28 August 2015

Still no input tax credits for GST incurred in supplying remote mine accommodation

This article was written by Stuart Courtney and Ari Rosenbaum.

In an ex tempore judgement, the Full Court of the Federal Court of Australia confirmed the first instance decision of Justice Davies (Rio Tinto Services Ltd v Commissioner of Taxation [2015] FCA 94) that acquisitions related to the provision of residential accommodation at remote mine sites were not made “for a creditable purpose”.

The Court rejected the impact of the taxpayer’s broader commercial purpose when making the relevant acquisitions, namely the advancement of its mining operations.

This decision provides clarification to the test first set out by Hill J in HP Mercantile Pty Ltd v Commissioner of Taxation (2005) 143 FCR 553 (HP Mercantile) regarding the application of s. 11-15(2) of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act).

Summary of the facts and relevant legislation

Rio Tinto Services Limited (Rio Tinto) as the representative member of a GST group, sought a declaration that it was entitled to input tax credits for GST paid on acquisitions made by 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.

Under the GST Act, to be entitled to input tax credits, the relevant acquisitions must have been made for a creditable purpose. This required, among other things, that:

  1. the acquisitions be made in carrying on an enterprise (s. 11-15(1) of the GST Act); and
  2. the acquisitions not relate to making supplies that would be input taxed (s. 11-15(2)(a) of the GST Act).

A link to our alert which provides an analysis of the first instance judgement, including further detail on the facts and relevant legislation, can be found here.


The Full Court held that the application of s. 11-15(2)(a) requires 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. The Full Court concluded that, where an acquisition relates wholly to the making of supplies that would be input taxed, that supply is not to be apportioned merely because that supply may also serve some broader commercial objective of the supplier.

Although the Court conceded that the acquisitions in question were indeed for the wider purpose of Rio Tinto’s mining enterprise, the Court held that the acquisitions all related wholly to the making of input taxed supplies. The Court clarified this position by stating that the broader purpose of carrying on Rio Tinto’s mining enterprise only explained why the acquisitions may have been made – it did not alter the fact that the acquisitions in question all related to the making of the supply of the premises by way of lease (being an input taxed supply).

On that basis, the Court dismissed Rio Tinto’s appeal, holding that “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”.


In HP Mercantile, Justice Hill stated that in order to “relate to the making of supplies that would be input taxed” under s. 11-15(2)(a), the connection between the supply and the acquisition must be “relevant” and a remote connection will usually not suffice.

In the first instance decision of this case, Davies J held that an apportionment would be required “to the extent that an acquisition has a relevant relationship with both the making of taxable supplies and input taxed supplies”.

This decision by the Full Court suggests that the purpose of the acquisition should not play any part in determining whether a “relevant connection” exists.

The taxpayer has 28 days to lodge an application for leave to appeal to the High Court of Australia. We will monitor the progress of this case and provide updates in due course.

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