Private ruling: Fuel tax credits - mining transport activity
Published: February 2012
Ruling period: 2009-10 income year | 2010-11 income year | 2011-12 income year
Date scheme commenced: 1 July 2009

Ruling: Q1: Is a haul road used by a contractor to transport a natural resource from a mine site to a train load out pad a 'public road' for fuel tax credit purposes? | A1: No. | Q2: Are you entitled to a fuel tax credit at the full rate for diesel fuel you acquired for use in heavy vehicles transporting a natural resource from a mine site to a train load out pad? | A2: Yes. | Q3: Has the contractor acquired the fuel from you? | A3: No.

Relevant facts and circumstances: You comprise two entities which mine for a natural resource. You have contracted an entity to haul a natural resource from a mine site to a stockpile at a rail siding. The haulage trucks all have a gross vehicle weight of greater than 4.5 tonnes. The haul road is situated on land owned by you under a mining lease and was constructed by and is maintained by you. Public access to the haul road by non-authorised persons is prohibited with signs at the entrance to the haul road stating: o The haul road is private property o Trespassers will be prosecuted; and o No entry is allowed without authorisation. There is no expenditure by public bodies in forming or maintaining the land as a road. At the train load out pad your dozers perform pushing-in and pushing out of the natural resource stockpiles before the natural resource is loaded onto trains. The aim of the pushing process at the rail pad is to dewater the natural resource - remove the moisture. You are responsible for the loading of the natural resource into the contractor's trucks at the mine site and the later loading of the natural resource onto trains. The fuel used by the contractor for the natural resource transport is purchased from a fuel supplier and paid for by you at an agreed rate in accordance with a fuel supply contract. The fuel used by the contractor is provided by you for a natural resource transport only. The fuel is stored on site by you and delivered to the contractor's heavy vehicles by your trucks. You provide an area of land on site for use by the contractor for servicing of trucks and the storage of fuel. The fuel provided to the contractor is offset against the service price at a set historical contract price per litre (not subject to fluctuations) in accordance with the haulage contract. The cost of the fuel used is deducted from the reconciled monthly tonnage fee. You state that the following activities take place at the mine site: Material is hauled to the ROM pad via rear dump trucks and placed in separate stockpiles. A front-end loader then loads a natural resource from these stockpiles into the breaker. The natural resource is crushed down to minus XXmm and sampled on the way to a radial stacker that stacks the a natural resource out in a semi circular pile. The radial pile is then stacked out into discrete piles on the crusher pad and then loaded into road trains for haulage to the Train Loadout (TLO) pad. You state the following activities take place at the rail pad: The TLO pad is built on flat ground with a slope away from the reclaim vault. The TLO pad is designed and purpose built this way so as to ensure water is drained away from the a natural resource pad area and ensure minimal moisture is retained in the product and thereby promote dewatering. There is a collection drain near the stockpiles which collects the water run-off. The dozers operate to maintain the natural drainage paths and, if the stockpile is not draining, the dozers are required to create new drainage points. The dozers are fitted with GPS devices to ensure the design profile of the pad is followed. The GPS devices in the dozers also ensure that no contamination off the floor of the pad occurs. In addition to dewatering, dozers also perform blending operation on a natural resource stockpiles of different qualities. Furthermore, blending of a natural resource is necessitated in some instances. You state dewatering ensures total moisture (which affects energy) is minimised and leaching of trace elements (acid) does not occur. Different qualities and seams of a natural resource are blended through the TLO pad to improve the overall quality. These blends are then sampled as the product is loaded onto the trains. The moisture levels in a natural resource affect energy in the following way: The energy value (or fuel content) of a natural resource is the amount of potential energy in a natural resource that can be converted into actual heating ability. Any water increases the weight and thereby reduces the energy. For example, with 1,000 tonnes of a natural resource at 6,500 k/cals, water content of 100 tonnes will result in 1,100 of total product and the energy content will be reduced to 5,900 k/cal. It is therefore essential to maintain the energy required by a customer as per the contract specs (and to not sell the water component). Furthermore, there is always a penalty and energy adjustment based on high water content provided for in contractual arrangements. You use a natural resource sampling and quality inspections to determine the effectiveness of the pushing in activities. Sampling occurs at the TLO pad and the port whilst we are loading the shipments. A cross belt sampler is used to sample the natural resource both during the crushing and train loading processes and in accordance with Australian Standard 4264. The analysis of the sample is performed by an independent laboratory. No additional agreements exist to alter the operation of the existing and draft contracts. You submit that the following circumstances confirm that the contractor does not 'acquire' the fuel for the purposes of the fuel tax legislation: o The fuel tax charged by the fuel supplier to you was at an arm's length rate of consideration and subject to market fluctuations indicating that it is a direct charge for the cost of fuel. o By comparison, whilst you deduct a set fee for the fuel from the monthly tonnage fee, the consideration offset to the contractor for the fuel is at a reduced price. The fuel is stored at the mine site in storage tanks owned by you. Therefore, although the fuel is being made available to the contractor, their subsequent use of fuel is conditional upon the fuel being used for the purpose of transporting a natural resource under the contract and is dependent on you making the a natural resource available to the contractor. On this basis, the fuel is never unconditionally appropriated to the contractor under the contract and is always conditional on the fuel being delivered by you. You are registered for goods and services tax (GST) and fuel tax credits.

Relevant legislative provisions: Fuel Tax Act 2006 section 41-5 | Fuel Tax (Consequential and Transitional Provisions) Act 2006 Division 2 of Schedule 3 | Fuel Tax (Consequential and Transitional Provisions) Act 2006 subitem 11(5) of Schedule 3 | Energy Grants (Credits) Scheme Act 2003 subsection 11(1) | Energy Grants (Credits) Scheme Act 2003 paragraph 11(1)(a) | Energy Grants (Credits) Scheme Act 2003 paragraph 11(1)(b) | Energy Grants (Credits) Scheme Act 2003 paragraph 11(1)(c) | Energy Grants (Credits) Scheme Act 2003 paragraph 11(1)(c) | Energy Grants (Credits) Scheme Act 2003 subparagraph 11(1)(b)(i) | Energy Grants (Credits) Scheme Act 2003 subparagraph 11(1)(b)(ii) | Energy Grants (Credits) Scheme Act 2003 paragraph 12(a) | Energy Grants (Credits) Scheme Act 2003 subparagraph 12(a)(i) | Energy Grants (Credits) Scheme Act 2003 subparagraph 12(a)(ii) | Energy Grants (Credits) Scheme Act 2003 section 53 | Energy Grants (Credits) Scheme Act 2003 subsection 53(2)

Reasons for decision: Summary: Section 41-5 of the Fuel Tax Act 2006 (FTA) provides that you are entitled to a fuel tax credit for taxable fuel that you acquire in Australia to the extent that you do so for use in carrying on your enterprise, if you are registered for GST. However, this entitlement is affected by Division 2 of part 3 of Schedule 3 to the Fuel Tax (Consequential and Transitional Provisions) Act 2006 (FTCTPA) which operates to restrict this entitlement to specific activities for fuel purchased between 1 July 2008 and 30 June 2012. Subitem 11(5) of the FTCTPA relevantly provides that you are entitled to a fuel tax credit under the FTA if you would have been entitled to an off-road credit under the Energy Grants (Credits) Scheme Act 2003 (EGCSA). Subsection 53(2) of the EGCSA provides that use in mining operations (otherwise than for the purpose of propelling any vehicle on a public road) is a use that qualifies. Mining operations is relevantly defined in subsection 11(1) of the EGCSA as: (a) exploration or prospecting of minerals, or the removal of overburden and other activities undertaken in the preparation of a site to enable mining for minerals to commence; or (b) operations for the recovery of minerals, being: (i) mining for those minerals; or (ii) the beneficiation of those minerals, or of ores bearing those minerals; and includes: c) a mining transport activity; However, prior to considering whether your business activities are mining transport activities, it is necessary to consider the issue of whether or not the haul road is considered a public road for fuel tax credit purposes. | Detailed Reasoning - Haul road: Paragraph 132 of FTR 2006/2 provides that for the purposes of the subsection 53(2) mining operations exclusion, the Commissioner considers that a road is a public road if: o it is opened, declared or dedicated as a public road under a statute; o it is vested in a government authority having statutory responsibility for the control and management of public road infrastructure; or o it is dedicated as a public road at common law. The haul road is situated on land owned by you under Mining Leases, was constructed by you and is maintained by you. The sign erected at the entrance to the road clearly states that the haul road is not open to the public, that trespassers will be prosecuted and that only authorised persons may enter. Clearly, there is no intention for the haul road to be accessed for public use. Furthermore, paragraph 138 of FTR 2006/2 also provides that a road that is a private access road for use in a paragraph 11(1)(a) or 11(1)(b) mining operation is not a public road for the purposes of the subsection 53(2) mining operations exclusion. Accordingly, the haul road used by the contractor to transport the a natural resource from the mine site to the train load out pad is not a 'public road' for fuel tax credit purposes. | Detailed Reasoning - Mining transport activity: Paragraph 12(a) of the EGCSA defines a mining transport activity as follows: (a) if minerals, or ores bearing minerals, are beneficiated at a place other than the mining site as an integral part of operations for their recovery: (i) the journey undertaken for the purpose of transporting the minerals or ores from the mining site to that place; and (ii) the return journey of a vehicle, a locomotive or other equipment from that place to the mining site or any part of that journey if it is undertaken for the purpose of repeating a journey referred to in subparagraph (i) or for the backloading of raw materials or consumables for use in a mining operation referred to in paragraph (a) or (b) of the definition of that expression in subsection 11(1) You are entitled to a fuel tax credit if you acquire taxable fuel for use in operations for the recovery of minerals being mining for those minerals or the beneficiation of those minerals or of ores bearing those minerals. | Detailed Reasoning - Mine site: At the mine site raw a natural resource is extracted and hauled to the ROM pad and placed in separate stockpiles. The natural resource is crushed before stacking into discrete piles on the crusher pad before haulage to the rail siding/pad. As such, the activities at the mine site are activities that can be said to satisfy subparagraph 11(1)(a), in that they are operations for the recovery of minerals being mining for those minerals and as such are considered mining operations. | Detailed Reasoning - Rail siding: Beneficiation is not a term in ordinary English usage. It is a technical term applicable to a range of processes undertaken in the mining or metallurgical industries. It is used to describe a treatment to improve, upgrade or concentrate the quality of the mineral baring ore up to, but not including, the refining or final pyrometallurgical or hydrometallurgical process whereby metal is produced. Activities eligible as beneficiation begin after the last point of stockpile or storage of the minerals or ores after 'mining of minerals' has taken place. In cases where beneficiation occurs at the site or at a place adjacent to the site and there is no stockpile of minerals or ores, the Commissioner considers that beneficiation begins after 'mining for minerals' has taken place. The factors determining when 'mining for minerals' cease will vary, and these will need to be considered on a case by case basis. The Commissioner considers that if beneficiation occurs at a different place to that at which mining for minerals is conducted, beneficiation begins at the last point of stockpile or storage of the minerals or ores after transport. The processes involved in beneficiation and the points at which beneficiation may cease can vary depending on the mineral being mined. In relation to a natural resource, the beneficiation of a natural resource ceases after it has been washed in a preparation plant and dewatered at a product stockpile at the mine site. Beneficiation of a natural resource extends to pushing-in and pushing out operations at the load outs, if undertaken with a view to dewatering. Blending of a natural resource is not considered beneficiation, nor is the magnetic removal of foreign contaminants from the a natural resource. You contract an entity to haul the a natural resource from the mine site to a stockpile at the rail siding (TLO pad). You state that once the a natural resource reaches the TLO pad, the pushing-in and pushing-out of the a natural resource from the stockpiles is undertaken with a view to dewatering prior to loading onto trains for further transportation. In addition, the pushing-in/pushing-out process can be said to improve, upgrade or concentrate the quality of the a natural resource and thus will form part of the beneficiation process. You state that the TLO pad is designed and purpose built to ensure that water is drained away from the natural resource pad area and ensures that minimal moisture is retained in the product to promote dewatering. There is a collection drain near the stockpiles which collects the water run-off. The dozers operate to maintain the natural drainage paths and, if the stockpile is not draining, the dozers are required to create new drainage points. The dewatering ensures that total moisture is minimised and leaching of trace elements does not occur. In relation to tests that are conducted at the TLO pads to determine effectiveness of the pushing-in activities, you advised that: o You use a natural resource sampling and quality inspections o Sampling occurs at the TLO pad and at the port whilst you are loading the shipments o A cross belt sampler is used to sample the natural resource both during the crushing and train loading processes an in accordance with Australian Standard 4264. If the beneficiation of minerals or ores bearing minerals occurs at a place other than the mining site, the off-public road transportation of minerals or ores bearing minerals from the mine site to the place of beneficiation is a 'mining operation' as a mining transport activity under subparagraph 12(a)(i). As you are undertaking beneficiation at the TLO pad, both the journey undertaken for the transport of the a natural resource and the return journey are a mining transport activity, if you have acquired the fuel and the fuel has not been acquired by the contractor. Accordingly, you are entitled to a fuel tax credit at the full rate for diesel fuel you acquired for use in heavy vehicles transporting a natural resource from a mine site to a train load out pad. | Detailed Reasoning - Acquire: The term 'acquire' is not defined in the FTA. It therefore takes on its ordinary meaning. In the context of the FTA, the Commissioner considers that the term 'acquire' has the ordinary meaning of to 'get as one's own'. To 'get as one's own' requires property in or ownership of the relevant taxable fuel to pass from one entity to another entity, or alternatively, that ownership is conferred because the fuel has been obtained by an entity as its own. You acquire taxable fuel if: o you purchase the fuel; o the fuel is gifted to you; or o you get the fuel as your own by any other means (other than manufacture or import). This necessarily means that you get ownership of, or proprietary rights in respect of, the fuel. You purchase the fuel under a supply contract with a fuel supplier. Accordingly, you have acquired the fuel and it is necessary to consider whether the haulage contractor acquires fuel from you. Whether there is a change of ownership of, or proprietary interest in, fuel will depend on all the facts and circumstances of each case. It will be necessary to examine the surrounding circumstances, together with any relevant documentation, including any written agreement. In The Taxpayer v Commissioner of Taxation [2006] AATA 967 the Contractor performed exploration and grade control drilling activities for another entity that conducted mining operations (a mining company), under certain terms and conditions of a number of contracts between the parties. Under the contracts, the Contractor supplied and used its own drilling equipment and the mining company provided the diesel fuel for use in the drilling equipment. Both parties agreed that the price for the work performed by the Contractor under the contracts was reduced to take account of the fuel supplied by the mining company. The Commissioner disallowed claims made by the Contractor. On appeal, in affirming the Commissioner's decision the AAT stated that: …a person is only entitled to an off-road credit if they have in fact purchased the relevant diesel fuel and that this is a separate and distinct issue to the question of whether a person may have acquired a proprietary interest in the fuel. The Full Federal Court affirmed the AAT's decision in Colby Corporation Pty Ltd v Commissioner of Taxation [2008] FCAFC 10. The Court rejected the applicant's submission that the right to consume fuel must entail a proprietary interest in the fuel. The Court stated at paragraph 51 that: There is no legal reason why a person may not permit another to use, even to the point of destruction or consumption, that person's property. If you acquire a right or a licence to use another entity's fuel in your plant or equipment in performing work for that entity, you do not acquire taxable fuel for the purposes of the FT Act. The mere grant of a right or licence to use the fuel does not result in you obtaining a proprietary interest in, or ownership of, the fuel. In your circumstances, the fuel is stored in your storage tanks at the mine site. The contractor is required to pay for diesel fuel consumed at a flat rate per litre. You state that whilst you deduct a set fee for the fuel from the monthly tonnage fee, the consideration offset to the contractor for the fuel is at a reduced price. As the diesel fuel is held in your storage facility, you retain ownership and proprietary interest in the fuel and have not disposed of that fuel to the contractor. You have simply given them a right or licence to use fuel that you purchased for use in their plant and equipment in performing the haulage transport services for which you contracted them to undertake. While you have given consideration for the cost of the fuel in the overall fee that you provide them for your services, this does not amount to the contractor having acquired the fuel. Accordingly, the contractor has not acquired the fuel from you. Therefore, you are entitled to fuel tax credits for fuel used in heavy vehicles transporting a natural resource from a mine site to the train load out pad.

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