Private ruling: Fuel Tax Credits - Deductive Method
Date of advice: 13 January 2016
Published: March 2016

Ruling: Q1: Is the use of the deductive methodology in determining its entitlement to a fuel tax credit (FTC) for fuel purchased and used in mine operations considered to be fair and reasonable? | A1: Yes

Relevant facts and circumstances: You operated a fleet of support, logistical and construction vehicles at the mine site during 20XX and 20YY. You were contracted to provide mining support, transport and construction works at the mining site. The contract involved the construction of internal roads, diversion channels, fencing and building a temporary accommodation camp at the site and on the mining lease. You purchased X litres of diesel fuel during the period from your supplier. The fuel was delivered into on-site tanks. The diesel fuel was dispensed from your on-site fuel tanks into your construction vehicle fleet for the use of 'off-road' operations. You sold X litres of diesel fuel at the completion of the contract. The balance of the diesel fuel was consumed by you in mining activities.

Relevant legislative provisions: Fuel Tax Act 2006 Subsection 41-5(1) | Fuel Tax (Consequential and Transitional Provisions) Act 2006 Item 11 | Energy Grants (Credits) Scheme Act 2003 Subsection 11(1) | Paragraph 11(1)9a) | Paragraph 11(1)(b) | Section 53

Reasons for decision: Detailed Reasoning - Apportioning fuel for tax credits: 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 that you acquire or manufacture in, or import into, Australia to the extent that you do so for use in carrying on your enterprise.' The Commissioner has considered the implications of the phrase 'to the extent that' for the purposes of entitlement to a fuel tax credit in FTD 2010/1 Fuel tax: is apportionment used when determining total fuel tax credits in calculating the net fuel amount under section 60-5 of the Fuel Tax Act 2006? (FTD 2010/1) At paragraph 5 of FTD 2010/1 the Commissioner relevantly states: The use of the phrase 'to the extent that' in the FT Act contemplates apportionment in the case of: • section 41-5 of the FT Act between a use that entitles you to a fuel tax credit and one that does not, and between uses that give rise to different rates of fuel tax credits, taking into account the operation of Division 41 of the FT Act… • … At paragraph 6 and 7 of FTD 2010/1 it is explained that the 'fair and reasonable' principle applies in determining the extent of your fuel tax credit entitlement and that you can use any apportionment method that is fair and reasonable in your circumstanced to determine the FTC that is available for the taxable fuel you acquire. 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.) You have proposed to adopt the deductive method to calculate your FTC entitlement. You have taken into account the circumstances of your operations when determining that this method is appropriate. The calculation of your FTC entitlement will be based on deducting the quantity of fuel sold at the completion of your contract from the total taxable fuel acquired. The circumstances you have taken into account include such matters as: • you purchased all the fuel you used at the mine site and have records to substantiate the quantity of fuel acquired; • you have identified the quantity of fuel you on-sold; • the remoteness of the mine site and as such no vehicles were used outside of the mine lease or at adjacent areas; and • the security arrangements you implemented. As such the Commissioner considers that the methodology adopted by you (referred to as the deductive method), will provide a 'fair and reasonable' apportionment in determining your FTC entitlement. | Detailed Reasoning - Tax Period 1 August 20XX to 30 June 20YY: Section 41-5 of the FTA provides that you are entitled to an FTC for taxable fuel that you acquire for use in carrying on your enterprise. However, for taxable fuel acquired between 1 July 2008 and 30 June 2012 this entitlement is affected by Item 11 of Division 2 of Part 3 of Schedule 3 to the Fuel Tax (Consequential and Transitional Provisions) Act 2006 (Item 11 of the FTCTPA). Item 11 of the FTCTPA operated to limit any FTC entitlement to the specific activities listed in the item and continued the previous entitlements of the Energy Grants (Credits) Scheme Act 2003 (EGCSA). Sub-item 11(5) of the FTCTPA states that you are not entitled to an FTC under the FTA unless you would have been entitled to an off-road credit under the EGCSA. Section 53 of the EGCSA provides that, subject to certain conditions and restrictions, you are entitled to an off-road credit if you purchase off-road diesel fuel for a use by you that qualify ( in mining operations ). 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 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: … (f) a mining construction activity; or … | Detailed Reasoning - Mining construction activity: A mining construction activity is relevantly defined in paragraph 15(d) of the EGCSA as the construction or maintenance of buildings, plant or equipment, if: • the buildings, plant or equipment are for use in the following mining operations (as mentioned in paragraph 11(1)(a) or 11(1)(b) of the EGCSA): (1) Subject to subsection (2), the expression mining operations means: (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: (c) a mining transport activity; or (d) a mining rehabilitation activity; or (e) a mining water activity; or (f) a mining construction activity; or (g) a mining waste activity; or (h) a mining vehicle activity; or (i) a sundry mining activity. • the construction or maintenance occurs at the place where the mining operation is carried on; and • the construction or maintenance is carried out by the person who carries on the mining operation or by a person contracted by that person. You were contracted during that period to supply a fleet of support, logistical and construction vehicles at the mine site. Your contract provided the project site with mining support which included construction of internal roads, diversion channels, fencing and building a temporary accommodation camp at the project site. All vehicles and equipment are used and based on the mine site. Accordingly, any construction activity (as listed above) which is performed at the mine site falls within subsection 11(1) of the EGCSA. Therefore, you satisfy this requirement.