Full Federal Court dismisses Rio Tinto appeal – judgment now available

As I noted in my post of last week, the Full Federal Court, in an ex tempore judgment, dismissed the taxpayer’s appeal of the decision of in Rio Tinto Services Ltd v Commissioner of Taxation [2015] FCA 94. The judgment is now available on austlii and can be accessed here.*

The Full Court described the issue in the appeal as whether Rio Tinto is entitled to credits for the GST paid on the acquisitions made by the members of the GST group in relation to the supply of residential accommodation to employees, contractors and ancillary service providers in the remote Pilbara region. Rio Tinto contended that GST was paid on acquisitions by Hamersley and PICS in connection with the provision of residential accommodation to which the group is entitled to credits. The Commissioner contended, as her Honour held at first instance, that credits were denied to Rio Tinto by operation of s 11-15(2)(a) of the GST Act.

The Full Court found that the effect of s 11-15(2), being an exclusion or blocking provision, was to exclude an acquisition to the extent that it relates to a supply that is input taxed from the ambit of “creditable purpose”. The statutory enquiry of s 11-15(2) was described as follows:

…the inquiry called for by s 11-15(2)(a) is not into whether something had been acquired in carrying on the enterprise (which would otherwise have acquired the thing for a creditable purpose within the meaning of s 11-15(1)) but, rather, irrespective of the extent to which the thing had been acquired in carrying on the enterprise, to what extent, if any, did the acquisition relate to making supplies that would be input taxed. The relationship to focus on, in other words, is the relationship between the antecedent acquisitions for which credit is claimed and the subsequent supply for which the credit is, in effect, lost.

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 that 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 which 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 Full Court found that an examination of the acquisitions in question revealed unquestionably that they all relate wholly to the making of supplies that would be input taxed, albeit that they do so for the wider purpose of the enterprise. The terms of s 11-15(2)(a) do not depend on the reason or purpose of the enterprise in making the supply or making the anterior acquisition.

My discussion of the judgment of the primary judge can be accessed here.

* As I appeared for the Commissioner, in this post I have endeavoured to not provide any analysis or comment on the decision, but rather to summarise the reasons for decision of the Court.

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