Private ruling: FTC Apportionment
Published: March 2015
Ruling period: 1 July 2014 to 30 June 2015 | 1 July 2015 to 30 June 2016 | 1 July 2016 to 30 June 2017.
Date scheme commenced: 1 July 2014

Ruling: Q1: Is the apportionment method outlined by you in calculating fuel tax credit (FTC) claims for fuel used by auxiliary equipment fitted to their fleet of on-road heavy vehicles, considered 'fair and reasonable' by the Commissioner of Taxation (Commissioner)? | A1: Yes, your apportionment methodology in calculating FTC claims for fuel used by auxiliary equipment is considered 'fair and reasonable'.

Relevant facts and circumstances: You are a waste recycling company. You are registered for goods and services tax (GST) and fuel tax credits (FTC). You account for GST & FTC on an accrual basis and report your activity statement quarterly. You provide commercial and residential waste management services for all types of waste streams. You operate a number of 'on-road' heavy vehicles with a gross vehicle mass exceeding 4.5 tonnes. Your fleet comprises of truck and auxiliary equipment configurations. The auxiliary equipment enables the lifting of bins and compacting on the contents of the hopper and the pumping of liquid. The outline of your new proposed testing methodology is a follows: Testing Methodology Based on the typical use of one of the truck and auxiliary equipment configurations 1. During a period the following was recorded: a) number of kilometres travelled by the vehicle when operation the auxiliary equipment; b) number of operation performed by the auxiliary equipment during the travel; and c) number of litres used in the travel. 2. The vehicle repeats the travel but does not operation the auxiliary equipment. A calculation of the fuel consumption / kilometre of the trucks without the auxiliary equipment operating. 3. The difference in fuel consumed by the vehicle that operates the auxiliary equipment and the vehicle that does not operate the auxiliary equipment is attributed to powering the auxiliary equipment. Note: Because of the large variation in the number of vehicles within each vehicle / auxiliary equipment configuration the final apportionment of fuel used in your fleet to powering the auxiliary equipment will be a percentage of fuel determined as a weighted average of fuel consumption of each vehicle / auxiliary equipment configuration.

Relevant legislative provisions: Fuel Tax Act 2006 .

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 or manufacture in, or import into, Australia to the extent that they do so for use in carrying on their 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. Practice Statement Law Administration PSLA 2010/3 Apportionment for the purposes of the Fuel Tax Act 2006 (PSLA 2010/3) explains how an entity can satisfy the 'fair and reasonable' requirement in determining a fuel tax credit entitlement. Relevantly, at paragraph 161 of PSLA 2010/3 some of the methodologies for apportioning the fuel used in a vehicle between fuel used to power the vehicle and fuel used to power the auxiliary equipment of the vehicle are explained. Using the data from the vehicle's engine electronic control module download or testing the vehicle's fuel consumption with and without the auxiliary equipment in operation (commonly referred to as 'shadow testing'), are two such methods. Importantly, at paragraph 155 of PSLA 2010/3, it is explained that in considering whether an apportionment methodology is fair and reasonable in the circumstances of the entity the Commissioner states that: …regard should be given as to whether the methodology takes into account the type and use of the auxiliary equipment, the variables in the use of the auxiliary equipment, the mechanisms available to measure the fuel usage and the records required to substantiate the amount of fuel apportioned. You will be undertaking a form of 'shadow testing' based on the typical use of two trucks. The methodology you propose to use is described below. Methodology • During a period the following was recorded: a) number of kilometres travelled; b) number of lifts performed during the travel; and c) number of litres used in the travel. • A calculation of the fuel consumption / kilometre of the trucks without the auxiliary equipment operating. • The difference in fuel consumed by the lift vehicles and the non-lift vehicle is attributed to powering the auxiliary equipment (the bin lifting mechanism). The same testing methodology is to be used on the other vehicle / auxiliary equipment configurations of your fleet. | Detailed Reasoning - Conclusion: Shadow testing is considered by the Commissioner as providing a 'fair and reasonable' apportionment methodology where the circumstances of the use of the vehicle and auxiliary equipment, and the variables that affect the fuel consumption and its measurement, are taken into account. It is appropriate that, because of the large variation in the number of vehicles within each vehicle / auxiliary equipment configuration, the final apportionment of fuel used in your fleet to powering the auxiliary equipment is shown as a percentage of fuel determined as a weighted average of the fuel consumption of each vehicle / auxiliary equipment configuration. Your apportionment methodology is a form of shadow testing and is considered 'fair and reasonable' in determining the apportionment of the fuel used in your fleet.