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.)
[See FJM Note below]
[LTN 33, 19/2/15]
Extracts from the GST Act
11-5 – What is a creditable acquisition?
You make a creditable acquisition if:
(a) you acquire anything solely or partly for a * creditable purpose; and
(b) the supply of the thing to you is a * taxable supply; and
(c) you provide, or are liable to provide, * consideration for the supply; and
(d) you are * registered, or * required to be registered.
11.15 – Meaning of creditable purpose
(1) You acquire a thing for a creditable purpose to the extent that you acquire it in * carrying on your * enterprise.
(2) However, you do not acquire the thing for a creditable purpose to the extent that:
(a) the acquisition relates to making supplies that would be * input taxed; or
(b) the acquisition is of a private or domestic nature.
(3) An acquisition is not treated, for the purposes of paragraph (2)(a), as relating to making supplies that would be * input taxed to the extent that the supply is made through an * enterprise, or a part of an enterprise, that you * carry on outside the indirect tax zone.
(4) An acquisition is not treated, for the purposes of paragraph (2)(a), as relating to making supplies that would be * input taxed if:
(a) the only reason it would (apart from this subsection) be so treated is because it relates to making * financial supplies; and
(b) you do not * exceed the financial acquisitions threshold.
(5) An acquisition is not treated, for the purposes of paragraph (2)(a), as relating to making supplies that would be * input taxed to the extent that:
(a) the acquisition relates to making a * financial supply consisting of a borrowing (other than through a * deposit account you make available); and
(b) the borrowing relates to you making supplies that are not input taxed.
40-35 – Residential rent
(1) A supply of premises that is by way of lease, hire or licence (including a renewal or extension of a lease, hire or licence) is input taxed if:
(a) the supply is of * residential premises (other than a supply of * commercial residential premises or a supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises); or
(b) the supply is of * commercial accommodation and Division 87 (which is about long-term accommodation in commercial premises) would apply to the supply but for a choice made by the supplier under section 87- 25.
(1A) A supply of a berth at a marina that is by way of lease, hire or licence (including a renewal or extension of a lease, hire or licence) is input taxed if:
(a) the berth is occupied, or is to be occupied, by a * ship used as a residence; and
(b) the supply is of * commercial accommodation and Division 87 (which is about long-term accommodation in commercial premises) would apply to the supply but for a choice made by the supplier under section 87- 25.
(2) However:
(a) the supply is input taxed only to the extent that the premises are to be used predominantly for residential accommodation (regardless of the term of occupation); and
(b) the supply is not input taxed under this section if the lease, hire or licence, or the renewal or extension of a lease, hire or licence, is a * long-term lease.
195-1 Dictionary
In this Act, except so far as the contrary intention appears:
…
“commercial residential premises” means:
(a) a hotel, motel, inn, hostel or boarding house; or
(b) premises used to provide accommodation in connection with a * school; or
(c) a * ship that is mainly let out on hire in the ordinary course of a * business of letting ships out on hire; or
(d) a ship that is mainly used for * entertainment or transport in the ordinary course of a * business of providing ships for entertainment or transport; or
(da) a marina at which one or more of the berths are occupied, or are to be occupied, by * ships used as residences; or
(e) a caravan park or a camping ground; or
(f) anything similar to * residential premises described in paragraphs (a) to (e).
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 would 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).