Rio Tinto Services Ltd v Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Federal Court of Australia (VID 104 OF 2015)
Judgment date: 24 August 2015
Date published: 9 October 2017

Summary of decision:
This case considered when acquisitions are not made for a creditable purpose due to the acquisitions relating to the making of input taxed supplies under paragraph 11-15(2)(a) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Overview of facts:
Rio Tinto Services Limited (Rio Tinto) is the representative member for a GST group. Members of the GST group include Hamersley Iron Pty Ltd (Hamersley), which carries on a business of mining and selling iron ore, and Pilbara Iron Company (Services) Pty Ltd. These members of the GST group made acquisitions in providing, and maintaining, residential accommodation for Hamersley's workforce in the remote Pilbara region in Western Australia (Tom Price, Paraburdoo, Dampier and Karratha). The categories of acquisitions included: • construction and purchase of new housing • refurbishment, minor works, maintenance and repairs for the residential housing • mould removal, remediating and general hygiene cleansing, and • cleaning housing, landscaping grounds and pool maintenance. | • construction and purchase of new housing • refurbishment, minor works, maintenance and repairs for the residential housing • mould removal, remediating and general hygiene cleansing, and • cleaning housing, landscaping grounds and pool maintenance. | The premises leased to employees and contractors were houses and apartments. Hamersley subsidised the rent it charged to its workforce in order to attract, and retain, people to work in the Pilbara region. Its expenditure on the housing substantially exceeded the rental income it received for the relevant periods. | As the representative member of the GST group, Rio Tinto sought declarations from the Federal Court that it was entitled to input tax credits for the relevant acquisitions on the basis that the acquisitions were creditable acquisitions related to Hamersley making supplies of iron ore which were not input taxed supplies. The acquisitions were therefore made for a creditable purpose under section 11-15 of the GST Act and were accordingly creditable acquisitions under section 11-5 of the GST Act. Alternatively, the acquisitions related to Hamersley making the supplies of iron ore to some extent and were therefore partly creditable. The Commissioner's position was that Rio Tinto was not entitled to the input tax credits as the acquisitions related to Hamersley making input taxed supplies through leasing residential premises to the work force. The acquisitions were therefore not made for a creditable purpose under paragraph 11-15(2)(a) of the GST Act. | It was not in dispute between the parties that Hamersley made input taxed supplies under section 40-35 of the GST Act when leasing premises to employees and contractors. | Issues decided by the court | The Full Federal Court decided that Rio Tinto was not entitled to input tax credits for the relevant acquisitions as the acquisitions related wholly to the making of supplies that would be input taxed (at [8]). At [7], the Full Federal Court stated: | The application of s 11-15(2)(a) requires, therefore, the precise identification of the relevant acquisition and a factual inquiry into the relationship between that acquisition and the making of supplies that would be input taxed. An acquisition will not be for a creditable purpose to the extent that the facts disclose that the acquisition relates to the making by the enterprise of supplies that would be input taxed. Some acquisitions may relate to the making of supplies would be capable of distinct and separate apportionment as between an input taxed supply and an otherwise taxable supply. In that case it may be possible to divide the creditable purpose between the two. Other acquisitions may be indifferently both for supplies that would be both input taxed and otherwise taxable generally. In that case some fair and reasonable assessment of the extent of the relationship between the two may need to be made. But, as is the case here, an acquisition that relates wholly to the making of supplies that would be input taxed is not to be apportioned merely because that supply may also serve some broader commercial objective of the supplier. | The Court further observed that the text of paragraph 11-15(2)(a) requires a factual identification of the acquisitions in question and a factual inquiry into the extent to which those acquisitions relate to the making of supplies that would be input taxed. The relevant inquiry is not into the relationship between the acquisition and the enterprise more broadly (at [7]). | In the context of the factual arrangement, the extent of the relationship between the acquisitions and the supply of the residential premises is not to be reduced by the fact that the acquisitions may also have related to another purpose where that other purpose is only related to the acquisition wholly by and through the otherwise input taxed supply (at [8]).

Issues decided:
The Full Federal Court decided that Rio Tinto was not entitled to input tax credits for the relevant acquisitions as the acquisitions related wholly to the making of supplies that would be input taxed (at [8]). At [7], the Full Federal Court stated: The application of s 11-15(2)(a) requires, therefore, the precise identification of the relevant acquisition and a factual inquiry into the relationship between that acquisition and the making of supplies that would be input taxed. An acquisition will not be for a creditable purpose to the extent that the facts disclose that the acquisition relates to the making by the enterprise of supplies that would be input taxed. Some acquisitions may relate to the making of supplies would be capable of distinct and separate apportionment as between an input taxed supply and an otherwise taxable supply. In that case it may be possible to divide the creditable purpose between the two. Other acquisitions may be indifferently both for supplies that would be both input taxed and otherwise taxable generally. In that case some fair and reasonable assessment of the extent of the relationship between the two may need to be made. But, as is the case here, an acquisition that relates wholly to the making of supplies that would be input taxed is not to be apportioned merely because that supply may also serve some broader commercial objective of the supplier. The Court further observed that the text of paragraph 11-15(2)(a) requires a factual identification of the acquisitions in question and a factual inquiry into the extent to which those acquisitions relate to the making of supplies that would be input taxed. The relevant inquiry is not into the relationship between the acquisition and the enterprise more broadly (at [7]). In the context of the factual arrangement, the extent of the relationship between the acquisitions and the supply of the residential premises is not to be reduced by the fact that the acquisitions may also have related to another purpose where that other purpose is only related to the acquisition wholly by and through the otherwise input taxed supply (at [8]).

ATO view of decision:
The decision of the Full Federal Court is consistent with the Commissioner's view set out in Goods and Services Tax Ruling GSTR 2008/1 that an acquisition will relate to a taxpayer making supplies that would be input taxed for the purposes of paragraph 11-15(2)(a) of the GST Act where, on an objective assessment of the surrounding facts and circumstances, the acquisition is used, or intended to be used, solely or to some extent for the making of supplies that would be input taxed. The Commissioner accepts that if an objective assessment of the facts and circumstances shows that the acquisition has a direct relationship with the making of both input taxed supplies and other taxable or GST-free supplies made in the course of carrying on an enterprise, the acquisition is a partly creditable acquisition.

Administrative treatment:
Implications for impacted ATO precedential documents (Public Rulings and Determinations) | The ATO reviewed GSTR 2008/1 to ensure the principles set out in that ruling were consistent with the decision handed down by the Full Federal Court. | As a result of the review, it was determined that no further amendments to GSTR 2008/1 were necessary (or to other public ruling products that considered the application of paragraph 11-15(2)(a). | Implications for impacted Law Administration Practice Statements | Nil | Date of amendment Part Comment 9 October 2017 Aministrative Treatment Updated to advise GSTR 2008/1 was reviewed without change. Comments section Deleted

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 11-15 11-20 48-45
Case references: AXA Asia Pacific Holdings Ltd v Commissioner of Taxation (2008) 173 FCR 500 [2008] FCA 1834 (2008) 71 ATR 1 HP Mercantile Pty Ltd v Commissioner of Taxation (2005) 143 FCR 553 [2005] FCAFC 126 2005 ATC 4571 (2005) 60 ATR 106 Macquarie Finance Ltd v Commissioner of Taxation (2005) 146 FCR 77 [2005] FCAFC 205 2005 ATC 4829 (2005) 61 ATR 1 Ronpibon Tin NL v Federal Commissioner of Taxation (1949) 78 CLR 47