Private ruling: Fuel tax credits - Sand mining operations
Published: June 2014
Ruling period: 1 April 2010 to 30 June 2012.
Date scheme commenced: 1 April 2010.

Ruling: Q1: Is the separation process performed in the Destination State on sand mining products (HMC), an operation for the recovery of minerals being the beneficiation of those minerals pursuant to subsection 11(1) of the Energy Grants (Credit) Scheme Act 2003 (EGCSA)? | A1: Yes. | Q2: In transporting the HMC, does the private road portion of the trip constitute a mining transport activity pursuant to section 12 of the EGCSA? | A3: Yes.

Relevant facts and circumstances: You are registered for goods and services tax (GST) as a road freight transport business. You are also registered for fuel tax credits. You report your GST on a monthly basis. You are a specialist bulk logistics provider to the mining and resources sector and other selected industries. You have a contract with a sand mining company to transport products from their mine to a port in an Australian State. Of the total distance you travel between the mine and the port, a portion is on a mine access road which is not a public road. Your vehicles are unmodified prime movers and have a gross vehicle mass (GVM) of greater than 4.5 tonnes. The mine is a sand mining operation functioning under a mining licence or permit and which produces a compound via standard methods. Unwanted residue from the mining process is disposed of into a tailings dam ready for use in minesite rehabilitation. The compound produced at the minesite contains a mix of valuable minerals as well as other non-valuable minerals. The compound is subsequently shipped from the port to another Australian State for further processing. The compound delivered by you is not a saleable product. The further processing of the product in the other Australian State is to produce a number of separate, saleable products. You supplied further information in relation to your private ruling request and agreed to our use of information from other sources such as websites to help us respond to your ruling request. The miner's website advises that mine planning is contingent on: • the amount of overburden that must be removed to access the ore; • the concentration of target minerals; • the presence of clay and rock; • all unit costs associated with the extraction process; • any land use restrictions; and • the desired post mining land use and rehabilitation requirements. The miner's website also sets out the two processes used to concentrate and separate the compound into the individual mineral components in the two Australian States. This information is also confirmed in the Australian government's Geoscience Australia website. The ultimate use and the importance of their chemical properties of the specific minerals extracted was explained by the applicant. The miner's 2013 Annual Report lists the processing and sales of the discrete minerals in question only.

Relevant legislative provisions: Fuel Tax Act 2006 section 41-5 | Fuel Tax Act 2006 section 47-5 | Fuel Tax (Consequential and Transitional Provisions) Act 2006 Division 2 of Part 3 of Schedule 3 | Fuel Tax (Consequential and Transitional Provisions) Act 2006 subsection 11(1) | Fuel Tax (Consequential and Transitional Provisions) Act 2006 subparagraph 11(1)(b)(i) of Schedule 3 | Fuel Tax (Consequential and Transitional Provisions) Act 2006 subparagraph 11(1)(b)(ii) of Schedule 3 | Fuel Tax (Consequential and Transitional Provisions) Act 2006 section 11(5) of Schedule 3 | Energy Grants (Credits) Scheme Act 2003 subsection 11(1) | Energy Grants (Credits) Scheme Act 2003 paragraph 11(3)(a) | Energy Grants (Credits) Scheme Act 2003 subsection 11(5) | 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 section 20 | Energy Grants (Credits) Scheme Act 2003 section 53

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: 1. restrict this entitlement to specific activities for fuel purchased between 1 July 2008 and 30 June 2012 and 2. continue the previous entitlement provisions of the Energy Grants (Credits) Scheme Act 2003 (EGCSA). Subitem 11(5) of the FTCTPA 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 EGCSA. Section 53 of the EGCSA provides that you are entitled to an off-road credit if you purchase off-road diesel fuel for a use by you that qualifies. Use in mining operations (otherwise than for the purpose of propelling any vehicle on a public road) is a use that qualifies. The term mining operations is relevantly defined in subsection 11(1) of the EGCSA as: … (a) exploration or prospecting for 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 including the recovery of salts by evaporation; or (ii) the beneficiation of those minerals, or of ores bearing those minerals; … and includes: a mining transport activity Paragraph 11(3)(a) of the EGCSA states that operations for the recovery of a mineral cease when the process of beneficiation ceases. The term 'mining transport activity' is defined in paragraph 12(a) of the EGCSA as: (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) … Therefore, if the beneficiation of minerals or ores bearing minerals occurs at a place other than the mining site, the off-public road transportation of the minerals or ores bearing minerals from the mine site to the place of beneficiation is a mining transport activity under subparagraph 12(a)(i) of the EGCSA. | Detailed Reasoning - Are zircon, rutile and ilmenite minerals?: For your operations to be considered 'mining operations', there must first be a finding that the material you extract is a mineral and the activities being carried out must constitute 'mining for minerals'. A critical element of the definition of 'mining operations' is therefore the recovery of minerals, being mining for minerals and the beneficiation of those minerals. It is, therefore, relevant to look at the definition of 'minerals'. Section 20 of the EGCSA defines 'minerals' as: …in any form, whether solid, liquid or gaseous and whether organic or inorganic, except: (a) sand, sandstone, soil, slate, clay (other than bentonite or kaolin), basalt, granite, gravel or water; or (b) limestone (other than agricultural use limestone) The definition of 'minerals' encompasses two tests that must be satisfied for your products to be considered minerals for the purposes of the EGCSA. Firstly, they must be a mineral and secondly, they must not be excluded from being a mineral by any of the specific exclusions in the definition. It is accepted that in your case the materials mined are minerals for the purposes of the EGCSA. What remains at issue is whether they are excluded from being a mineral by virtue of them being considered sand, soil or clay etc. As the processes you use are designed to separate the minerals from excluded products and the excluded products are treated as waste and either returned to the minesite or subsequently buried at processing sites, it is considered that these three products are a mineral and not an excluded product for the purposes of section 20 of the EGCSA. | Detailed Reasoning - Beneficiation: The Australian Taxation Office Interpretative Decision 2012/28 (Withdrawn), Excise Energy Grants Scheme: Off road - mining operations- beneficiation of ilmenite, leucoxene, rutile and zircon (ATO ID 2012/28) discusses the beneficiation of these products. Although this ATO ID has been withdrawn the principles in this ID remain valid. ATO ID 2012/28 (Withdrawn) states that: Beneficiation is not defined in the EGCSA; however the Commissioner's view on the meaning of beneficiation is discussed in Fuel Tax Ruling FTR 2006/2 (FTR 2006/2). Paragraph 67 of FTR 2006/2 provides that 'beneficiation' is a technical term applicable to a range of processes undertaken in the mining or metallurgical industries. The term is used to describe a treatment to improve, upgrade or concentrate the quality of mineral bearing ore up to, but not including, the refining or final pyrometallurgical or hydrometallurgical process whereby metal is produced. ……………. …………………… Therefore, beneficiation, which is a process of recovery, involves treatment to improve, upgrade or concentrate the quality of mineral bearing ore, including steps taken before sale to remove the mineral from that in which it is embedded or intermixed with. However, a point is reached when recovery of the mineral is complete, normally once the process of separation has been completed, and what is done thereafter is the application of a process or procedure to facilitate its better use, normally for market purposes. It is considered that such processes are not part of operations for the recovery of minerals and therefore fall outside the meaning of beneficiation. In addition the ATO ID discussed the two processing phases for mining mineral sand: The entity applies two separate and distinct processing phases - a wet concentration process and a dry concentration process. | Detailed Reasoning - Phase one of processing: In this case mineral sands are removed from the mine and subjected to wet concentration; this entails a washing process. The wet sludge, resulting from the washing process, is then transferred by pipeline to another processing plant where the HMC is separated from the mud and organic substances through a series of spiralling wash facilities. The HMCs are then dried and stockpiled prior to being moved by road transport to another facility. The wet concentration phase can be described as a process of concentrating or separating the minerals as other substances are separated from the minerals during the process. Hence, this process enables the minerals to be removed from that with which they are embedded or intermixed with. | Detailed Reasoning - Phase two of processing: At this stage the ilmenite, rutile and zircon are still intermingled. At the second facility located in the Destination State, the HMCs undergo a magnetic extraction process to separate out the ilmenite. The rutile and zircon are subsequently extracted using a different type of magnetic separation. After the application of these processes the minerals can be individually identified and are stockpiled separately. As such the primary purpose of the second phase of processing is the separation or concentration of each mineral from the other substances with which they are intermingled. The substances that each mineral is being separated or concentrated from include the other minerals which make up the HMC. ………………. The Commissioner considers, having regard to the technical process to which the mineral sands are subjected, that those processes constitute beneficiation for the purposes of the EGCSA. Further information on the processes and the Commissioner's view is provided in the ATO ID. In accordance with the view in the ATO ID, we consider that in your case the second phase of beneficiation occurs after the HMC is transported to the port. The separation process performed in another Australian State is an operation for the recovery of minerals pursuant to section 11 of the EGCSA. Consequently, the off-public road transportation of the minerals or ores bearing minerals from the mine site to the port by you is a mining transport activity under subparagraph 12(a)(i) of the EGCSA. The transport of the HMC to the port is therefore an integral part of the journey from the mine site to the place of beneficiation. Accordingly, your transport of the HMC to the port for further conveyance to another Australian State is a 'mining transport activity' as defined in paragraph 12(a) of the EGCSA. | 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 to which your entitlements are attributable. 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.