Limitations on the right to credit input tax1

Abstract

This case note discusses a recent decision handed down by the Full Court of the Federal Court of Australia on the deductibility of input tax under Australia’s goods and services tax (GST), a credit-invoice method VAT. The case dealt with input tax incurred in the course of providing subsidised accommodation to mine workers and service providers in towns established in remote areas of North Western Australia, where members of the Rio Tinto group conduct mining activities.The input tax in question related to the construction and purchase of new residential housing, and the repair, maintenance, and servicing of existing residences. Under the Australian GST, leasing residential property is ‘input taxed’ (exempt without a right to credit related input tax) but the taxpayer argued that the input tax should nonetheless be creditable because the ultimate purpose of incurring the input tax and providing the residential accommodation was to enable the companies to carry out their fully taxable and ‘GST-free’ (zero-rated) mining activities.As well as discussing the arguments and outcome of the case, the case note compares the Australian decision with a recent CJEU decision on the right to deduct input tax under the European VAT Directive (Case C-126/14 UAB ‘Sveda’, decided on 22 October 2015).