Published: June 2012
Ruling period: 2007-08 income year | 2008-09 income year | 2009-10 income year | 2010-11 income year
Date scheme commenced: 1 July 2007

Ruling: Q1: Under the terms of your charter agreement with the company, have you acquired the diesel fuel you use in your vessel for the oceanic transportation of concentrate for the purpose of the fuel tax provisions? | A1: Yes. | Q2: Are you entitled to a fuel tax credit for the diesel you have acquired and use in your vessel as a 'use in marine transport' within the meaning of the fuel tax provisions? | A2: Yes.

Relevant facts and circumstances: You entered into a contract (Agreement) with a company for the wet hire services of a vessel owned and operated by you, for the transportation of X loaded onto the vessel by the company. The company is referred henceforth as the company or the Charterer and you are referred henceforth as the Owner. You state you acquired the diesel fuel used in the vessel from the company. The journeys undertaken by the vessel for the delivery of the X were domestic only. You state there have been several changes to the Agreement since its commencement, however, you state no changes have been made to clauses relating to fuel. A summary of the relevant clauses of the Agreement, particularly in relation to fuel and the payment of services are provided for below. You, as Owner under the terms of the Agreement pay for all fuel, but do not provide the fuel, unless otherwise agreed. The company as Charterer, except as otherwise agreed with the Owner, will provide or procure (but not pay for) all the fuel required for the Vessel. This fuel will be supplied from a tank at the loading port to be maintained and provided by the Charterer. The Master of the Vessel shall have complete control of the Vessel and shall be in complete charge of all operations involving the Vessel in the course of Operations under the Agreement, including management of any disputes that may arise between the Master and the Charterer or any other person in relation to any matter relating to the Agreement, Operations or the Vessel. There were 13 clauses within the Agreement that provided for the relevant fuel arrangements between the Owner (you) and the Charterer. You confirmed our interpretations of those clauses relating to fuel under the terms of the Agreement. In short these provided that: · you were to maintain a fuel consumption efficiency of the vessel, · the Charterer, would supply fuel at the loading port for use by you in the vessel in the course of operations at a price paid by you not exceeding an agreed price, although your Agreement did provide for adjustments, and · an amount would be payable by the Charterer to you in consideration of your services, that is, the loading, transportation and unloading of the X You also provided a number of tax invoices from over the period showing payment for the conduct of operations. You are registered for fuel tax credits and goods and services tax (GST). It is your view that you have acquired the diesel used in the vessel for use in your business of transport and that you are entitled to a fuel tax credit at the full rate, that is 38.143 cents per litre.

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 1 of Part 3 of Schedule 3 | Fuel Tax (Consequential and Transitional Provisions) Act 2006 Division 2 of Part 3 of Schedule 3 | Fuel Tax (Consequential and Transitional Provisions) Act 2006 subitem 10(5) of Schedule 3 | Fuel Tax (Consequential and Transitional Provisions) Act 2006 subitem 11(5) of Schedule 3 | Energy Grants (Credits) Scheme Act 2003 section 36 | Energy Grants (Credits) Scheme Act 2003 subsection 36(2) | Energy Grants (Credits) Scheme Act 2003 subsection 36(3) | Energy Grants (Credits) Scheme Act 2003 paragraph 36(3)(a) | Energy Grants (Credits) Scheme Act 2003 paragraph 36(3)(b) | Energy Grants (Credits) Scheme Act 2003 paragraph 36(3)(c) | Energy Grants (Credits) Scheme Act 2003 subsection 36(4) | Energy Grants (Credits) Scheme Act 2003 paragraph 36(4)(a) | Energy Grants (Credits) Scheme Act 2003 paragraph 36(4)(b) | Energy Grants (Credits) Scheme Act 2003 subsection 36(5) | Energy Grants (Credits) Scheme Act 2003 paragraph 36(5)(a) | Energy Grants (Credits) Scheme Act 2003 paragraph 36(5)(b) | Energy Grants (Credits) Scheme Act 2003 paragraph 36(5)(c) | Energy Grants (Credits) Scheme Act 2003 subparagraph 36(5)(c)(i) | Energy Grants (Credits) Scheme Act 2003 section 53 | Energy Grants (Credits) Scheme Act 2003 subsection 53(3)

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 Divisions 1 and 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 2006 and 30 June 2012, whilst retaining entitlements under the Energy Grants (Credits) Scheme Act 2003 (EGCSA). In determining whether you are entitled to fuel tax credits, it must first be determined whether you have 'acquired' diesel for the purpose of the fuel tax provisions, and if so, whether you have then 'used' the fuel in an eligible activity in carrying on your enterprise. | Detailed Reasoning - Acquire: The term 'acquire' is not defined in the FTA and therefore takes on its ordinary meaning. In the context of the FTA, the term 'acquire' has the ordinary meaning of to 'get as one's own'. To 'get as one's own', implies getting ownership or proprietary rights in respect of the taxable fuel. This will mean either that property in the taxable fuel passes from one entity to another, or that proprietary rights or ownership is conferred by the act of obtaining the taxable fuel by other means. Therefore, an entity typically 'acquires' taxable fuel upon a change in ownership of, or a transfer of proprietary rights in, the fuel from one entity to another. You acquire taxable fuel if: · you purchase the fuel; · the fuel is gifted to you; or · 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. Whether you get ownership of, or proprietary interest in, fuel will depend on all 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 your case, you obtain diesel for use in your vessel at the loading port, where X is loaded for transport at the port. Via the terms of the agreement in place between parties (Agreement), this fuel was provided by the company, as charterer of the vessel and the tanks were likewise maintained by them. It is clear from the terms of the Agreement that the company pay you a contracted price for the transportation of works you undertake. As part of the terms of the Agreement, you were to maintain a fuel consumption efficiency of the vessel and the Charterer, would supply fuel at the loading port for use by you in the vessel in the course of operations at a price paid by you not exceeding an agreed price, although your Agreement did provide for adjustments. It is clear from the Agreement it was intended that the company, as Charterers of the vessel, would provide you with fuel for use as required in the vessel but that you, as Owners of the vessel would pay for all fuel. However, whilst particular clauses of the Agreement provide for 'payment' of the fuel, this does not for the purposes of the fuel tax provisions necessarily mean there has been an acquisition of the fuel by you. It is thus necessary to establish whether by virtue of the Agreement in place between parties, whether the diesel fuel was acquired by the Charterer with property in the fuel remaining with them or whether this transferred to you (the Owner). Ordinarily, one would expect that goods that are supplied and then consumed and then paid for are regarded as having been bought by that consumer. It would follow that the fuel purchased by the company and delivered to their tanks at the loading port and then supplied to you for use in your transport activities [with consideration] was not purchased for use by it, but rather fuel purchased for a sale to you for use in the vessel undertaking transportation of the concentrate. It is apparent that under the Agreement that a 'contract price' has been determined between the parties and this is the basis for the payments received by you. As part of this payment, you are expected to maintain certain fuel efficiency in the vessel for the journeys undertaken and consideration has been given for the cost of fuel incurred in such journeys. There is an absence of an express, separate charge for fuel used by you in undertaking the contracted works, however provisions were made in regards to fuel consumption where certain efficiencies were or were not met. Thus, in effect, you pay a set fee for fuel at a cost of cents per litre incorporated as part of the agreed amount received for services rendered, but this may be varied and subject to adjustments between parties. In this arrangement, you hired your vessel, master and crew to the company who were to provide the fuel used to operate the vessel. The amount paid to you for your services is calculated as including the cost of fuel. That is, the company are purchasing the fuel, having it delivered to their tanks at the loading port and providing that supply for you to utilise in undertaking the contracted works. The terms of contract specify that the company will provide the fuel used in undertaking the contracted works. Unless other arrangements are made, the Agreement provides that the company orders and provides the fuel and is presumably invoiced by the fuel supplier and pays for the fuel. You are then paid an amount for your services whereby both the agreed fuel efficiency and fuel price are factored into the payment received. Further, the Agreement contains separate but specific clauses which specifically provide that you were to pay for the fuel supplied by the company On this basis, it is reasonable to conclude that that an agreement had been reached between parties that the company had sold fuel to you, which became a sale when fuel was drawn at the port and consumed by you, which in turn would be when property in the fuel passed from the company to you. Further, as the master of the vessel has complete control of the vessel and is in complete charge of all operations involving the vessel in the course of operations, it is reasonable to consider that once the fuel has been drawn, proprietary control of the fuel has passed to you. Accordingly, for the reasons explained above, it is considered you have 'acquired' taxable fuel for the purposes of section 41-5 of the FTA. | Detailed Reasoning - Use: For the purposes of the FTA and in the context of the expression 'for use', the term 'use' means 'expend or consume in use', which in turn requires that the fuel be expended or consumed, such that it no longer exists as fuel, by putting it into service in carrying on your enterprise. Therefore, fuel that is acquired would be used in carrying on your enterprise if, in the course of carrying on that enterprise it ceases to exist after an action to use it (for example, internal combustion engines). As you have consumed the fuel in your vessel in carrying out the works outlined in the Agreement, you have 'used' the fuel. Accordingly, this element is satisfied. | Detailed Reasoning - Marine Transport: Subitems 10(5) and 11(5) of Schedule 3 of the FTCTPA provide 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. Under subsection 53(3) of the EGCSA, 'use in marine transport' in the course of carrying on an enterprise, is a use that qualifies. Section 36 of the EGCSA sets out the meaning of the expression 'use in marine transport' and states: (2) Use in a vessel in marine transport is use in marine transport | Detailed Reasoning - Use in a vessel for various purposes: (3) Use: in a vessel, or in equipment in or on a vessel; and while the vessel is in or on the sea or fresh water; and for any of the purposes mentioned in subsection (4); is use in marine transport. Subsection 36(4) further denotes the 'purposes' of marine transport and states the following are the purposes: · loading anything onto the vessel, or enabling persons to board the vessel, for the purpose of being transported by the vessel; · unloading anything onto the vessel, or enabling persons to disembark from the vessel, after being transported by the vessel; Further, subsection 36(5) provides for use in a vessel on certain journeys: · in a vessel, or in equipment in or on a vessel; and · while the vessel is in or on the sea or fresh water; and · either: · on the forward journey of the vessel for the purposes of using it in marine transport or using it for any of the purposes mentioned in subsection (4), or on its return journey after any such use; or · is use in marine transport. As your activities are the oceanic transportation of concentrate loaded onto your vessel, your activities are a use in marine transport and as such section 36 of the EGCSA is satisfied. As such, you would have been entitled to an off-road credit under section 53 of the EGCSA and therefore satisfy subitems 10(5) and 11(5) of the FTCTPA. Accordingly, you are entitled to a fuel tax credit for the diesel you have acquired and use in your vessel as a 'use in transport' within the meaning of the fuel tax provisions. | Detailed Reasoning - Time limit for claiming fuel tax credits: Your entitlement to fuel tax credits is subject to other provisions of the fuel tax legislation. Section 47-5 of the FTA provides that you cease to be entitled to fuel tax credits where you have not brought them into account within four years to which the fuel tax credit would be attributable.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.