In a test case decision handed down [on Thursday 19.2.2015], the Federal Court has dismissed a taxpayer’s appeal concerning its entitlement to input tax credits (ITCs) for certain acquisitions relating to mining accommodation in WA.
The taxpayer, Rio Tinto Services Ltd, is the representative member for the Rio Tinto Ltd GST group, which includes Hamersley Iron Pty Ltd and Pilbara Iron Company (Services) Pty Ltd (PICS). The case was conducted as a test case re GST paid by Hamersley and PICS for October 2010 on expenditures including:
- construction and purchase of new housing;
- refurbishment and repairs of residential housing;
- mould removal and hygienic cleaning; and
- cleaning housing and landscaping.
The Court noted that Hamersley owns around 2,300 houses and apartments in towns in the Pilbara.
Rio Tinto claimed it was entitled to ITCs of nearly $600,000 for acquisitions made by Hamersley and PICS in providing, and maintaining, residential accommodation for Hamersley’s workforce in the Pilbara region. The Commissioner rejected the company’s ITC claims on the basis they fell within the terms of s 11-15(2)(a) of the GST Act because they related to making supplies that would be input taxed. The issue concerned acquisitions for a “creditable purpose”.
The Court rejected Rio Tinto’s construction of s 11-15 and dismissed the appeal. In the Court’s view, the acquisitions in question all had a direct connection with Hamersley’s provision of leased accommodation and that connection constituted a sufficient material relationship for the purposes of s 11-15(2)(a). It held the acquisitions were not made for a “creditable purpose”.
(Rio Tinto Services Ltd v FCT [2015] FCA 94, Federal Court, Davies J, 19 February 2015.)
[LTN 33, 19/2/15]
[See more detailed treatment under ‘GST Developments – Cases’.]
FJM Note
On appeal, the taxpayer might have more success in submitting that the housing the taxpayers provided to their staff was “commercial residential premises” and therefore not ‘input taxed under s40-35 of the GST Act. That in turn would mean that the acquisition of these houses, the acquisition of the land and materials to construct these houses and the acquisition of the ancillary services, were for a ‘creditable purpose’ under s11-15(1)&(2)(a) of the GST Act, allowing ‘input tax credits’ to be claimed.
The argument that the supply of this housing (and ancillary services) was the supply of ‘commercial residential premises’ would hinge on the definition of that term in s195-1 of the GST Act. It could be, for instance, that these premises, in this context (including the work context, location, proximity to other such houses, the size of the development for similar occupants and ancillary services supplied) were “similar to” a “motel” or “caravan park” under paragraphs (a), (e) & (f) of the definition of “commercial residential premises”.
Then, under Division 87 of the GST Act, the taxpayers would only have to pay 50% of the usual GST on the supply of such ‘commercial residential premises’. This 50% discount is only available, however, if the supply to the occupants of the relevant dwelling, was for a continuous period of at least 28 days (which I assume it was).