Australia: Lessons from Luxottica: With GST, courts will take your deals as they find them

Last Updated: 24 February 2011
Article by Andrew Sommer

The Full Federal Court's decision in Commissioner of Taxation v Luxottica Retail Australia Pty Ltd [2011] FCAFC 20 (23 February 2011) provides greater certainty for commercial parties in structuring their arrangements and in determining the GST consequences of their transactions.

The decision confirms that the courts prefer to characterise transactions for GST purposes in accordance the terms actually agreed between commercial parties dealing at arm's length, rather than a more "substantive" approach which recharacterises that agreement.

It also gives valuable guidance on how section 9-80 of the GST Act works to determine the amount of GST payable on a supply (referred to as the "actual supply") which has both a taxable and a non-taxable component being sold for a single undivided price.

The glasses, the lenses, and the taxable and non-taxable components of a supply - what GST is payable?

Supplies with taxable and non-taxable components often arise in promotional campaigns – for example, one product (such as a taxable coffee cup) is "sold" or "given away" along with another product (such as a GST-free bottle of instant coffee).

In the Luxottica case, the Court had to deal with the common scenario of purchasing a pair of spectacles – involving the selection and purchase of some frames (a taxable supply) and the preparation and sale of prescription lenses to be inserted into those frames (a GST-free supply).

The supplier offered a range of promotions on the frames – discounting the frames by up to 50% in some cases. No discount was offered in relation to the price of the lenses. However, the discount was only available on the frames when they were purchased in conjunction with the lenses.

Both the Commissioner and the taxpayer accepted that there was one supply – a supply of the spectacles – for the one undissected price which was calculated after allowing for the relevant discount. Where the Commissioner and the taxpayer diverged was in relation to calculating the GST on the single supply.

The Commissioner required the taxpayer to apply the monetary discount against the combined supply of the lenses and the frames. By contrast, the taxpayer sought to apply the monetary discount only against the taxable supply of the frames. Naturally, the Commissioner's approach required the payment of more GST because the monetary discount was "shared" between the taxable supply of the frames and the GST-free supply of the lenses.

The approach taken by the Commissioner was logical – the discount was only available when the purchaser bought lenses as well as frames and so therefore, the discount needed to be applied to the whole supply. The discount would not have been available if the items had have been purchased separately.

The approach taken by the taxpayer was equally logical – the parties agreed that the discount was applicable to the frames only. The factual pre-condition for eligibility for the discount was the purchase of lenses, but this did not detract from the agreement between the parties that the monetary discount was a function of the price of the frames and independent of the price of the lenses.

The circularity of section 9-80

The Court spent a great deal of time considering the drafting – and even the mathematical integrity – of section 9-80 of the GST Act.

In a rather unique approach to statutory interpretation, the Court sought to "[strip] away the verbiage in the Act" and reduce section 9-80's operation to a mathematical equation – which clearly disclosed the fact that its operation required one to "solve an equation in two unknowns", which of course cannot be done. As such, the Court agreed with the initial finding of the AAT that the provision is "impenetrably circular".

Notwithstanding this circularity, the section's purpose was clear to the Court – it was there to enable the calculation of the taxable component of a supply involving taxable and non-taxable components. Both the Commissioner and the Taxpayer had a similar way of making section 9-80 work.

Really just a question of fact

In the end, the Court held that the determination of the value of anything – including a supply – will be a question of fact and not of law. However, it will be an error of law if a statutory valuation method is misapplied.

In the present case, the Tribunal had found that as a matter of fact, the "discount offered should be applied to the price of the frames rather than the lenses." Again, as a matter of fact, the Tribunal had found that "the fact that the discounted price was condition on the purchase of the lenses 'does not undermine the reasonableness of the calculation of the taxable proportion in this way'".

The taxable proportion determined by the Tribunal was applied by the Tribunal in resolving the circularity in section 9-80 in the same manner that was proposed by the Commissioner and the taxpayer. Therefore, the Court held that the Commissioner had failed to demonstrate any error of law in the approach taken by the AAT and therefore, the Commissioner's appeal to the Full Federal Court must fail.


The case is important for two reasons. First, although section 9-80 is "impenetrably circular" it can be made to work and should be made to work in order to give effect to its evident purpose.

Secondly, in making the provision work, the Court appears to have agreed with the taxpayer's submission that it is the "agreed price" for the taxable component of the supply that should form the basis of the calculation. This will allow resolution of the circularity.

However, there is perhaps a broader significance in this second point. It again demonstrates that the GST law should apply to transactions as it finds them, rather than seeking to recharacterise them in accordance with some other objective framework.

It is the true legal characterisation of the agreement reached between the parties that is the correct starting point for the application of the GST law. If the Commissioner wants to recharacterise the express terms of the agreement between the parties, he must do so in accordance with a clear statutory power. Clearly, section 9-80 is not such a provision.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.