Author Archives: chrissievers

Annotated GST Act and Taxation Administration Act added to site

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As the number of cases dealing with GST issues continues to grow, I felt that it was time to put together an annotated GST Act to complement this site. This allows you to go to a section of the GST Act and see if any decisions have been handed down that relate to that section. I have also included an annotated Taxation Administration Act, for those sections that may relate to GST. This includes parts of Schedule 1 to the TAA, which contains the collection and recovery provisions.

The Annotated Legislation can be accessed through the Menu at the top of the page. There is also a drop down menu for the GST Act, which can take you directly to the particular sections of the Act. All you do it put the mouse over the menu item.

The legislation includes all of the Australian decisions (I may have missed one or two here or there) and a number of international decisions. The annotations will be updated progressively.

I hope you find this additional resource useful.

New South Wales Supreme Court finds taxpayer made GST-free supplies of ambulance services under s 38-10(5)

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Most cases where GST is an issue involve the Commissioner of Taxation as a party. However, that is not always the case because GST can be the subject of a commercial dispute between the parties. The recent decision of the New South Wales Supreme Court in Acquatic Air Pty Limited v Siewert [2015] NSWSC 928 is a further example.

The case involved a dispute about the sale of shares in a group of aviation companies, which included the provision of air ambulance services to regional hospitals and area health services. The case is complex but it appears from the judgment that the facts relating to the GST issue can be relevantly summarised as follows:

  • while the vendor owned and operated the business, the ATO made enquiries of the nature of the business and the absence of any payment of GST. The ATO appeared satisfied with the explanation provided to them that it was an air ambulance service and accordingly did not have to pay GST (i.e., the services were GST-free under s 38-10(5) as a supply provided by an ambulance service in the course of the treatment of the *recipient of the supply).
  • the share sale agreement was made on 22 July 2011 and the agreement contained warranties and representations that the accounts as at 30 June 2011 were accurate – the accounts disclosed no GST liability
  • on 23 July 2012 the ATO issued assessments in excess of $2.3m for unpaid GST in the period 1 July 2008 to 31 May 2012.
  • the company objected to the assessment, which was disallowed (other than to remit penalties) – but did not appeal the objection.

The issue concerning GST was whether the vendor had made a false representation or warranty in the share sale agreement, given that the accounts disclosed no GST liability when it was contended that there actually was a GST liability as at 30 June 2011.

The Court found that there was no false representation or warranty in the accounts. The Court then considered whether the company had a GST liability at 30 June 2011 at all. The Court noted that the assessment for GST was conclusive evidence of the existence of the liability, and that the company indisputably had a GST liability as from the date of the assessment – namely, 23 July 2012. However, the Court found that the issue was whether that GST liability existed at 30 June 2011, and that question depended on the correct application of the facts as at 30 June 2011, irrespective of the later assessment.

The Court noted that the ATO’s reasoning supporting the assessment involved two elements: the first was that as the company did not hold an Air Operators Certificate (AOC), it could not be providing air ambulance services; and the second was that the services were provided to the hospitals, not to the individual transported, and thus were not in the course of the treatment of the recipient.

As to the first point, the Court observed that  the GST legislation makes no reference to any requirement for an ambulance service to hold an AOC – nor for that matter any other licence or permit. Further, that there seemed to me no reason why an ambulance service could not contract with another entity for the use of vehicles or aircraft owned and/or operated by that other entity. And finally, even if the ambulance service were to cease to hold a relevant licence, it would not cease to be an ambulance service. In coming to this view, the Court noted that the ATO had issued an “interpretative ruling” [ATO ID 2005/185] that considered that an ambulance service is one that relevantly “is permitted to provide aerial ambulance services pursuant to section 27 of the Civil Aviation Act” – but found that this was not a requirement of the legislation.

As to the second point, the Court took the following view:

As to the second, the essential question is, who is the recipient of the supply – the hospital that contracts the ambulance service, or the patient. Often – probably usually – an ambulance will be called by a person other than the patient. Hospitals often arrange for specialist attendances and investigations on patients. It seems to me that in each of those cases, the recipient of the supply is, at least ordinarily, the patient – not the person who calls the ambulance, nor the hospital that arranges the specialist investigation. Likewise, it seems to me that the recipient of the supply of an air ambulance service, although it might be arranged by the hospital, is the patient. It is the patient, not the hospital, who is transported. It is the patient, not the hospital, who receives the benefit of the service. It is the patient who usually ultimately pays. But even if it is the hospital that pays, the GST Act recognises that the recipient of a supply is not necessarily the person who pays for it: s 9-15(2) provides:

It does not matter whether the payment … was made by the recipient of the supply.

For those reasons, and while minds may reasonably differ on the question, in my view, upon the proper construction of s 38-10(5), Wingaway was an ambulance service, and the services it supplied were supplied to the patients it transported, in the course of their treatment. Such services were therefore exempt within s 38-10(5), and as at 30 June 2011 – more than a year before the assessment issued – Wingaway did not have a liability for GST, even though such a liability arose upon the issue of the assessment on 23 July 2012.

The decision shows that the scope given by the Commissioner to the exemption in s 38-10(5) was seen by the Court as being too narrow.

Going forward, the Commissioner is not bound by the decision, as he was not a party. Also, the decision has no impact on the liability of the taxpayer to pay the assessment. However, one would expect that the Commissioner would address the decision by amending or withdrawing the ATO ID, or issuing a Decision Impact Statement.

Cases such as these are difficult for the Commissioner, because he does not have an opportunity to address the Court or to make submissions on the GST question. A good example is the decision of the New South Wales Supreme Court in Toyama Pty Ltd v Landmark Building Developments Pty Ltd [2006] NSWSC 83 where the Court took a view contrary to that given in a private ruling about whether the sale of a house with a development approval for the construction of a residential development was a taxable supply or an input taxed supply of the sale of residential premises. Ultimately, the Commissioner had to wait until the Full Federal Court in Sunchen Pty Ltd v Commissioner of Taxation [2010] FCAFC 138 disapproved of the Toyama decision some four years later.

Commissioner publishes GST ruling on development lease arrangements with government agencies

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Yesterday the Commissioner published GSTR 2015/2 ‘Goods and services tax: development lease arrangements with government agencies’.

The ruling outlines the Commissioner’s views on the GST treatment of development lease arrangements between government entities and private developers that typically have the following features:

  • the private developer undertakes a development on land owned by a government agency in accordance with the terms of a written agreement between the developer and the government agency; and
  • the government agency supplies the land by way of freehold or grant of a long term lease to the developer, subject to the developer undertaking the development in accordance with the terms of the written agreement – that is, the developer becomes entitled to a transfer of the freehold or grant of a long term lease when the development is completed.

The ruling is comprehensive and considers the following matters:

  • the relevant principles for identifying and characterising the various supplies that are made for consideration under a development lease arrangement, including:
    • whether the grant of a short-term lease or licence (development lease) by the government agency to allow the developer to undertake the development on land is a supply for consideration;
    • whether, in completing the words on land owned by the government agency, the developer makes a supply of development services to the government agency for consideration;
    • whether the sale of the freehold or grant of the long-term lease of land by the government agency is a supply for consideration, and whether any consideration the developer provides for supply of the land includes undertaking of the development words on land owned by the government agency;
  • the extent to which the consideration for particular supplies made under a development lease arrangement includes consideration that is not expressed as an amount of money, that is, non-monetary consideration;
  • how the value of any non-monetary consideration provided for supplies made in the context of a development lease arrangement may be determined; and
  • the attribution, under Division 29, of the GST liabilities and input tax credit entitlements that may arise under development arrangements.

The summary of the GST outcome under the Ruling are as follows:

  • the supplies made under a development lease agreement are as follows:
    • the government agency makes a supply of land to the developer by way of lease or licence; and
    • the developer makes a supply of development services to the government agency.
  • the supplies made for consideration are as follows:
    • where the terms of the development lease arrangement makes the supply of the land subject to or conditional on the developer completing specified development works, the supply of the land by the government agency is consideration for the developer’s supply of development services and the supply of the development services is, in turn, consideration for the supply of land by the government agency.
    • where the developer completes additional works on land retained by the government agency, the developer makes a supply of development services to the government agency. The supply of the land by the government agency is consideration for this supply of development services if the terms of the development lease agreement make the government agency’s supply of land subject to or conditional upon the developer completing the additional works, and Division 82 does not apply.

Newsflash: 2015 Budget announcements connected with GST

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The 2015 Budget includes three announcements which are connected with the GST. The first is the proposed extension of GST to the importation of digital products and other intangibles. The second is the proposed amendments to Part IVA of the Income Tax Assessment Act  to stop multinational entities using artificial or contrived arrangements to avoid a taxable presence in Australia. This announcement is relevant because the proposed amendments will apply to “supplies” of goods and services by foreign multinationals to Australian customers. The draft legislation incorporates the definition of “supply” in section 9-10 of the GST Act and the jurisprudence on what constitutes a “supply” will likely be relevant to the operation of the provisions. The third is that the proposed “reverse charge” amendments to the sale of going concern and farmland GST exemptions are not to proceed. These amendments were proposed in the 2009/10 Budget – a paper I presented on the proposed amendments can be accessed here.

Extension of GST to the import of digital products and other intangibles

The Government has released an exposure draft Bill and associated explanatory material that would amend the goods and services tax (GST) law to ensure digital products and services provided to Australian consumers receive equivalent GST treatment whether they are provided by Australian or foreign entities.

The proposed amendments:

  • make the supply of anything other than goods or real property to an entity that is not registered or required to be registered for GST potentially subject to GST if that entity is an Australian resident;
  • provide that the GST will be payable on certain electronic supplies to which the above applies, by the operator of the service through which the supply is made to the consumer rather than the actual supplier; and
  • allow for the making of regulations to provide simplified rules for registration, tax periods and GST returns for entities to which the proposed amendments apply.

The Exposure Draft can be accessed here. The Explanatory Material can be accessed here.

Amendments to Part IVA re multinational tax avoidance

The Government has released an exposure draft to amend Part IVA of the Income Tax Assessment Act to target the following situations:

  • a foreign multinational supplies goods or services to Australian customers and books that revenue offshore;
  • the activities of an Australian entity are integral to the Australian’s customer’s decision to purchase the goods or services;
  • the profits from Australian sales are subject to low or no global tax; and
  • one of the principal purposes of the arrangements is to obtain a tax benefit.

A central element in the proposed amendments is the concept of “supply”. This can be seen from the following extract from the proposed section 177DA (emphasis added):

Scheme for a purpose including obtaining a tax benefit etc

(1)   Without limiting section 177D, this Part also applies to a scheme if:

(a) under, or in connection with, the scheme:

(i) a non-resident makes a supply to an Australian resident who is not an associate of the non-resident; and

(ii) income the non-resident derives from the supply is not attributable to an Australian permanent establishment of the non-resident; and

(iii) activities are undertaken in connection with the supply; and

(iv) some or all of those activities are undertaken by an Australian resident who, or undertaken at or through an Australian permanent establishment of an entity who, is an associate of or is commercially dependent on the non-resident; and

(b) it would be reasonable to conclude (having regard to the matters in subsection (2)) that the scheme is designed to avoid the non-resident deriving income, from such supplies, that would be attributable to an Australian permanent establishment of the non-resident; and…

The definition of “supply” in the exposure draft incorporates section 9-10 of the GST Act. The Explanatory Material at paragraph 1.48 states as follows:

The term ‘supply’ is defined in section 9-10 of the A New Tax System (Goods and Services) Tax Act 1999 and includes, amongst other things, the supply of electronic material, advertising services, downloads, the provision of data, intellectual property rights, and the right to priority in search functions.

Supreme Court of Victoria finds that an order for damages should be exclusive of GST

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In Millington v Waste Wise Environmental Pty Ltd [2015] VSC 167 the Supreme Court of Victoria found that an award for damages to compensate the respondent for damage to the respondent’s vehicle should be exclusive of GST where the respondent was entitled to claim input tax credits in respect of the repairs to the vehicle. The Court allowed the appeal against the decision of the Magistrates Court that the order should be for a GST-inclusive amount of damages with a further order that at a subsequent date the respondent repay an amount equal to the input tax credits which could be claimed.

The Court adopted the finding of the NSW Court of Appeal in Gagner Pty Ltd trading as Indochine Cafe v Canturi Corporation Pty Ltd [2009] NSWCA 413 that an an award of damages properly calculated should not include an amount for GST where the plaintiff is entitled to claim input tax credits for that amount. However, the Court noted that a key element in this proposition is the concept of certainty, as the loss suffered could be easily quantified and an order for a fixed sum can be readily made. Where the amount of loss is not easily quantified, the principle may not be available – the Court referred to the decision of the Victorian Supreme Court in Peet Limited v Richmond (No.2) [2009] VSC 585 as an example.

The Court also found that the orders of the Magistrate were structured in the manner in which they were was because of the erroneous view taken that there existed a positive duty upon the respondent to mitigate its loss by claiming the input tax credits to which it was entitled. The Court considered that no such positive duty exists and the correct view is that  a person who claims a loss must take all reasonable steps to mitigate the loss consequent upon the defendant’s wrong and will not be entitled to recover an amount for damages for any such loss which he, she or it could have avoided, but has failed to avoid through their own unreasonable action or inaction. The claiming of input tax credits could not be seen as an unreasonable imposition.

Commissioner issues final GST ruling on GST refunds and Division 142

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The Commissioner has finalised his ruling on the operation of Division 142 of the GST Act . In GSTR 2015/1 ‘Goods and services tax: the meaning of the terms ‘passed on’ and ‘reimburse’ for the purposes of Division 142 of the A New Tax System (Goods and Services Tax) Act 1999‘ the Commissioner provides his detailed view on the terms “passed on” and “reimburse” which are fundamental to the operation of Division 142 of the GST Act and a taxpayer’s entitlement to a refund of overpaid GST

The ruling was issued in draft as GSTR 2014/D4 ‘Goods and services tax: the meaning of the terms ‘passed on’ and ‘reimburse’ for the purposes of Division 142 of the GST Act’. My analysis of the draft ruling can be accessed here. The Commissioner does not appear to have made any substantive changes to the draft ruling.

For further discussion of Division 142 and the question of when GST may be “passed on”, in December 2014 my article “Division 142 and refunds of GST – when is GST passed on?” was published in the Australian GST Journal.

Tribunal finds applicant out of time to claim input tax credits

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In The Trustee for SBM Trust and Commissioner of Taxation [2015] AATA 174 the Tribunal found that the effect of s 93-5 of the GST Act was that the applicant was not entitled to amend its BAS to claim input tax credits that related to acquisitions made more than four years ago. The Tribunal also found that it did not matter that the acquisitions were made before the commencement date of s 93-5.

The Tribunal accepted the Commissioner’s argument that the effect of s 93-5(a) was that the applicant “ceased to be entitled” to the input tax credits as soon as Division 93 became law – this was because the taxpayer had not taken those credits into account in the tax period in which the acquisitions were made or any other tax period during the subsequent four years from the tax period in which the acquisitions were made.

The Tribunal rejected the applicant’s submission that s 93-5 applies only to acquisitions made after 12 May 2009 (the date of its application). This is because the provision does not fix on the date of the acquisition, but on the timing of the lodgement of the GST return.

 

Tribunal finds trustee liable to pay GST of trust

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In Anderson and Commissioner of Taxation [2015] AATA 167 the Tribunal found that the trustee of a family trust, was liable for GST in respect of the sale of property by the trust where the trust was in financial trouble and the proceeds of the sale were paid directly to the mortgagee. The contract of sale was entered into by the applicant, in his capacity as trustee, and the mortgagee did not formally enter into possession.

The Tribunal rejected the applicant’s contention that the trustee was an “incapacitated entity” for the purposes of the GST Act, principally because the applicant was a natural person and could not be placed into liquidation or receivership, and was not a bankrupt. Also, the evidence did not establish that the mortgagee sold the property as mortgagee in possession. Rather, the properties were sold by the trustee with the mortgagee’s consent (and also by reason of the pressure of the mortgagee), but that was not enough to engage the provisions of Division 105.

An interesting contention of the applicant was that he had retired as trustee on 9 December 2009 (the contract of sale was entered into on 26 March 2009 and the sale completed on 18 November 2009) and therefore the trustee was not liable for the GST. The Commissioner questioned whether the applicant had actually retired as trustee, but contended that it did not matter because the Tribunal only needed to decide whether “the trustee” is liable and that the question whether a particular individual was liable to pay any amount was not squarely before the Tribunal. The applicant was unable to point to any reason why the trustee was not liable for GST.

The Tribunal observed that if the Commissioner were to commence recovery proceedings in a Court against a particular individual, such as the applicant, in his personal capacity, the following questions would arise:

  • first, if an individual incurs a liability in one capacity – as trustee, say – which is distinct from his personal capacity, why can the Commissioner extract payment from the individual in his personal capacity in respect of the other entity’s debts?
  • second, if Mr Anderson can satisfy a court he had actually resigned in December 2009 before the end of the relevant quarter, he may escape any liability because it is accepted GST liability only crystallises at the end of a quarterly period

In considering the above questions, it is relevant to note PSLA 2012/2 ‘Change of Trustee’ outlining the approach to be taken by the Commissioner in recovering income tax and GST liabilities of a trust where there is a change of trustee following a income tax year or a tax period. My post discussing the PSLA can be accessed here.

The Commissioner takes the view that any liability to GST is a personal liability of the trustee and remains a personal liability of a retiring trustee (although the retiring trustee may have rights to seek indemnity from the assets of the trust – to the extent that there are such assets). However, if the applicant did resign as trustee on 9 December 2009, the approach of the PSLA appears to be that it is the new trustee (in this case the applicant’s mother) who is personally liable for the GST as she was trustee at the time the debt crystallised (i.e., at the end of the quarterly tax period).

Tribunal finds taxpayer was not carrying on enterprise of land development

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In Bryxl Pty Ltd as Trustee for the Kypu Trust and Commissioner of Taxation [2015] AATA 89 the Tribunal found that the taxpayer did not establish that it was carrying on an enterprise of land development and was entitled to input tax credits in respect of certain acquisitions.

The Tribunal observed that the documents provided by the taxpayer were unsatisfactory, some were incomplete, some simply absent and some appeared to be inconsistent with statements made to the ATO in the course of discussions following assessment. Given that the onus falls to the taxpayer to show that an enterprise was being carried on, in light of these observations the taxpayer faced a difficult task.

In particular, a critical issue appeared to be the circumstances in which the taxpayer purportedly purchased the land which was to be subdivided and sold. The taxpayer only put parts of the contract of sale into evidence, and those parts were did not support what was said in oral evidence before the Tribunal. Further, there was no objective evidence of any deposit being paid or that settlement ever took place. The title search produced by the Commissioner showed that the land remained in the name of the vendor. The Tribunal also found that the taxpayer could not raise the purchase price.

The Tribunal concluded that until such time that the land was conveyed to the taxpayer, it could not have commenced an enterprise involving the subdivision of that land. The Tribunal’s conclusion was as follows (at [59]):

The evidence in this case regarding Bryxl conducting a business or enterprise involving the subdivision and sale of land discloses that while Bryxl may have had the intention to carry out such a business or enterprise, the steps it undertook in obtaining a planning permit and a market valuation cannot properly be described as being steps taken in the course of commencement of an enterprise. Until such time as it acquired the right to deal with the land in such a way that subdivision and sale could occur, it is artificial to suggest it was conducting the enterprise involving the subdivision and sale of land. The steps taken were clearly precursors or preparatory to the possible commencement of business, whether that be subdivision of the land or a quick sale to a syndicate of buyers.

The Tribunal also found that the Commissioner had properly cancelled the GST registration of the taxpayer and affirmed the Commissioner’s imposition of penalties on the basis that the taxpayer was reckless.

Federal Court finds taxpayer is not entitled to input tax credits for remote housing acquisitions

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In Rio Tinto Services Ltd v Commissioner of Taxation [2015] FCA 94 the Federal Court dismissed an application by the taxpayer for a declaration that it was entitled to input tax credits in respect of acquisitions made in the course of providing remote housing accommodation to its workforce in the Pilbara mining region of Western Australia.*

The taxpayer claimed input tax credits for acquisitions made by members of its GST group in “providing and maintaining residential accommodation for its workforce in the Pilbara region”. The accommodation was leased to workers and there was no dispute that the leases were input taxed supplies under s 40-35 of the GST Act. The acquisitions included construction, refurbishment and maintenance costs. The taxpayer subsidised the rent payable by the workers and made a loss from providing the accommodation and the unchallenged evidence was to the effect that the cost of accommodation in the towns would be very high without the subsidy, and it would not be economically viable for most people to pay the full cost of the accommodation, making it difficult to attract, and retain, people to work in the Pilbara region.

The case concerned the construction of s 11-15 and the expression “creditable purpose”. The Court observed (at [2]) that “creditable purpose” has the statutory meaning given by s 11-5 and that:

  • section 11-15(1) provides that an entity makes an acquisition for a creditable purpose “to the extent” the entity makes the acquisition “in carrying on” its enterprise
  • section 11-15(2) provides that “however” an entity does not make an acquisition for a creditable purpose “to the extent that” the acquisition relates to making supplies that would be “input taxed”, or the acquisition is of a private or domestic nature

The Commissioner accepted that the acquisitions fell within s 11-15(1) (i.e., they were made in the course of the taxpayer’s enterprise) but contended that s 11-15(2)(a) operated to deny the claims because the acquisitions related to supplies that would be input taxed – namely the leases. The Commissioner contended that there was a direct and immediate connection between the acquisitions and the leases.

The taxpayer put two contentions:

  • the acquisitions were made wholly for a creditable purpose because the leasing of accommodation to workers was not an end commercial objective, but was wholly incidental to the mining operations and a necessary and essential part of the operation.
  • in the alternative, the acquisitions related to the leasing and to the end commercial objective, requiring apportionment – adopting a revenue based apportionment methodology gave an entitlement to credits of 99.88.

The Court observed that the taxpayer accepted that there was a connection between the acquisitions and the leases, but contended that this was not the “relevant connection”. For the relevant connection to be established, the making of the input taxed supply needed to be the “moving cause” or “purpose” of the acquisition. The acquisitions at issue did not not “relevantly relate” to the leases but to the ultimate mining operations of the taxpayer.

The taxpayer sought to support its contention that one must look to the “purpose” of the acquisition by referring to New Zealand authority. The New Zealand provisions involved the statutory test of whether the acquisitions were acquired for “the principle purpose” of making services that were taxable supplies or exempt supplies. The Court stated as follows (at [21]):

Rio Tinto accepted that the statutory test in New Zealand is expressed in different language but submitted that the scheme under the GST Act is not relevantly different in that the criteria embodied in the words “relates to” in s 11-15(2)(a) is the identification of a purpose of making a taxable supply which would be input axed, as distinct from a purpose of making taxable supplies. Rio Tinto argued that this construction of s 11-15 is supported textually, and by the scheme and policy of the legislation. It was argued that as, in this case, the provision of housing was merely a means to Hamersley carrying on its business, there was not a sufficient and material connection between the acquisitions in question and the making of input taxed supplies for the purposes of s 11-15(2)(a). I am unable to agree.

The Court (at [23]) observed that unlike the New Zealand legislation, s 11-15 does not use the language of, or require, or even direct, an inquiry into purpose. Further, whilst the entitlement to an input tax credit depends on an entity having a “creditable purpose” in making the acquisition, “creditable purpose” is a statutory construct and has a specific statutory meaning.

The Court (at [25]) considered that the language of s 11-15(2)(a) directs an enquiry into whether the acquisition has a nexus with input taxed supplies that an entity makes in carrying on its enterprise. Further, (at [26]) the Court considered that relationship must be “sufficient” or “material” and concluded as follows:

If an entity makes input taxed supplies, s 11-15(2)(a) operates to deny input taxed credits on those acquisitions. It is the objective relationship between an acquisition and making supplies that would be input taxed with which s 11-15(2)(a) is concerned, not the moving cause or principal purpose behind the acquisition. The purpose for which an acquisition was made may in some cases bear upon whether the acquisition has a relevant relationship with the making of supplies that would be input taxed, but it is the existence of a connection or relationship between the acquisitions and supplies that would be input taxed that is the statutory criterion directed by s 11-15(2)(a).

The taxpayer also contended that the legislative policy of the GST Act and Division 11 would be defeated by the Commissioner’s construction of s 11-15 because the taxpayer’s business is to profit from the making of taxable and GST-free supplies of iron ore, not the provision of accommodation. Also, the Commissioner’s construction would result in a cascading of tax on taxable supplies and unrecoverable GST being embedded in GST-free exports because the taxpayer’s leasing activities operated as a loss and the taxpayer could only recover the GST cost in the acquisitions through those taxable and GST-free supplies. The Court (at [30]-[34]) outlined the following responses to that submission:

  • the task of statutory construction does not seek to identify or assume the underlying policy of a provision and then seek to construe that policy – that is what the taxpayer sought to do here.
  • that it may be necessary for the taxpayer to subsidise the rent on the accommodation in order to attract and retain its workforce, with the consequence that the leasing activity is loss making, does not gainsay the application of s 11-15(2)(a).
  • it is the transaction that determines the GST outcome. In this case, the taxpayer has chosen to lease accommodation to its workforce with the consequence that s 40-35 applies and the provision of accommodation is an input taxed supply.
  • s 11-15(2)(a) should be construed consistently with the scheme of the GST Act under which GST is not payable on input taxed supplies that an entity makes and correlatively there is no entitlement to input tax credits on acquisitions that relate to such input taxed supplies. The acquisitions in question have a direct and immediate connection with the provision of leased accommodation and that direct and immediate connection constitutes a sufficient and material relationship  for the purposes of s 11-15(2)(a).

The Court found that the taxpayer’s alternative argument on apportionment did not arise for determination because the acquisitions related wholly to the provision of accommodation.

* 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.