ATO ID 2008/118: Excise: synthetic hydraulic fluid
Date of decision: 29 August 2008
Business line: Indirect Tax

Issue
Is a product made of the polyol ester family and used as a hydraulic fluid in industrial hydraulic applications a synthetic equivalent of a petroleum based oil for the purposes of subitem 15.1 in the Schedule to the Excise Tariff Act 1921 (Schedule)?

Decision
Yes. A product that is made of the polyol ester family and used as a hydraulic fluid in industrial hydraulic applications is a synthetic equivalent of a petroleum based oil for the purposes of subitem 15.1 in the Schedule.

Facts
The entity manufactures at a chemical plant, a product which is used as a hydraulic fluid. The hydraulic fluid, which is formed through the reaction of an organic acid and alcohol, is of the polyol ester family. The hydraulic fluid can be used for the same applications to that of petroleum hydraulic fluids.

Reasons for decision
Summary: Subitem 15.1 of the Schedule applies to 'petroleum-based oils (including lubricant/fluid/oil products) and their synthetic equivalents but not greases'. The Prefatory Notes to the Schedule give the meaning of 'lubricant/fluid/oil products' to include hydraulic fluid. The Excise Tariff Act does not define the meaning of 'synthetic equivalent'. Therefore the term takes on its ordinary meaning. The Macquarie Dictionary , 2001, rev. 3rd edn, The Macquarie Library Pty Ltd, NSW (the Dictionary) relevantly defines the term 'synthetic' as '2 denoting or relating to chemical compounds, resins rubbers, etc., formed by chemical reaction in a laboratory or chemical plant, as opposed to those of natural origin'. Polyol esters are produced by re-acting a highly branched di-functional alcohol with a monobasic acid. As polyol esters are produced by a process of a chemical reaction in a laboratory or at a chemical plant, a product belonging to the polyol ester family is a synthetic product. To be classifiable to subitem 15.1 of the Schedule the product must be synthetic, and, an equivalent of a petroleum-based hydraulic fluid. The Dictionary relevant defines 'equivalent' as '2 corresponding in position, function, etc.'. Hydraulic fluids have been and are currently manufactured from petroleum-based oil and are used in various hydraulic systems including industrial machinery, construction equipments, automotive, aircraft and marine applications. Petroleum-based hydraulic fluids and polyol ester based hydraulic fluids can be used in the same hydraulic systems. Therefore, as polyol ester based hydraulic fluids have a corresponding function to that of petroleum-based hydraulic fluids, they are an equivalent of petroleum based hydraulic fluids. Hence a product that is made of the polyol ester family and used as a hydraulic fluid is a synthetic equivalent of a petroleum based oil for the purposes of subitem 15.1 in the Schedule.

Legislative references: Excise Tariff Act 1921 Schedule subitem 15.1
Related ATO interpretative decisions: ATO ID 2008/119
Subject references: Excisable goods Excise