RIO TINTO SERVICES LTD v FC of T

Judges:
Davies J

Court:
Federal Court, Melbourne

MEDIA NEUTRAL CITATION: [2015] FCA 94

Judgment date: 19 February 2015

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DAVIES J:

THE ISSUE

1. This case concerns the construction of the expression "creditable purpose" as defined in s 11-15 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) ( "the GST Act" ). An entity must have a "creditable purpose" in making an acquisition for the acquisition to be a "creditable acquisition": s 11-5(a) of the GST Act. If the entity makes a "creditable acquisition" it is entitled to a credit ( "input tax credit" ) for the amount of GST which is payable on the supply of the goods or services that it acquires: s 11-25 of the GST Act.

2. "Creditable purpose" has the statutory meaning given by s 11-15. Section 11-15(1) provides that an entity makes an acquisition for a creditable purpose "to the extent that" the entity makes the acquisition "in carrying on" its enterprise. Section 11-15(2)(a) provides that "[h]owever" 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. Section 11-25 provides that if the entity only partly makes the acquisition for a "creditable purpose", the acquisition is only partly creditable and s 11-30 contains rules for apportionment.

3. The applicant ( "Rio Tinto" ) is the representative member for the Rio Tinto Ltd GST group, which includes Hamersley Iron Pty Ltd ( "Hamersley" ) and Pilbara Iron Company (Services) Pty Ltd ( "PICS" ). As the scheme of the GST Act is to treat the GST group as if it were a single entity, Rio Tinto, as the representative member, is entitled to the input tax credits on creditable acquisitions made by Hamersley and PICS: s 48-45(1) of the GST Act.

4. Rio Tinto has claimed that it is entitled to input tax credits for acquisitions made by Hamersley and PICS in providing, and maintaining, residential accommodation for Hamersley's workforce in the remote Pilbara region in Western Australia, where Hamersley conducts mining operations. The accommodation is leased to the workers and the provision of the accommodation is an input taxed supply under s 40-35 of the GST Act. The respondent ( "the Commissioner" ) has accepted that Hamersley provides residential accommodation to its workforce in the course of conducting its business of mining and selling iron ore, and that the acquisitions fall within the terms of s 11-15(1). However, the Commissioner has denied the input tax credit claims on the basis that they also fall within the terms of s 11-15(2)(a) because they relate to making supplies that would be input taxed: viz, the supply of residential accommodation by way of lease.

5. The issues for determination are:

• (a) whether the acquisitions were made solely or partly for a "creditable purpose"; and
• (b) if made only partly for a "creditable purpose", the amount of credit to which Rio Tinto is entitled.

6. For the reasons that follow, I consider that the acquisitions fall within the terms of s 11-15(2)(a) and, therefore, that the acquisitions were not made for a "creditable purpose". In the circumstances, the question of apportionment does not arise.

THE STATUTORY FRAMEWORK

7. Under the GST Act, an entity is liable to pay GST on "taxable supplies" that it makes and is entitled to input tax credits for its "creditable acquisitions": ss 9-40 and 11-20. There is an evident correlation between the imposition of liability to pay GST and credit entitlements. To be a "taxable supply", the supply must be made "in the course of or furtherance of an enterprise that [an entity carries] on": s 9-5(b). "However", the supply is not a "taxable supply" "to the extent that it is … input taxed": s 9-5. To be a "creditable acquisition", the entity must acquire the goods or services "in carrying on [its] enterprise": s 11-15(1). "However", an acquisition is not a "creditable acquisition" to the extent that the acquisition "relates to" making supplies that would be "input taxed": s 11-15(2)(a). For each tax period applicable to the entity, amounts of GST are set off against amounts of input tax credits to produce a net amount, which may then be subject to adjustments. The net amount, as adjusted, is the amount that the entity must pay to the Commonwealth, or which

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the Commonwealth must pay to the entity, in respect of the period: s 7-5;
Commissioner of Taxation v MBI Properties Pty Ltd (2014) 315 ALR 32; [2014] HCA 49 at [3].

8. "Input taxed" supplies are set out in Division 40 of the GST Act and, relevantly, include a supply of residential premises by way of lease: s 40-35(1)(a). No GST is payable on an input taxed supply and, correlatively, there is no entitlement to an input tax credit for anything acquired that "relates to" making that supply: s 9-5 and s 11-15(2)(a);
HP Mercantile Pty Ltd v Commissioner of Taxation (2005) 143 FCR 553 ( "HP Mercantile" ) at [16]-[17].

9. An acquisition can be wholly creditable, partly creditable or not creditable, depending on whether, and the extent to which, the entity has a "creditable purpose" as defined in s 11-15. Section 11-15 relevantly provides as follows:

• (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.

10. Section 11-25 provides that the amount of the input tax credit for a "creditable acquisition" is an amount equal to the GST payable on the supply of the thing acquired. The amount of input tax credit is reduced if the acquisition is only "partly creditable". An acquisition is "partly creditable" if the acquisition is made only partly for a "creditable purpose", as that expression is defined in s 11-15: s 11-30. Where transactions involve acquisitions that are only partly for a "creditable purpose", it is necessary to work out the creditable amount by a process of apportionment. Section 11-30(3) provides a formula for determining the amount of the input tax credit on an acquisition made only partly for a creditable purpose as follows:

Full input tax credit

x

Extent of creditable purpose

x

Extent of consideration

where:

extent of consideration is the extent to which you provide, or are liable to provide, the consideration for the acquisition, expressed as a percentage of the total consideration for the acquisition.

extent of creditable purpose is the extent to which the creditable acquisition is for a creditable purpose, expressed as a percentage of the total purpose of the acquisition.

full input tax credit is what would have been the amount of the input tax credit for the acquisition if it had been made solely for a creditable purpose and you had provided, or had been liable to provide, all of the consideration for the acquisition.

FACTS

11. The facts were not in dispute and do not need to be set out in any detail because the Commissioner accepts that the acquisitions fall within the terms of s 11-15(1).

12. Hamersley is in the business of mining and selling iron ore. It has a number of mines in the Pilbara region in Western Australia and, under an agreement with the State of Western Australia made in 1963, and as amended in 1968, it established the townships of Tom Price, Paraburdoo and Dampier in the region to provide adequate and suitable housing and community services for its workforce in its Pilbara operations. This proceeding is concerned with acquisitions made for the purpose of providing accommodation for Hamersley's workforce in those towns and also at Karratha (which Hamersley did not establish). Hamersley owns approximately 2,295 houses and apartments of varying sizes in those towns, and leases them to employees and contractors working in its mining operations and to people working in the service industries supporting the townships. These numbers vary from time to time as new properties are acquired or built and others are demolished or sold. The Commissioner accepts that the provision of accommodation in the region is a necessary and essential part of Hamersley's business.

13.

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Hamersley does not make a profit on the leasing of premises, but makes losses each year from this activity as its expenditure on the housing substantially exceeds the rental income that it receives. The rent is generally subsidized as Hamersley's policy is to provide accommodation at attractive, affordable rates. The unchallenged evidence was to the effect that the cost of accommodation in those towns would be very high without the subsidy, and it would not be economically viable for most people to pay the full cost of accommodation, making it difficult to attract, and retain, people to work in the Pilbara region.

14. By way of example, Rio Tinto's revenue, operating expenditure and profit before tax for the year ended 31 December 2010 in respect of its iron ore production from Mount Tom Price and Greater Paraburdoo (including Channar & Eastern Range), and from the provision of remote housing at Tom Price, Paraburdoo, Dampier and Karratha was as follows:

Item	Revenue	Operating Expenditure	Profit Before Tax
Iron ore production	$4,987,709,513	($1,613,743,534)	$3,373,965,979
Accommodation	$6,148,841	($38,881,117)	($32,732,276)
Total	$4,993,858,354	($1,652,624,651)	$3,341,233,703
Iron ore as percentage of total	99.88%	97.65%	100.98%

15. This case is being conducted as a test case with respect to the GST paid by Hamersley and PICS for the month of October 2010 on expenditures grouped in the following categories:

• (a) construction and purchase of new housing;
• (b) refurbishment, minor works, maintenance and repairs of the residential housing;
• (c) mould removal, remediation and general hygiene cleansing; and
• (d) cleaning housing, landscaping grounds and pool maintenance.

RIO TINTO'S CASE

16. Rio Tinto's primary case is that the acquisitions in question were made wholly for a "creditable purpose" because the supply of the residential accommodation was not an end commercial objective in itself but was wholly incidental to Hamersley's mining operations as a necessary and essential part of those operations. Its alternate case is that an apportionment is required "to the extent that" the acquisitions also relate to making supplies of residential premises that would be input taxed. If there is to be an apportionment, it is submitted that a fair and reasonable apportionment method is the revenue based method: that is to say, applying the same proportion as the revenue derived from the supply of mining product from the Pilbara mining operations bears to the total revenue generated from those mining operations (including the rental revenue from the provision of the accommodation). On that basis the application of the revenue based method would entitle Rio Tinto to 99.88% of its claimed input taxed credits derived by Hamersley in 2010 in respect of the acquisitions: see the table at para 14 above.

17. Rio Tinto seeks:

• (a) a declaration that it is entitled to input tax credits of $573,515.74, alternatively, 99.88 percent of that figure, in respect of the acquisitions incurred by it in October 2010 in respect of the provision of remote housing at Tom Price, Paraburdoo, Dampier and Karratha;
• (b) a declaration that it is entitled to amend its GST return in respect of October 2010 to include the input tax credits in respect of the acquisitions incurred by it in October 2010 in respect of the provision of remote housing at Tom Price, Paraburdoo, Dampier and Karratha;

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• (c) an order that the Commissioner is to apply its entitlement to input tax credits as a credit to its running balance account in accordance with Division 3 of Part IIB of the Taxation Administration Act 1953 (Cth) and to refund any amount not so applied in accordance with Division 3A; and
• (d) interest pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth).

THE COMMISSIONER'S CASE

18. The Commissioner's case is that s 11-15(2)(a) applies because the acquisitions in question had a direct and immediate connection with the supply of residential accommodation by way of lease, being an input taxed supply.

CONSIDERATION

19. Rio Tinto accepts that the provision of the accommodation is an input taxed supply and accepts that there is a connection between the acquisitions in question and the provision of that accommodation. However, it contends that the connection was not a relevant connection for the purpose of s 11-15. It was submitted for Rio Tinto that for s 11-15(2)(a) to apply, the making of an input taxed supply, not the making of a taxable supply, must be the "moving cause" or "purpose" of the acquisition. It was submitted the acquisitions in question did not relevantly "relate to" the making of supplies that would be input taxed because the "moving cause" in, or "purpose" of, supplying residential accommodation was the carrying on of Hamersley's "enterprise" of mining and selling iron ore (ie the making of taxable supplies), not the leasing of accommodation as an end activity in itself (ie making input taxed supplies). It was submitted that the evidence established that Hamersley only provides accommodation to maintain a workforce for its operations and that the accommodation would not have been provided but for the fact that it is essential in its business. In the circumstances, the argument went, s 11-15(2)(a) did not apply because the supply of residential premises was not the end commercial objective of the acquisitions but "merely an intermediate step" and "a necessary input" in the carrying on of Hamersley's "enterprise" of mining and selling iron ore.

20. The reasoning in the New Zealand case of
Commissioner of Inland Revenue v BNZ Investment Advisory Services Ltd (1994) 16 NZTC 11,111 ( "BNZ Investments" ) was said to be instructive. The taxpayer, in that case, was in the business of offering investment advice to its customers for which it received modest fees. If the customer acted on that advice or made investments though the taxpayer, the taxpayer received a fee or commission from the financial institution with which the investment was made. The taxpayer incurred overhead costs and claimed the equivalent of an input tax credit for the GST on the goods and services acquired. They were claimed on the basis that the "principle purpose" of acquiring the goods and services was to make the taxable supply of providing investment advice, as opposed to the exempt supply of selling financial investments for fees and commissions. The Court held that the "principle purpose" of the taxpayer in acquiring those goods and services was not for the single goal of offering investment advice to members of the public but to derive income from the GST exempt services (equivalent to "input taxed supplies" under the GST Act). Doogue J reasoned at [24]-[25]:

The taxpayer had no interest in acquiring goods and services unless it was going to derive income capable of meeting the costs of such goods and services. The giving of investment advice was merely a means to that end and not the end. The taxpayer achieved negligible direct income from that service … there was no suggestion whatever for the tax payer, however, that it was carrying on business for some purpose other than the achieving of a profit through the earning of income. It was not suggested, for example, that it was simply there to provide services for customers of the BNZ group and was enabled to be run at a loss for that purpose. If that had been the case, the position might have been different. The position might also have been different if the taxpayer's objectives in achieving income were by way of charging realistic fees for the advice given rather than by relying upon the investment income achieved by it.

21.

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In New Zealand, whether the goods and services acquired attracted GST in respect of which "input tax" could be claimed (equivalent to input tax credits under the GST Act) depended on whether they were acquired for the "the principle purpose" of making services that were taxable supplies or exempt supplies. 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 criterion embodied in the words "relates to" in s 11-15(2)(a) is the identification of a purpose of making a supply which would be input taxed, 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 tax supplies for the purposes of s 11-15(2)(a). I am unable to agree.

22. Section 11-15 was considered in HP Mercantile, where Hill J (with whom Stone and Allsop JJ agreed) observed as follows at [21]:

It is, perhaps, not unremarkable that s 11-15 of the GST Act bears, in its structure, some similarity to the general business deduction provisions of the Australian income tax law, ie s 51(1) of the Income Tax Assessment Act 1936 (Cth) and s 8-1 of the Income Tax Assessment Act 1997 (Cth). In both the GST provision and the income tax provisions, there is a need to pass first through a positive test. In the case of GST, the positive test is the requirement that the acquisition has been in whole or in part acquired in carrying on an enterprise. In the income tax context, there is the need to find that the loss or outgoing be incurred in gaining or producing assessable income, or in carrying on a business. In both cases apportionment arises where the positive test is only partly satisfied. Next, both require consideration of negative tests which exclude the allowance of a credit in the GST context or the allowance of a deduction in the income tax context. In the GST context the negative tests are those set out in s 11-15(2) of acquisitions relating to supplies that would be input taxed or acquisitions of a private and domestic nature. In the income tax context, the negative tests also involve the case where the loss or outgoing is of a private and domestic nature as well as where it is capital or of a capital nature. In both cases, a question of apportionment arises where the negative tests only partly apply.

In
Axa Asia Pacific v Commissioner of Taxation (2008) 173 FCR 500 ( "Axa Asia Pacific" ), Lindgren J at [124] similarly stated that "creditable purpose" is defined in s 11-15 by way of a positive test (s 11-15(1)) and a negative test or blocking provision (s 11-15(2)(a)), with both tests being a matter of objective fact.

23. Unlike the New Zealand legislation considered in BNZ Investments, s 11-15 does not use the language of, or require, or even direct, an inquiry into purpose. 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. Section 11-15 cannot be construed in isolation from the context in which it appears or considered independently of the statutory scheme of which it forms part:
K & S Lake City Freighters Pty Ltd v Gordon & Gotch (1985) 157 CLR 309 at 312. As the High Court said in
Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at 381, the primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute.

24. Within the terms of s 11-15(1), a "creditable purpose" is attributed according to whether, and the extent to which, goods or services are acquired by an entity "in carrying on" its "enterprise": s 11-15(1). The word "in" simply means "in the course of" in the same way as that word has been construed in

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the context of s 8-1 of the Income Tax Assessment Act 1997 (Cth): s 9-5(b);
Amalgamated Zinc (De Bavay's) Ltd v Federal Commissioner of Taxation (1935) 54 CLR 295;
Commissioner of Taxation v Day (2008) 236 CLR 163; HP Mercantile at [13], [48]. Giving effect to the words of s 11-15(1), goods or services are acquired by an entity for a "creditable purpose" if the acquisition is connected with the activities that constitute the entity's "enterprise". As Hill J stated in HP Mercantile, the requirement for a "creditable purpose" is that the acquisition has been in whole or in part acquired in carrying on an enterprise. Whether an acquisition has such a connection will depend on the scope of the activities that constitute the entity's "enterprise", as that expression is defined in s 9-20. If the acquisitions relate to an enterprise carried on by the entity, the terms of s 11-15(1) are engaged. Section 11-15(2)(a) must be considered in context with s 11-15(1) and only falls to be considered if s 11-15(1) applies: that is, where an acquisition has the requisite connection with the entity's enterprise: cf
Steele v Deputy Commissioner of Taxation (1999) 197 CLR 459 at [24]. If an acquisition does not fall within the terms of s 11-15(1), it is unnecessary to consider s 11-15(2)(a). Lindgren J in Axa Asia Pacific was correct to describe s 11-15(2)(a) as a "blocking" provision.

25. Textually, 11-15(2)(a) is concerned with a different inquiry to s 11-15(1). The language of s 11-15(2)(a) directs an inquiry into whether the acquisition has a nexus with input taxed supplies that an entity makes in carrying on its enterprise. The use of the words "however" and "to the extent that" as they relate to s 11-15(2)(a) indicate that something may be acquired in carrying on an enterprise (that is, satisfy s 11-15(1)) but nonetheless wholly or partly "relate" to making supplies that would be input taxed:
Federal Commissioner of Taxation v American Express (2010) 187 FCR 398 at [104]-[105]. The legislative scheme of the GST Act contemplates that an entity may make taxable supplies, GST free supplies and input taxed supplies, all as part of the activities constituting an entity's "enterprise". An apportionment is required to the extent that an acquisition has a relevant relationship with both the making of taxable supplies and input taxed supplies, such as where there are undifferentiated general overhead outgoings: s 11-30; HP Mercantile at [37].

26. As the authorities make clear, the words "relates to" must be given a meaning that depends on the context in which they are used:
J & G Knowles v Federal Commissioner of Taxation (2000) 96 FCR 402 at 408; HP Mercantile at [35]. The relationship must be one that is "sufficient" or "material" for s 11-15(2)(a) to apply, but the disentitling factor that disallows input tax credits which otherwise would be available is a relationship with the making of input taxed supplies (on which no GST is payable): HP Mercantile at [46]. The qualification that an entity does not have a creditable purpose "to the extent" that an acquisition meets the requirements of s 11-15(1) but also falls within the terms of s 11-15(2)(a) thus gives meaning and content to the required relationship between the acquisition and input taxed supplies for the purposes of s 11-15(2)(a). If an entity makes input taxed supplies, and makes acquisitions that relevantly relate to the making of those input taxed supplies, s 11-15(2)(a) operates to deny input tax 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 acquisition and supplies that would be input taxed that is the statutory criterion directed by s 11-15(2)(a).

27. Rio Tinto's reliance on the legislative policy for the enactment of s 40-35 as set out in the Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 (Cth) at para 5.164 does not aid its argument. The EM states that the purpose of s 40-35 is to put renters in the same position as owner/occupiers. Rio Tinto relied

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on that paragraph to argue that s 40-35 is only concerned with a supply to an ultimate consumer, not to an intermediate supply as a step in the making of another supply that is the objective of the "enterprise". There are difficulties in following how that proposition flows from the apparent legislative object of s 40-35 but, in any event with respect to the submission, it is uncontroversial that Hamersley makes input taxed supplies of residential accommodation within the meaning of s 40-35. The issue is whether a requisite relationship exists for the purposes of s 11-15 between the acquisitions the subject of the dispute and the making of those input taxed supplies. Whether a requisite relationship exists for the purposes of s 11-15 depends on the proper construction of that provision and for the reasons given, it is the existence of a connection or relationship between the acquisition and supplies that would be input taxed that is the statutory criterion directed by s 11-15(2)(a).

28. Rio Tinto also called in aid the legislative policy to which Hill J in HP Mercantile referred at [13] as follows:

The genus of a system of value added taxation, of which the GST is an example, is that while tax is generally payable at each stage of commercial dealings (supplies) with goods, services or other "things", there is allowed to an entity which acquires those goods, services or other things as a result of a taxable supply made to it, a credit for the tax borne by that entity by reference to the output tax payable as a result of the taxable supply. That credit, known as an input tax credit, will be available, generally speaking, so long as the acquirer and the supply to it (assuming it was a "taxable supply") satisfied certain conditions, the most important of which, for present purposes, is that the acquirer make the acquisition in the course of carrying on an enterprise and thus, not as a consumer. The system of input tax credits thus ensures that while GST is a multi-stage tax, there will ordinarily be no cascading of tax. It ensures also that the tax will be payable, by each supplier in a chain, only upon the value added by that supplier.

and at [45]:

The language of the GST Act, as seen in the context of value added taxation generally, makes it clear that the legislative scheme is that a taxpayer will be entitled to an input tax credit where it is necessary that a credit be given to ensure that output tax payable by the taxpayer is not imposed upon an amount which already includes tax payable at some early stage in the commercial cycle. Where possible, GST is not to be found embedded in the price or consideration on which output tax is calculated when taxable supplies are made. However, in the case of a taxpayer which makes input taxed supplies, while that taxpayer will not be liable to output tax on the supplies it makes which satisfy the description of input taxed supplies, that taxpayer will be denied an input tax credit for the tax payable on acquisitions it makes where the necessary relationship exists.

29. It was argued that the legislative policy would be defeated by the Commissioner's construction of s 11-15 by reason that Hamersley's business is to profit from the making of taxable and GST free supplies of iron ore, not the provision of accommodation. It was submitted that the Commissioner's construction means that Hamersley can only recoup the GST cost in the price of its taxable activities (thereby resulting in cascading of tax) or in the price of its exports (thereby resulting in GST being borne on exports). Thus, it was said, the Commissioner's construction would result in double taxation on taxable supplies and unrecoverable GST would be embedded in the GST free supplies because Hamersley's leasing activities operate at a loss. There are a number of responses to this submission.

30. First, the task of statutory construction does not seek to identify or assume the underlying policy of a provision and then to construe that policy. That is what Rio Tinto seeks to do here. As French CJ and Hayne J said in
Certain Lloyd's Underwriters Subscribing to Contract No IH00AAQS v Cross (2012) 248 CLR 378 at [26]:

A … danger that must be avoided in identifying a statute's purpose is the making of some a priori assumption about its purpose. The purpose of the legislation must be derived from what the legislation

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says, and not from any assumption about the desired or desirable reach or operation of the relevant provisions.

As general statements of policy, the observations of Hill J in HP Mercantile set out in para 28 above can be accepted but those observations do not provide the answer to the proper construction of s 11-15.

31. Secondly, the fact that it may be necessary for Hamersley 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). The words used by the legislature do not support the existence of a statutory rule embedded within s 11-15 that the recovery of input tax credits should only be blocked where the supplier is able to recover the cost of the GST on its inputs in the price charged for the input taxed supply. Further, there is nothing in the legislation (or the authorities) which suggests that if the supplier makes the commercial decision not to pass on the GST cost on inputs, it can avoid the effect of input taxation. The decision to provide a rental subsidy to employees was a commercial choice by Hamersley, which does not impinge on the proper construction of s 11-15.

32. Thirdly, it is the transaction that determines the GST outcome. In this case, Hamersley 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. The policy to deny input tax credits where the acquisitions relate to the making of those supplies is readily explicable given that GST is not payable on an input taxed supply.

33. Section 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 words "relates to" in s 11-15(2)(a) simply denote that there must be a relationship or connection between an acquisition and the making of input taxed supplies. What must be established to come within the section is a material or sufficient relationship but the existence of such a relationship is not made to depend on a "purpose" test. A finding that the provision of accommodation was an essential and necessary incident of Hamersley carrying on its mining operations would not mean that s 11-15(2)(a) was not engaged. It may be accepted that Hamersley's leasing activities are wholly incidental to its mining operations and merely a means to Hamersley carrying on its business but the relevant inquiry is whether the acquisitions in question were connected with the input taxed supplies that Hamersley makes as part of its activities. On the uncontroversial facts of this case, the acquisitions in question all have a direct and immediate connection with Hamersley's provision of the leased accommodation and that direct and immediate connection constitutes a sufficient and material relationship for the purposes of s 11-15(2)(a).

CONCLUSION

34. Rio Tinto's construction of s 11-15 should be rejected. It follows that the question of apportionment does not arise for determination because the acquisitions in question related wholly to the provision of the accommodation. I have given thought to whether I should express a view on the appropriate apportionment methodology in case I am wrong in my construction of s 11-15 but, on reflection, I do not think that it would be appropriate, given that any view that I express would be obiter dictum, and may depend on other findings of fact that would need to be made.