Private ruling: Fuel Tax Credits - Bunker Fuels - Carbon Charge
Published: May 2015
Ruling period: 20XX - 20XX income year
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are you entitled to a fuel tax credit (less the amount of the carbon charge component) for duty paid bunkers that you acquired and that remains on-board your vessels when they leave Australian waters? | A1: Yes.

Relevant facts and circumstances: You are registered for goods and services tax (GST) and fuel tax credits. During the carbon tax period (1 July 20XX to 30 June 20XX) you were not registered as a participant in the Opt-in Scheme. You utilised a number of vessels in a project that involved the movement by vessel of people and goods associated with the project. A number of the vessels arrived from overseas and remained in Australia to operate under various charter arrangements. You were required to pay the excise equivalent customs duty on the imported fuel that was on the vessel on arrival and also the excise duty on any fuel acquired by you during the period the vessels were operating on the project. The imported bunker fuel was classified to Customs Tariff Heading 2710.19.20 and was subject to customs duty at a rate of $0.38143 cents per litre. The fuel acquired domestically was subject to excise duty at a rate of $0.38143 cents per litre. At the end of the project a number of the vessels departed Australia for overseas ports and had excise duty paid bunker fuel on board at the time of departure. The charter arrangements ended, when you handed vessels over to the owners at the overseas port. You have claimed fuel tax credits for the eligible fuel consumed in the vessels during the project and this ruling only relates to the duty paid bunker fuel that remained on the chartered vessels when they left Australian ports.

Relevant legislative provisions: Fuel Tax Act 2006 section 41-5 | Fuel Tax Act 2006 section 43-5 | Fuel Tax Act 2006 subsection 43-5(1) | Fuel Tax Act 2006 section 43-8 | Fuel Tax Act 2006 subsection 43-8(1A) | Fuel Tax Act 2006 subsection 43-8(4) | Fuel Tax Act 2006 section 110-5 | Excise Act 1901 section 78 | Excise Act 1901 subsection 78(1A) | Excise Act 1901 section 79 | Excise Act 1901 section 160A | Excise Act 1901 subsection 160A(5) | Excise Tariff Act 1921 the Schedule subitem 10.10 | Excise Regulations 1925, regulation 50 | Excise Regulations 1925, regulation 76 | Excise Regulations 1925, sub-regulation 76(2) | Excise Regulations 1925, sub-regulation 78(3) | Clean Energy (Fuel Tax Legislation Amendment) Act 2011

Reasons for decision: Summary: Section 41-5 of the Fuel Tax Act 2006 (Fuel Tax Act) provides that you are entitled to a fuel tax credit for taxable fuel that you acquire in Australia to the extent you do so for use in carrying on your enterprise, if you are registered for GST. From 1 July 2012, there were changes to the Fuel Tax Act 2006 resulting from the Clean Energy (Fuel Tax Legislation Amendment) Act 2011. One of the key changes was how the amount of your fuel tax credit for the taxable fuel is calculated, taking into account the amount of carbon reduction (subsection 43-5(1)). Section 43-5 of the Fuel Tax Act prescribes the method to be used to work out your fuel tax credit amount. Subsection 43-5(1) of the Fuel Tax Act provides that the amount of your fuel tax credit for taxable fuel is the amount worked out by deducting the amount of carbon reduction from the amount of effective fuel tax. Section 43-8 of the Fuel Tax Act provides for working out the amount of carbon reduction for a particular quantity of taxable fuel using the following formula: Quantity of fuel x Carbon price x Carbon emission rate The carbon emission rate for diesel is 0.0027 and the carbon price that applied varied depending on the applicable financial year. For the financial year in question (1 July 2013 to 30 June 2014) the carbon price was fixed at 2,415 cents. Therefore the carbon reduction (as rounded by subsection 43-8(1A)) for diesel acquired during this period was $0.0652 and as a result the fuel tax credit rate was $0.31622 cents per litre. Subsection 43-8(4) of the Fuel Tax Act provided circumstances where the amount of carbon reduction to apply to the fuel would be nil. These circumstances involved fuel: • covered by the Opt-in-Scheme; • fuel acquired, manufactured or imported for use in agriculture, fishing operations, or forestry; • fuel acquired, manufactured or imported for use in a vehicle with a gross vehicle mass of more than 4.5 tonnes travelling on a public road; or • fuel acquired, manufactured or imported for use otherwise than by combustion of the fuel. You stated that you acquired excise duty paid diesel for use as bunker fuel in marine transport which does not satisfy any of the uses detailed above and therefore the carbon reduction is not reduced to nil. Diesel fuel is classified to subitem 10.10 of the Schedule to the Excise Tariff Act 1921 and therefore attracts excise duty. As a result diesel fuel is a taxable fuel as defined within section 110-5 of the Fuel Tax Act. As you acquired a taxable fuel and used it in your marine transport enterprise you satisfy section 41-5 of the Fuel Tax Act and an entitlement to a fuel tax credit arises. You state that the charter arrangements are such that control of the vessels is not handed back to the owner/operator until the vessels reach their overseas port of destination. Therefore this fuel tax credit entitlement applies to any fuel remaining on board the vessel when it leaves Australian waters. However, you are not entitled to a fuel tax credit at the full rate but are, entitled to claim a fuel tax credit, less the amount of carbon reduction for the duty paid bunker fuel you acquired that remained on-board the vessels when they left Australian waters. As this ruling applies to fuel acquired during the period 1 July 2013 to 30 June 2014 the rate of fuel tax credit you would be entitled to for the fuel is reduced by the carbon reduction amount that applied for diesel during that period, which as explained earlier is $0.31622 cents per litre. In your ruling application in the arguments and references section, you raised the possibility of either drawback or refunds of excise duty provided for under Part VIII of the Excise Act 1901 (Excise Act) applying to the fuel in question. Section 79 of the Excise Act provides for drawbacks of excise duty and states that the Excise Regulations 1925 (Excise Regulations) may make provision for and in relation to allowing drawbacks of excise duty. Excise Regulation 76 provides for the drawback of excise duty on excisable goods. Specifically, Excise Regulation 76(2) states that a "...drawback of excise duty may be paid on the exportation of excisable goods...". Bunker fuel is not considered to be exported and therefore a drawback of duty is not payable. Even if drawback could apply to bunker fuel, Excise Regulation 78(3) states a drawback is not payable if an entity or another entity has or has previously been entitled to a fuel tax credit in relation to that fuel. As we have determined that you do have an entitlement to a fuel tax credit for duty paid bunker fuel you acquired that remained on-board the vessels when they left Australian waters, a drawback of duty is not payable. In relation to refunds, section 160A of the Excise Act provides for ship's stores and aircraft's stores and states that except as provided for by the regulations, ship's stores and aircraft's stores are not liable to Excise duty. Subsection 160A(5) of the Excise Act provides for the definition of ship's stores, meaning: Ship's stores means stores for the use of the passengers or crew of an overseas ship, or for the service of an overseas ship. It is clear from the definition of 'ships stores' in section 160A of the Excise Act that fuel used to service an overseas ship (commonly referred to as bunker fuel) would be considered stores and not cargo, that would be considered to be exported when on board a ship commencing an international voyage. Section 78 of the Excise Act provides for refunds of excise duty and subsection 78(1A) states that the Excise Regulations may make provision for and in relation to allowing refunds of excise duty. Regulation 50 of the Excise Regulations provides for circumstances under which refunds, rebates and remissions of excise duty are made. Sub-regulation 50(1) of the Excise Regulations provides that the following circumstance is prescribed for the purposes of section 78 of the Excise Act, namely where: (d) the goods on which Excise duty has been paid have, by virtue of section 160A of the Act, become goods that are not liable to Excise duty, unless, for goods that are fuel, either: (i) an entity: (A) has an entitlement to a fuel tax credit or decreasing fuel tax adjustment in relation to that fuel; and (B) does not have an increasing fuel tax adjustment in relation to the fuel; or (ii) another entity: (A) has previously been entitled to a fuel tax credit or decreasing fuel tax adjustment in relation to that fuel; and (B) did not have an increasing fuel tax adjustment in relation to that fuel; For that reason a refund under paragraph (d) of sub-regulation 50(1) of the Excise Regulations would be payable on any duty that had been paid on the bunker fuel but only where there is no entitlement to fuel tax credits. Therefore, as we have already determined that you do have an entitlement to a fuel tax credit for duty paid bunker fuel you acquired that remained on-board the vessels when they left Australian waters, a refund of duty is not payable. In summary, for the fuel you domestically acquire at a purchase price including excise duty and used as part of your marine transport activities you are entitled to a fuel tax credit under section 41-5 of the Fuel Tax Act. This includes duty paid bunker fuel you acquired that remained on-board the vessels when they left Australian waters. In regards to the application of a carbon reduction, the fuel tax law provides for those circumstances where this reduction applies and those specific circumstances where the amount is nil as prescribed by section 43-8 of the Fuel Tax Act. In your case, the amount of carbon reduction applies when calculating your fuel tax credits.