but also that it was GST-free and consequently that s 9-30(3) applies.

36 The requirements for a financial supply are found in the A New Tax System (Goods and Services Tax) Regulations 1999 (Cth) (GST regulations). Regulation 40-5.09 provides:

(1) The provision, acquisition or disposal of an interest mentioned in subregulation (3) or (4) is a financial supply if:

(a) the provision, acquisition or disposal is:

(i) for consideration; and (ii) in the course or furtherance of an enterprise; and (iii) connected with Australia; and

(b) the supplier is:

(i) registered or required to be registered; and (ii) a financial supply provider in relation to supply of the interest.

37 An interest is defined in reg 40-5.02 as "anything that is recognised at law or in equity as property in any form". In addition the interest must be "an interest in or under the matter mentioned in an item" in the table set out in reg 40-5.09(3). Relevantly, the matter listed in Item 9 of that table is, "Australian currency, the currency of a foreign country, or an agreement to buy or sell currency of either kind". Examples of such a matter are given in Part 7 of Schedule 7 of the GST Regulations. They include the following items:

Item 1 - Foreign currency in cash form ... Item 8 - Conversion of Australian currency into foreign currency and conversion of foreign currency into Australian currency

38 The Fijian Currency Transaction involved Mr Urquhart giving consideration ($339.65 including $8 commission) in return for the Fijian bank notes. Mr Urquhart’s interest was obtained in the course of a transaction within Item 9 of the table in reg 40-5.09(3) and, specifically, within Item 8 in Part 7 of Schedule 7. It therefore met the applicable criteria and was a financial supply.

39 The appellant submits that the financial supply pursuant to which Mr Urquhart obtained the bank notes was GST-free because it fell within s 38-190 of the Act. Section 38-190(1) provides that items in the third column of the table in s 38-190(1) are GST-free "except to the extent that they are supplies of goods or real property". The appellant submits that the supply of the bank notes meets the description of the supply listed in the third column of Item 4:

a supply that is made in relation to rights if: (a) the rights are for use outside Australia; or

(b) the supply is to an entity that is not an Australian resident and is outside Australia when the thing supplied is done.

[Emphasis added]

40 It is not in issue that the Fijian bank notes supplied to Mr Urquhart were intended for use outside Australia and therefore the requirements of subclause (a) have been met. It may also be accepted that the exception in relation to supplies of goods or real property does not apply. The primary judge held that the supply of bank notes to Mr Urquhart was not a supply of goods within the meaning of the GST Act. Neither party has taken issue with this finding which, in our opinion is correct for the reasons given by his Honour; see [22]-[35] of his Honour’s reasons. It is also clear that the bank notes are not "real property" even within the extended definition given in s 195-1 of the Act. Accordingly, his Honour held, at [21], that:

[T]he only question for the Court is whether Travelex is entitled to a declaration that the Fijian Currency Transaction was a supply made in relation to rights and, if so, whether the rights were for use outside Australia, such that it was a GST-free supply by reason of Item 4(a) in s 38-190(1) of the GST Act.

41 The parties have also agreed that this is the only question in the present appeal.

Was the supply of the bank notes a supply "in relation to rights"

42 The appellant points to the fact that the Fijian bank notes were legal tender in Fiji and were obtained for use in Fiji. As such they could only be used outside Australia. The appellant submitted:

It is that right to use the Fijian currency as legal tender which was supplied for use outside Australia: see s 24 of the Reserve Bank of Fiji Act. It is that right which gives the currency value and without which the currency is worth no more than its value as a "collectible" item.

43 There can be no doubt that the Fijian currency supplied to Mr Urquhart carried with it the rights attaching to legal tender in Fiji including the right to spend it by tendering it in discharge of debts that he incurred in Fiji and, a right of exchange as against the Reserve Bank of Fiji. In the appellant’s submission it only remains to establish the requisite connection between the supply of the foreign currency and the identified rights.

44 The appellant emphasises that the supply referred to in Item 4 of the table in s 38-190(1) is a supply made "in relation to rights". According to the appellant the phrase is sufficiently wide to establish the necessary connection between the supply of foreign currency and the rights appurtenant to it. In support of this proposition the written submissions for the appellant referred to the comments of Hill J in HP Mercantile Pty Ltd v Commissioner of Taxation [2005] FCAFC 126; (2005) 143 FCR 553 at 563:

It was common ground that the words "relates to" are wide words signifying some connection between two subject matters. The connection or association signified by the words may be direct or indirect, substantial or real. It must be relevant and usually a remote connection would not suffice. The sufficiency of the connection or association will be a matter for judgment which will depend, among other things, upon the subject matter of the enquiry, the legislative history, and the facts of the case. Put simply, the degree of relationship implied by the necessity to find a relationship will depend upon the context in which the words are found.

45 The appellant submits that the supply of the Fijian bank notes was a supply in relation to the rights referred to in [16] and, since the bank notes were for use outside Australia, their supply was GST-free. This conclusion is said to be consistent with the policy behind the GST Act which is designed to tax final private consumption in Australia and not consumption outside Australia; see the Explanatory Memorandum to the GST Bill at page 65 and at paragraph 5.73. The appellant also advocates that the question whether the transaction is a supply in relation to rights be approached from a "practical and business point of view".

46 The principle that the GST must be approached from a "practical and business point of view", and the corresponding description of the GST as "a practical business tax", have found expression in a number of cases involving an interpretation of the GST Act; see for example, Sterling Guardian Pty Ltd v Commissioner of Taxation [2005] FCA 1166; (2005) 220 ALR 550 at [39] and Saga Holidays Ltd v Commissioner of Taxation (Cth) [2006] FCAFC 191; (2006) 156 FCR 256. While the expression may be a cliché, like most clichés it has achieved that status because it encapsulates a truth so well accepted that it hardly requires articulation. It reflects the fact that although the policy of the Act is that the burden of the tax should generally be borne by the ultimate consumer, as a practical matter the tax is imposed on business at various stages of the supply chain. The provision of input tax credits is the mechanism by which, generally, the burden of the tax finds its way to the ultimate consumer. Sensitivity to this policy and structure is of assistance in the construction of the provisions of the GST Act however, they are not the only factors to be considered as an aid to construction. In Saga Holidays, in a judgment with which Gyles and Young JJ agreed, I said at [30] in referring to this factor:

This and other aspects of the tax legitimately form part of the context in which the language of the Act is interpreted and explains, at least in part, why the description ‘a practical business tax’ seems to be appropriate. This does not mean, however, that there is some special canon of construction that should be applied when interpreting the GST Act. The purposive approach to interpretation, of its nature, takes account of the context of the Act and the phrase, ‘a practical business tax’ is a reference to that context, which as the Full Federal Court observed in Chaudhri v Federal Commissioner of Taxation [2001] FCA 554; (2001) 109 FCR 416 at [6] :

‘... has the wide meaning which extends to the legislative history, the Parliamentary intention and the mischief to which a particular provision has been directed as well as the narrower meaning which would dictate reading the words to be construed by reference to the immediately surrounding or otherwise related provisions.’

47 The point is well illustrated by the fact that both the appellant and the Commissioner appealed to the concept of a practical business tax in support of their competing submissions.

48 Before the trial judge, and in this appeal, the appellant submitted that the supply of the Fijian currency was a supply "in relation to" the rights that are incidental to being the owner or holder of the bank notes in question. In contrast, the Commissioner contended that that phrase "a supply that is made in relation to rights" should be construed as meaning "a supply of rights" and refers to the dominant aspect of the supply.

49 In this case, it was submitted, the dominant aspect of the supply in question was the supply of the actual bank notes not the rights that flowed from the acquisition of the bank notes. In making that submission the Commissioner relied on the definition of "supply" which includes in s 9-10(2)(e) "a creation, grant, transfer, assignment or surrender of any right". In the Commissioner’s view Item 4 in the table in ss 38-190(1) does not apply to a supply of rights that are merely ancillary or incidental to the dominant aspect of the supply.

50 The primary judge accepted the Commissioner’s view. At [46] of his reasons his Honour observed that the rights to which the appellant referred were "incidents of being the holder or owner of bank notes issued by the Reserve Bank of Fiji" and not "the subject of any creation, grant or surrender by Travelex. Similarly, "nor could they be said to be the subject of any transfer or assignment by Travelex, merely because they are incidents that pass with ownership or possession of the bank notes". His Honour illustrated the point with the following example at [46]:

As the owner of a chattel, such as a book, a person is entitled to handle, read and deal with the book, something that the person, if not the owner, could not do without the consent or licence of the owner. A supply of a book would not be a supply that was made in relation to the right to handle or read the book. It would be a supply of goods. A supply in relation to rights must be something more than the supply of goods the ownership of which has incidents that might in some senses be described as rights. An incident that is the consequence of a supply, whether or not that incident can fairly be characterised as a right, is not something in relation to which the supply is made.

51 I agree with his Honour that a supply in relation to rights must be something more than the supply of goods (or bank notes) with their incidental rights. To take his Honour’s example further, if the copyright in the book were to be assigned, that would be a supply in relation to rights irrespective of whether ownership of the book had also been transferred to the assignee of the copyright. For present purposes however, it is not necessary to decide that "a supply in relation to rights" must necessarily be construed as "a supply of rights". This may be so and the Commissioner’s explanation that the phrase "in relation to" was used merely as a means to include all the elements of a supply of rights (creation, grant, transfer assignment and surrender) referred to in s 9-10(2)(e) may be correct. Nevertheless it is not impossible to conceive of situations where a supply relates to rights which are not the object of the supply for example, a copyright licence (as distinct from an assignment of the copyright) might well be described as in relation to a right as well as a supply of a right. In any event these issues are not presently of concern.

52 A distinguishing feature of a supply of copyright compared to the supply of a book, as in the example given by the trial judge, is that the copyright can be dealt with independently of the supply of the actual book. This is not true of the other rights to which his Honour refers. The right to handle, read or deal with the book will always be incidental to, or dependent upon, the supply of the physical object whether or not that supply involves transfer of title to the book or merely a bailment, gratuitous or otherwise. This is also true of the rights that are incidental to the supply of the bank notes; these rights cannot be supplied independently of the bank notes.

53 Accepting that the Fijian bank notes are not goods avoids the express exclusion of supplies of goods from Item 4 of the table in s 38-190, however it does not avoid the conclusion that the rights consequent upon the bank notes being legal tender in Fiji were incidental to the supply of the bank notes. As his Honour commented at [48]:

The so-called rights identified by Travelex, being the incidents of holding or owning bank notes, are not relevantly connected with the supply constituted by the Fijian Currency Transaction, such that it can be said that the supply of the bank notes was a supply made in relation to those so called rights. The supply was a supply of the physical notes, albeit that the physical notes are money within the meaning of the GST Act and are legal tender in Fiji and carry the incidents identified. The subject matter of the supply was bank notes having a face value of 400 Fijian dollars. The incidents of being the holder or owner of those bank notes were simply the consequences of becoming holder or owner. The supply was not relevantly in relation to those incidents.

54 This emphasis on the predominant aspect of the supply should not be confused with a statement about the purpose of the supply. The fact that Mr Urquhart’s purpose in entering into the Fijian Currency Transaction was to obtain currency for use in Fiji is no more in doubt than the fact that the purpose in buying a book is generally to be able to handle it, deal with it and read it. The GST Act directs attention to what is supplied not why it is supplied.

55 The appellant submits that the policy and design of the GST Act is to tax final and private consumption in Australia and not consumption outside Australia and that it would be anomalous if GST were imposed in respect of the acquisition of foreign currency which can only be used outside Australia. This may be accepted, however the policy underlying a tax on consumption cannot override the language of the statute interpreted in the context of the relevant provision and the Act as a whole. The express exclusion of supplies of goods and real property from Item 4 of the table in s 38-190 suggests that the table is concerned with rights as the predominant aspect of the supplies with which it is concerned. Moreover the language used in the table and in Item 4 in particular does not readily accommodate the supply of foreign currency. Generally the GST Act avoids describing supplies in technical legal language in favour of describing them as practical business transactions "made in the course or furtherance of an enterprise that you carry on"; s 9-5(b). Consistent with that approach one just would not speak of a transaction such as the Fijian Currency Transaction as being either a supply of rights or a supply in relation to rights.

56 For these reasons I agree with the orders made by the primary judge. I would order that the appeal be dismissed with costs.

I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Stone .

Associate:

Dated: 29 September 2009

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 75 of 2009

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

TRAVELEX LIMITED Appellant

AND:	COMMISSIONER OF TAXATION Respondent

JUDGE:	EDMONDS J
DATE:	28 SEPTEMBER 2009
PLACE:	SYDNEY

REASONS FOR JUDGMENT

EDMONDS J

57 I have had the advantage of reading a draft of the reasons for judgment of Stone J. I agree with her Honour’s conclusion that the appeal should be dismissed; I also agree with her Honour’s reasons in support of that conclusion.

58 I merely wish to add that, in my view, the same conclusion can be reached at a more fundamental level through a different but equally legitimate process of reasoning which is not attended with the potential difficulties of statutory construction considered in the reasoning of the primary judge and her Honour on the appeal.

59 Accepting, as both parties do, that it is appropriate to characterise the transaction – Mr Urquhart’s purchase of 400 Fijian dollars for $AUD 339.67 (including commission of $AUD 8) – from a ‘practical and business point of view’ to determine the nature or character of the supply, the submission of the appellant at [41] of its written outline that ‘from a practical and business point of view the transaction is to be characterised as a supply in relation to the right to use the currency as legal tender’, cannot be accepted. It involves a juristic disaggregation and classification of rights inherent in the currency supplied which does not reflect the practical reality of what is in fact supplied: in different contexts see Federal Commissioner of Taxation v Raymor (NSW) Pty Ltd [1990] FCA 193; (1990) 24 FCR 90 at 99; and Pacific Brands Sport and Leisure Pty Ltd v Underworks Pty Ltd [2006] FCAFC 40; (2006) 149 FCR 395 per Finn and Sundberg JJ at [39] and [40], where such a disaggregation and classification of such rights has been rejected. So it should in the present case.

60 In a similar context, but in a different jurisdiction, the Court of Justice of the European Communities said in Card Protection Plan Ltd v Customs and Excise Commissioners [1999] 2 AC 601 at 623, [29]:

[A] supply which comprises a single service from an economic point of view should not be artificially split, so as not to distort the functioning of the VAT system ...’

61 What is supplied for the purposes of the GST Act is foreign currency; money. In the circumstance of the transaction it is only made a supply by the appellant by force of s 9-10(4) of the GST Act; and it is only made an acquisition by Mr Urquhart by force of s 11-10(3) of the GST Act. These latter two provisions indicate that a supply or acquisition of money is to be given a quarantined status under the GST Act; it is not a supply or acquisition unless the money is provided as consideration for a supply that is a supply of money. This quarantined status has to be understood as underlying the proper construction and application of other provisions of the GST Act. Thus, a supply of money which is a supply by reason of s 9-10(4), is not a supply of things, other than goods or real property, for consumption outside Australia within s 38-190, any more than it is a supply of goods for export within s 38-185.

62 The transaction is clearly a ‘financial supply’: reg 40-5.09 of the GST regulations, Item 9 of the Table in reg 40-5.09(3), and Items 1 and 8 of Schedule 7 to the GST regulations as examples for Item 9; but it is not, by reference to legislative policy or context, even if textually arguable, a supply of rights or a supply in relation to rights within s 9-10(2)(e) or Item 4 of s 38-190(1); and all three matters, text, legislative policy and legislative context, need to be taken into account in the exercise of statutory construction: see H P Mercantile Pty Ltd v Commissioner of Taxation [2005] FCAFC 126; (2005) 143 FCR 553 per Hill J at [44] – [66], with whom Stone J agreed; and Allsop J at [88], [89].

63 On the basis that it is a financial supply but not a supply of rights or a supply in relation to rights, the supply in question is input taxed but not GST free.

64 The appeal should be dismissed with costs, as taxed or agreed.

I certify that the preceding eight (8) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edmonds.

Associate:

Dated: 29 September 2009

Counsel for the Appellant:	Mr A Robertson SC with Mr J Hmelnitsky
Solicitor for the Appellant:	Mallesons Stephen Jaques
Counsel for the Respondent:	Mr DJ Fagan SC with Mr BL Jones
Solicitor for the Respondent:	Australian Government Solicitor

Date of Hearing:	22 May 2009
Date of Judgment:	29 September 2009