Private ruling: Fuel tax credits - apportionment
Date of advice: 13 January 2016
Published: March 2016
Ruling period: 1 February 20XX to 30 June 20XX
Date scheme commenced: 1 February 20XX

Ruling: Q1: Is the methodology applied in calculating the FTC entitlements in relation to the entity's operations consistent with the ATO guidelines as detailed in PS LA 2010/3 and FTD 2010/1? | A1: Yes, it is considered, that the deductive method of apportionment, as applied in determining the FTC entitlements in relation to the entity's operations is consistent with the guidelines set out in PS LA 2010/3 and FTD 2010/1.

Relevant facts and circumstances: The entity owns and operates much of the equipment used in its operations, however utilises the services of contractors and contractors' equipment. Fuel is used predominantly in heavy and light vehicles and other construction equipment. The entity is undertaking a review of its previous FTC entitlements (the Review). Fuel acquisitions: Fuel is predominately purchased from the single supplier. Fuel deliveries are made directly to entity's storage tanks. Fuel management: The entity's contractors use fuel acquired by the entity for carrying out its operations. This fuel is not sold or otherwise disposed of to the contractors. There are a number of light vehicles used in the operations that travel on public roads. Generally these vehicles do not access fuel from storage tanks. Such vehicles only obtain fuel at the local service stations. Larger vehicles and equipment obtain fuel only from the storage tanks. All fuel dispensed from these storage tanks is recorded on a fuel dispense docket. These fuel dispense dockets are collated and summarised to determine the entity's fuel consumption for each tax period. Review of previous FTC entitlements: Previously, the entity's FTC entitlements were calculated using the constructive method. That is, the quantity of fuel for which an FTC entitlement arose was 'constructed' by reference to the documented litres actually consumed by vehicles and equipment. The fuel dispense dockets were collated and summarised to determine the fuel consumption for the tax period. Reference was not made to fuel acquisition documentation to determine the actual quantity of fuel acquired during the period. This 'constructed' quantity of fuel was subsequently reduced by the quantity of fuel: (a) used in contractor heavy equipment and in light vehicles on-site; and (b) fuel used by light vehicles off-site. The Review relates to fuel acquired for use in the entity's operations during a specific period. The Review examined the following aspects of your operations: • activities that consume fuel • controls around the receipting and dispensing of fuel • preparation of business activity statements • operation layout, including fuel storage location; and • fuel distribution processes. The Review applied the following process: • quantification of the total amount of fuel the entity acquired and disposed of; • consideration of the: • circumstances that may disentitle an FTC for the fuel; • extent to which the fuel was used the operations; • extent of the FTC entitlement for the fuel previously attributed; • calculation of the quantity of FTC entitlements attributed and at the appropriate FTC entitlements remaining to be attributed. The entity holds tax invoices for all fuel charged by its suppliers for the Review period. Each tax invoice was matched to delivery dockets and purchase orders. The price charged by the supplier the fuel included the relevant excise amount. All light vehicle fuel use was excluded in the Review. The Review identified the instances of fuel that was lost or on-sold. Fuel used by contactors in carrying out the entity's operations was not sold or otherwise disposed of to the contractors.

Relevant legislative provisions: Fuel Tax Act 2006 subsection 41-5(1)

Reasons for decision: Summary: Subsection 41-5(1) of the Fuel Tax Act 2006 (FTA) provides that an entity is entitled to a fuel tax credit for taxable fuel they acquire for use in their enterprise. The entity must be registered for GST at the time of acquisition of the fuel. The subsection refers to taxable fuel acquired 'to the extent that' it is acquired for use in the enterprise. In Fuel Tax Determination 2010/1 the Commissioner explains that the phrase 'to the extent that' in subsection 41-5(1) of the FTA indicates that the FTA contemplates the requirement to apportion taxable fuel that is acquired to uses that either disentitles an entity to an FTC or gives rise to different rates of FTC for the fuel. Relevantly, paragraphs 6 and 7 of FTD 2010/1 explain that the apportionment must be fair and reasonable in the circumstances. Paragraph 8 of FTD 2010/1 confirms that where there is more than one fair and reasonable way of apportioning fuel, an entity may choose any method as long as it is fair and reasonable in the entity's circumstances. Historically, the entity had applied the constructive method of apportionment. Under the Review it has been determined that the deductive method is the preferred method of apportionment. Paragraph 8 of FTD 2010/1 supports the entity's conclusion that an alternate method of apportionment may be applied. However, it must be determined if this method provides a fair and reasonable apportionment in the entity's circumstances. Practice Statement Law Administration PSLA 2010/3: Apportioning fuel for tax credits (PSLA 2010/3) explains how an entity can satisfy the 'fair and reasonable' requirement in determining a fuel tax credit entitlement. Relevantly, at item 5 the application of the deductive method is explained as follows: To work out how much taxable fuel was actually used, an entity deducts the quantity of disqualified fuel from all the fuel used in the tax period ('Disqualified fuel' is the taxable fuel for which there is no FTC entitlement and the fuel that isn't taxable.) In determining the extent of the entity's previous FTC entitlements the following matters were taken into account; • All tax invoices were matched to the relevant delivery dockets and purchase order to determine the quantity of fuel purchased during the Review period. • It was confirmed that the fuel purchased was taxable fuel such that excise duty was included in the price of the fuel. • The quantity of taxable fuel which was lost was excluded from the calculation of the fuel for which an FTC entitlement was 'claimed'. • Fuel used in all light vehicles was excluded from the calculation of the fuel for which an FTC entitlement was 'claimed'. • Reference was made to the FTC rate in force at the relevant tax period. The following matters were taken into account in determining the deductive method of apportionment is appropriate in the entity's circumstance: 1. All tax invoices were reconciled against the relevant tax invoice for the fuel. 2. All fuel purchased is held in fuel storage tanks at the operation. 3. The controls around the receipting and dispensing of fuel, provides confidence that fuel is only used in the entity's operations. 4. The fuel used by the entity's contractors in the operations is not on-sold to the contractors. 5. Fuel used in light vehicles travelling on public roads is readily identified as this fuel is only purchased at local service stations. In applying the deductive method of apportionment under the Review the quantity of taxable fuel was calculated by reference to the tax invoices issued from the predominate suppliers of the fuel. As such it is reasonable to conclude that the relevant tax invoices have been relied on to determine the quantity of fuel purchased in during the Review period. The quantity of fuel purchased has appropriately been reduced by the amount of fuel used in light vehicles, lost and on-sold. Consideration was given to the contractual arrangement between the entity and its contractors to determine if title to the fuel purchased by the entity and used by the contractors passed to the contractors. Taking the above matters into account, it is considered that the deductive method as applied to determining the entity's FTC entitlements arising during the period of the Review is consistent with the principles set out in PS LA 2010/3 and FTD 2010/1.