Limitations on the right to credit input tax

1 For readers unfamiliar with Australian GST terminology, the meanings of key words and phrases used in this case note, and their approximate equivalents in EU VAT terminology, are: (1) ‘GST’ is Australia's goods and services tax, which is a value added tax; (2) ‘Enterprise’ is roughly equivalent to the EU VAT concept of an ‘economic activity’; (3) ‘Input tax’ is the GST incurred on taxed acquisitions (purchases) or importations made by the taxpayer; (4) To be entitled to an ‘input tax credit’ is to have a right to deduct that input tax; (5) ‘Creditable acquisitions’ are acquisitions for which there is a right to deduct; (6) ‘Input taxed’ supplies are exempt without the right to deduct; (7) ‘GST-free’ supplies are exempt with the right to deduct; and (8) ‘Entity’ roughly equates to ‘person’, without being limited to legal persons.

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Notes

1 For readers unfamiliar with Australian GST terminology, the meanings of key words and phrases used in this case note, and their approximate equivalents in EU VAT terminology, are: (1) ‘GST’ is Australia's goods and services tax, which is a value added tax; (2) ‘Enterprise’ is roughly equivalent to the EU VAT concept of an ‘economic activity’; (3) ‘Input tax’ is the GST incurred on taxed acquisitions (purchases) or importations made by the taxpayer; (4) To be entitled to an ‘input tax credit’ is to have a right to deduct that input tax; (5) ‘Creditable acquisitions’ are acquisitions for which there is a right to deduct; (6) ‘Input taxed’ supplies are exempt without the right to deduct; (7) ‘GST-free’ supplies are exempt with the right to deduct; and (8) ‘Entity’ roughly equates to ‘person’, without being limited to legal persons.

 2 Further declarations were also sought about Rio Tinto Services’ right to amend its GST returns, how the Commissioner should apply the resulting refund, and the payment of interest: Rio Tinto Services Limited v Commissioner of Taxation [2015] FCA 94, para 17. A test case is one that is considered to raise an issue of broader significance on which judicial guidance is desirable and which has therefore been approved for financial assistance from the Australian Taxation Office: www.ato.gov.au/Tax-professionals/TP/Test-case-litigation-program.

 3 Rio Tinto Services Limited v Commissioner of Taxation [2015] FCA 94.

 4 The Australian approach to GST grouping is in many ways quite different to that in Europe. In particular, all group members remain separately registered and the group does not fictionally become a single entity for GST purposes. These differences are, however, irrelevant in the context of this case.

 5 Rio Tinto Services Limited v Commissioner of Taxation [2015] FCA 94, para 12.

 6 Ibid, para 15; Rio Tinto Services Limited v Commissioner of Taxation [2015] FCAFC 117, para 8.

 7 Rio Tinto Services Limited v Commissioner of Taxation [2015] FCAFC 117, para 17.

 8 Ibid, para 14.

 9 Rio Tinto Services Limited v Commissioner of Taxation [2015] FCA 94, para 13.

10 A New Tax System (Goods and Services Tax) 1999 (‘GST Act 1999’), s 40–35(1) and (2)(a). ‘Residential premises' means ‘land or a building that: (a) is occupied as a residence or for residential accommodation; or (b) is intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation; (regardless of the term of the occupation or intended occupation) and includes a floating home': GST Act 1999, s 196–1 ‘definition of ‘residential premises.’ The concept of residential accommodation takes its ordinary English meaning: Marana Holdings Pty Limited v Commissioner of Taxation [2004] FCAFC 307.

11 GST Act 1999, s 11–5.

12 GST Act 1999, s 11–15 (asterisks omitted). The section goes on to make exceptions to the exclusion in subsection (2)(a) for acquisitions relating to financial supplies if: the taxpayer does not exceed the financial acquisitions threshold; the acquisitions relates to financial services supplied through a place of business outside Australia; or the acquisitions relate to borrowing funds for use in activities that are not input taxed. As would be expected, it also excludes acquisitions that are private or domestic in nature: subsection (2)(b).

13 Rio Tinto Services Limited v Commissioner of Taxation [2015] FCA 94, para 9.

14 Such supplies would have been taxable or GST-free, depending on whether the iron ore was sold domestically or exported.

15 Rio Tinto Services Limited v Commissioner of Taxation [2015] FCA 94, para 16.

16 Ibid, para 29.

17 Ibid, paras 23, 26.

18 Ibid, paras 22, 24, 31.

19 Rio Tinto Services Limited v Commissioner of Taxation [2015] FCA 94, para 33.

20 Rio Tinto Services Limited v Commissioner of Taxation [2015] FCAFC 117, para 7.

21 The three points summarise para 7 of the judgment; the words/phrases in quotation marks are used by the Court in that paragraph.

22 Rio Tinto Services Limited v Commissioner of Taxation [2015] FCAFC 117, para 8.

23 Ibid.

24 Ibid.

25 Case C-126/14 UAB ‘Sveda’ v Valstybin mokesi inspekcija prie Lietuvos Respublikos finans ministerijos, 22 October 2015 (not yet reported).

26 Case C-4/94 BLP Group plc v Commissioners of Customs and Excise [1995] ECR I-983, 6 April 1995.

27 Paragraphs 48–53 of Advocate General Kokott's opinion in Sveda.

28 Rio Tinto Services Limited v Commissioner of Taxation [2015] FCAFC 117, para 8.