Private ruling: Fuel tax credits - rates of entitlement
Published: March 2014
Ruling period: 2013-14 income year
Date scheme commenced: 1 July 2013.

Ruling: Q1: Are you entitled to a fuel tax credit for the taxable diesel fuel you acquire and use in your vehicle with a gross vehicle mass (GVM) of more than 4.5 tonnes? | A1: Yes. | Q2: Is the fuel tax credit in relation to taxable fuel you acquire and use in your vehicle with a GVM of more than 4.5 tonnes, for travelling on a public road, subject to the road user charge (RUC)? | A2: Yes. | Q3: Is the fuel tax credit in relation to taxable fuel you acquire and use in the auxiliary equipment of your vehicle with a GVM of more than 4.5 tonnes travelling on a public road, subject to the road user charge (RUC)? | A3: No. | Q4: Is the fuel tax credit in relation to taxable fuel you acquire and use in a vehicle with a GVM of more than 4.5 tonnes, for travelling on a public road, including fuel used in powering auxiliary equipment in or on the vehicle, subject to a nil carbon reduction? | A4: Yes. | Q5: Is the fuel tax credit in relation to taxable fuel you acquire and use in a vehicle, not for travelling on a public road, subject to the RUC? | A5: No. | Q6: Is the fuel tax credit in relation to taxable fuel you acquire and use in a vehicle, not for travelling on a public road, subject to the carbon reduction? | A6: Yes. | Q7: Is the fuel tax credit in relation to taxable fuel you acquire and use in the auxiliary equipment of a vehicle, not travelling on a public road, subject to the carbon reduction? | A7: Yes.

Relevant facts and circumstances: You are registered for goods and services tax (GST) in the road freight transport industry. You are also registered for fuel tax credits. As part of your business, you operate a vehicle with a GVM greater than 4.5 tonnes to transport cement to construction sites which are not usually located on public roads. Your transport vehicle has a separate auxiliary motor that is used to power the attachment to the truck. You acquire and use taxable diesel fuel in your vehicle. Your vehicle is designed for on-road use and uses public roads to travel to its job locations which are not on public roads. To reach your job locations the vehicle sometimes exits from public roads and enters private roads on private property where the activity is to take place. When your vehicle reaches its job locations the vehicle, and its auxiliary motor, use taxable fuel while unloading. Your vehicle and auxiliary equipment also use fuel while being cleaned and refuelled at your depot, which is on private property.

Relevant legislative provisions: Fuel Tax Act 2006 section 41-5 | Fuel Tax Act 2006 section 43-8 | Fuel Tax Act 2006 subsection 43-8(4) | Fuel Tax Act 2006 paragraph 43-8(4)(c) | Fuel Tax Act 2006 section 43-10 | Fuel Tax Act 2006 subsection 43-10(3) | Fuel Tax Act 2006 section 47-5 | Fuel Tax Act 2006 section 60-5

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 for use in carrying on your enterprise if you are registered for GST at the time you acquire the fuel. The amount of the fuel tax credit to which you are entitled for taxable fuel is the amount of effective fuel tax that is payable on the fuel less a carbon reduction amount (if applicable). Your fuel tax credit entitlement can also be affected by: • the amount of any applicable grant or subsidy; or • the amount of RUC in relation to taxable fuel for use in heavy vehicles for travelling on public roads. | Detailed Reasoning - Carbon reduction: Section 43-8 of the FTA sets out the rules for working out the amount of the carbon reduction to fuel tax credit calculations from 1 July 2012. It provides that the amount of carbon reduction that applies to a particular quantity of taxable fuel is worked out by using the following formula: Quantity of fuel x carbon price x carbon emission rate The carbon reduction for diesel fuel for the period 1 July 2013 to 30 June 2014 is 6.521 cents per litre. However, subsection 43-8(4) of the FTA provides for those circumstances where no carbon reduction applies. Relevantly, paragraph 43-8(4)(c) of the FTA states that the amount of carbon reduction that applies to the fuel will be nil where: • the fuel is covered by the Opt-in scheme; or • you acquire fuel for use in agricultural, fishing or forestry activities; or • you acquire fuel for use in a vehicle with a GVM of more than 4.5 tonnes travelling on a public road; or • you acquire fuel for use otherwise than by combustion of the fuel. The agricultural, fishing or forestry activities are further defined in subdivision 43-B of the FTA. | Detailed Reasoning - For travel on a public road and the road user charge: Subsection 43-10(3) of the FTA provides that to the extent that you acquire taxable fuel to use, in a vehicle, for travelling on a public road, the amount of your fuel tax credit for the fuel is reduced by the amount of the RUC for the fuel. Fuel Tax Ruling FTR 2008/1: vehicle's travel on a public road that is incidental to the vehicle's main use and the road user charge, explains, amongst other things, the meaning of the phrase 'taxable fuel to use, in a vehicle, for travelling on a public road,' for the purposes of subsection 43-10(3) of the FTA. At paragraphs 23A to 23E it is explained that subsection 43-10(3) of the FTA only covers fuel that is used in the vehicle, for travelling. Travelling, in the context of fuel use in subsection 43-10(3) of the FTA, encompasses all aspects of vehicle function and operation that are for the purpose of travelling on a public road. Fuel for travelling includes fuel used for stopping and idling whiles stationary in the course of a journey as well as the use of lights, brakes, power-steering and windscreen wipers. Determining whether an aspect of the vehicle's function or operation has this character requires a practical assessment of its connection with travelling, as distinct from some other function of the vehicle. The location of the relevant machinery or source of the fuel associated with a vehicle's function or operation is not determinative of whether fuel is for use in travel. The design of the engine, or how the vehicle operates, is also not determinative of this. Provided fuel directly or indirectly powers machinery sufficiently connected with the travel the fuel is to use, in a vehicle, for travelling. Fuel used in auxiliary equipment is not fuel used for travelling. Accordingly, the fuel is not subject to the road user charge. You acquire and use diesel fuel to power the transport vehicle and the auxiliary motor of the vehicle. The auxiliary motor powers the activity while carting the product and in cleaning after the delivery has taken place. Clearly, the fuel used to power the auxiliary equipment is not used for travelling and as such is not subject to the road user charge. Accordingly you would be entitled to a fuel tax credit at the full rate for taxable fuel used in auxiliary equipment for the purposes of transporting, loading and unloading and cleaning whilst off public roads for the period 1 July 2013 to 30 June 2014. The amount of fuel tax credit you are entitled to in relation to the fuel used in propelling your vehicles, on public roads during the period 1 July 2013 to 30 June 2014 is the amount of effective fuel tax less the applicable road user charge. During the period 1 July 2013 to 30 June 2014 the road user charge is 26.14 cents per litre. | Detailed Reasoning - Fuel used in a vehicle off-road from 1 July 2012: Your vehicle also travels off the public road network at your depot and at sites. This fuel not is used in the vehicle for travelling on public roads and therefore, subsection 43-10(3) of the FTA does not apply. The amount of your fuel tax credit for this fuel is not reduced by the road user charge. However, as previously explained, from 1 July 2012 fuel tax credits are affected by the carbon reduction unless the fuel use in question meets any of the exclusions in subsection 43-8(4) of the FTA. As the fuel you use in your transport activities off-road is not considered to be a use in any of the other activities covered within subsection 43-8(4) of the FTA, any quantities of fuel you use for this purpose would not be excluded from the application of the carbon reduction. Accordingly, you are entitled to a fuel tax credit at the rate of 38.143 cents per litre less the applicable carbon reduction amount for the quantity of diesel fuel you acquire and use in travelling off-road. | Detailed Reasoning - Apportionment: Of the fuel you acquire and use in your business, a portion is used to: 1. propel a heavy vehicle on a public road, attracting fuel tax credit at the rate of 12.003 cents per litre (cpl) 2. power auxiliary equipment on a vehicle travelling on a public road, attracting fuel tax credit at the rate of 38.143 cpl 3. power a vehicle and its auxiliary equipment off-road, attracting fuel tax credits at the rate of 31.622 cpl Section 60-5 of the FTA provides that in working out your net fuel amount your total fuel tax credits is the sum of all fuel tax credits to which you are entitled in a tax period. Claimants are generally required to perform separate calculations to ensure a fair and reasonable basis of apportionment is relevantly applied. A claimant can use any apportionment method that is fair and reasonable in their circumstances to determine the fuel tax credit that is available for the taxable fuel that they acquire. Where there is more than one fair and reasonable way of apportioning, claimants may choose any method as long as it is fair and reasonable in their circumstances. Whichever apportionment method is used by an entity in a tax period must be applied consistently. Inconsistent methods used by an entity in the same tax period are likely to make the quantities of fuel worked out under them unreliable in calculating the fuel tax credit entitlement of the entity for the period. In Practice Statement Law Administration PS LA 2010/3 , the Commissioner provides guidance in determining whether a method of apportionment used to calculate an entity's fuel tax credit entitlement is fair and reasonable in the entity's circumstances. Whilst PS LA 2010/3 discusses commonly used methods, an entity is not limited to the particular methods set out in it and, the examples used in PL LA 2010/3 are simply to illustrate the 'fair and reasonable' principle in the application of apportionment methods. In Practice Statement Law Administration (General Administration) PS LA 2013/4 (GA) the Commissioner sets out the percentage of taxable fuel that he accepts as a fair and reasonable apportionment of the fuel used in a vehicle for powering the auxiliary equipment of the vehicle. In recognition of the practical difficulties encountered by entities in apportioning taxable fuel used in a heavy vehicle travelling on a public road, the Commissioner has set out in the Auxiliary Equipment Apportionment Table reasonable apportionment percentages of various vehicles and their auxiliary equipment. These percentages are based on information available to the Commissioner at the time; however, entities are not obliged to use them. For the purposes of meeting the requirement of an apportionment that is fair and reasonable, the Commissioner accepts that, where an entity chooses to apply the percentage stipulated in the relevant item in the Auxiliary Equipment Apportionment Table, the apportionment of the taxable fuel is fair and reasonable. | Detailed Reasoning - Four year rule: Please note that section 47-5 of the FTA provides that your fuel tax credit entitlements cease four years from the due date of the relevant business activity statement or fuel tax return. The four year time limit is designed to provide certainty and finality in the tax affairs of taxpayers and the administration of the tax system.