The accommodation component of Saga's supply
33 In challenging his Honour's finding that the Saga contract involved a supply of real property (within the extended definition in s 195-1), Saga submitted that his Honour placed too much emphasis on the view that the GST Act ought to be administered and interpreted in accordance with the understanding of businessmen, and therefore failed to apply the proper contractual analysis required by the GST Act. Such an analysis, it was submitted, should have been his Honour's starting point, and would have led him to the opposite conclusion. His Honour's conclusion, however, is entirely consistent with proper contractual analysis taking into account the statutory definitions contained in the GST Act.
34 The contract between Saga and a tourist was one whereby Saga promised to provide the tourist with certain accommodation. Had the tourist not been supplied with the promised accommodation Saga would have been in breach of this contract. This is true irrespective of the fact that Saga was not in a position to provide the accommodation itself and was relying on its arrangements with AOT to enable it to fulfil its contractual obligations to the tourist. It is also irrelevant to this analysis that the accommodation had not been appropriated to the contract (even by AOT) at the time the contract was made and that, had Saga breached the contract, specific performance would not have been an available remedy. The question remains, was there a supply of real property under the contract?
35 The concept of supply in the GST Act is very wide. Much has been made of the fact that, at the time it was entered into, the contract between Saga and the tourist was an executory contract. It was none the less binding although the time for performance, at least in relation to the accommodation component, had not yet arrived. There is nothing unusual about that. With some contracts creation and performance are more or less contemporaneous, for instance, the purchase of goods from a supermarket, but many are not. The most common form of contract for the sale of land, for instance, involves a promise to transfer title (or to put the purchaser in the position of becoming the registered proprietor) followed, generally many weeks later, by settlement at which time the promise is performed. The promise to transfer title to land does not create a proprietary interest at common law although it may do so in equity. It would not however, be correct to describe that equitable proprietary interest as real property, as that term is understood at common law.
36 The definition of 'real property' in the GST Act is, however, not confined to interests that would warrant that description under the general law. Indeed the definition goes well beyond even mere proprietary interests and encompasses interests that are purely contractual as well as personal interests which may or may not have arisen under contract; Sterling Guardian at [37]. For instance, s 195-1(c) includes as real property, 'a licence to occupy land' or 'any other contractual right exercisable over or in relation to land'. A licence to occupy land is not proprietary (Cowell v The Rosehill Racecourse Company Limited (1937) 56 CLR 605) although it may be coupled with the grant of a proprietary interest in land (Australian Softwood Forests Proprietary Limited v Attorney-General (NSW) (1981) 148 CLR 121.
37 Having considered this definition, his Honour, the primary judge, held that the contract between Saga and the tourist fell within s 195-1(c) and, as mentioned above at [19], that it was unnecessary for him to decide whether the supply by Saga was:
'of a contractual right in relation to land by way of a license [sic] to occupy land, or whether it is the supply of a license [sic] to occupy land, since both notions are here attracted.'
38 The distinction his Honour draws is not entirely clear however I am satisfied that, at the very least, the contract between Saga and the tourist can be accurately described as including "a contractual right exercisable … in relation to land" and therefore that it is not necessary to consider the question of a licence. The brochure for the "A Taste of Australia" tour highlights named hotels and motels in Sydney, Cairns, Alice Springs, Perth, Adelaide and Melbourne. The promise of accommodation in these hotels or others gives the tourist a right that is exercisable 'in relation to land'. So described, the contract does not have to provide a proprietary right, either at the time of its creation or at any later stage. Similarly, it is not necessary that Saga itself has rights in relation to the relevant land; the fact that it has given a contractually binding promise 'in relation to land' (that is the hotel accommodation) that is exercisable by the tourist is sufficient.
39 There is nothing in the description of the right as 'exercisable' in relation to land that requires it to be exercisable at the moment of creation of the contract. It would be an unwarranted implication to include such a time requirement thereby excluding executory contracts. Similarly, there is nothing in the notion of the right being 'exercisable' in relation to land that requires the tourist to have a specifically enforceable right over the land. To the contrary, the express inclusion of mere contractual rights in the statutory definition of real property indicates that specific enforcement as a remedy for breach is not contemplated even if the contract is breached or the licence revoked. It is only in special circumstances, for instance where a licence is coupled with an interest in land, that a promise to allow entry to land will be specifically enforceable; see [36] above.
40 While the definition of "real property" in s 195-1, and particularly in subsection (c), is very wide it is not entirely unconstrained. I have no difficulty with the notion of a right in relation to land including the right to occupy a hotel room although it would not, in my view, extend to a contract for the cleaning of the hotel room. Read in context, the definition shows an intention to extend the meaning of 'real property' beyond its meaning at common law. It does not, however, show an intention to divorce the term entirely from its ancestry. The link between 'real property' and a proprietary interest may have been dispensed with, however the context makes clear that for a right to qualify as 'real property' it is necessary that the relation to the land in question be real and substantial and not merely incidental; O'Grady v The Northern Queensland Company Limited (1990) 169 CLR 356 at 367 per Dawson J and 374 per Toohey and Gaudron JJ.
41 One aspect of Saga's submission that the contract between Saga and the tourist did not involve the supply of real property was that the accommodation component of the contract was comprised of a number of components in addition to the right to occupy a room. These other components included the use of furniture and facilities within each room, cleaning and linen service, access to common areas and facilities of the hotels such as pools and gymnasiums and various other hotel services such as porterage and concierge. It was conceded before the primary judge that meals and drinks were not part of the accommodation component and not part of the real property. In relation to the other services and facilities mentioned, some relate to the use of the room and others do not. It was submitted that "having regard to its essential character" the provision of a room was a subsidiary aspect of what should properly be described as "accommodation services" and not the provision of a contractual right exercisable in relation to land. Counsel for Saga referred the Court to Beynon and Partners v Commissioner of Customs and Excise [2005] 1 WLR 86 at 91, in support of the submission that where a supply is, from an economic point of view, a single service, it is inappropriate to consider individually the constituent elements of that service.
42 The Commissioner argued that the supply of the accommodation component of the tour was 'in substance and reality", a single supply that included all these components. The services and facilities are adjuncts to the right to use the room and, in general, they are not charged for separately. That being so the accommodation component is properly regarded as a single supply of real property.
43 I agree with his Honour, the primary judge, that Beynon, which was concerned with whether, for the purposes of the VAT, a doctor administering a drug to a patient supplied goods, namely drugs (which were zero rated for VAT) or a medical service (which would be input taxed), with the drugs incidental to the service, is of little assistance on this point. I am conscious of the High Court's comment in Avon Products Pty Limited v Commissioner of Taxation (2006) 227 ALR 398 at [28] about the considerable caution that must be exercised before relying on international authorities that deal with different statutory regimes. The warning is particular apt in the present circumstances since the details of the GST Act are significantly different from those of the equivalent legislation in the UK and other countries. In any event, I do not regard the facts of Beynon as analogous to the present circumstances. Nevertheless, in so far as Lord Hoffman focused on the 'social and economic reality' of the transaction I regard his approach as relevant. In my view the accommodation component is a single supply which is properly characterised as a supply of real property.
44 Counsel for Saga referred to the discussion about the GST Act's definition of 'real property' in the GST Act in Sterling Guardian v Commissioner of Taxation (2005)220 ALR 550 at [35] - [38]. In Saga's submission, this decision indicated that the focus of the term 'real property' in the Act was on the tangible asset itself, rather than the intangible interest or bundle of rights in the land. Hence, in paragraph (c) of the definition of real property, the 'land' in question needed to be tangible, identifiable land. This submission ignores the importance of statutory context. The discussion in Sterling Guardian makes clear that a reference to property (real or otherwise) may be a reference to the legal right or to the subject of the legal right. Which is the case depends on the context. The policy and context of the margin scheme set out in Division 75 of the Act is entirely different from that presently under consideration.