Private ruling: Fuel tax credits - methods of calculation
Published: February 2014
Ruling period: 2010 income year | 2011 income year | 2012 income year.
Date scheme commenced: 1 August 2009.

Ruling: Q1: Is the method you have proposed for calculating your fuel tax credit entitlement under section 41-5 of the Fuel Tax Act 2006 (FTA) considered to be fair and reasonable? | A1: Yes.

Relevant facts and circumstances: You are registered for goods and services tax (GST). You are also registered for fuel tax credits. You lodge your business activity statements (BAS) on a monthly basis. As part of your business, under contract, you provide various civil and mining related services throughout Australia and have claimed fuel tax credits for the fuel you have acquired and used in your business. You have now engaged an accounting firm to review your fuel tax credit claims. This review has highlighted that you have historically claimed fuel tax credits using a constructive method. You have used a constructive method in the past in order to avoid any risk of over claiming. Using the constructive method meant that fuel acquired but whose use was not known was not claimed for fuel tax credits. Your observations reveal that the unaccounted fuel arises from but may not be limited to reconciliation variances between fuel dips and closing and opening quantities and back charged amounts. You consider that using a deductive method of fuel tax credit calculation provides a better reflection of fuel you have used in eligible activities as your records show the total fuel you have acquired and the total amount of fuel used in ineligible activities. Your fuel tax credit claims are in respect to three distinct projects. Project 1 Project 1 is located in a remote location in Australia. The site is not adjacent to any town or other regional centre. You were awarded a contract in 20XX by a principal in relation to its operations at Project 1 whose purpose was the mining and processing of ore. Work commenced by you in November 20XX and concluded in 20YY. The services performed by you included drill and blast, excavation and haulage of ore and waste activities at the Project 1 mine site. Your activities at Project 1 were confined to the mine site. The diesel fuel you used at Project 1 was originally acquired by the principle contractor from a fuel distributor and transported to the Project 1 mine site where it was subsequently acquired by you from the principal. The principal charged you for the fuel at the same price they paid including the full excise rate of $0.38143 per litre. You hold tax invoices for both the fuel charged to you by the principle and the fuel charged to the principal by the distributor. Given the arrangements for the supply of fuel to you by the principal, you contend that ownership in the fuel you used passed from the principle to you. As each tax invoice you hold states the exact amount of fuel supplied, you are able to accurately and precisely quantify the total amount of fuel acquired by you for Project 1. At Project 1 you also subcontract services to another entity. Of the fuel you acquired from the principal, a quantity was further sold to your subcontractor via a back charge process using the same fuel price sold to the principal and on sold to you. You acknowledge that you have no entitlement to fuel tax credits in respect of the fuel subsequently sold to your sub-contractor. The quantities of fuel you sold to subcontractors have been verified by back charging documents and your reconciliations. You acknowledge that fuel used in light vehicles operating on public roads is not eligible for fuel tax credits and so, to be conservative, you have disqualified all fuel used in your light vehicles on Project 1 from your fuel tax credit calculations. Based on your analysis of the activities you undertook on Project 1, you consider that all of your activities at this site fall within the definition of mining operations as defined in subsection 11(1) of the Energy Grants (Credits) Scheme Act 2003 (EGCSA). This is on the basis that the works performed fall within the definitions of mining construction and mining waste activities. Consequently, you consider that the fuel you acquired and used in your business on Project 1 is eligible for fuel tax credits at the full rate. Your method of calculating fuel tax credits for diesel fuel you acquired and used on the Project 1 site is therefore the total quantity of fuel acquired from the principal (for which you hold records) less fuel subsequently sold to your sub-contractor and less fuel used in all light vehicles on that site. Project 2 Project 2 is located at a remote location in Australia. Generally, Project 2 encompassed most of the preliminary construction work for the iron ore crushing and processing facility on a mine site. Works included earthworks and the construction of major concrete foundations and structures for the plant and associated infrastructure, including ball mills, primary and secondary crushers, load out vault and conveyor trestle foundations. This specifically involved the construction of site drains, access roads, retention pond and an all-weather airstrip. Drill and blasting was also conducted. Your services at Project 2 were confined to the mine site. You have been able to accurately and precisely identify the amount of fuel you acquired for use on Project 2 through the holding of monthly invoices issued by your fuel supplier. You acknowledge that you are ineligible to claim fuel tax credits for quantities of fuel you have subsequently sold to your sub-contractors. These quantities of fuel have been determined by you using reconciled back charge documents supplied by those sub-contractors. You acknowledge that fuel used in light vehicles operating on public roads is not eligible for fuel tax credits and so, to be conservative, you have disqualified all fuel used in your light vehicles on the Project 2 from your fuel tax credit calculations. Based on your analysis of the activities you undertook on Project 2, you consider that all of your activities at this site fall within the definition of mining operations in subsection 11(1) of the Energy EGCSA. This is on the basis that the works performed fall within the definitions of mining construction in section 15 of the EGCSA. Consequently, you consider that the fuel you acquired and used in your business on Project 2 is eligible for fuel tax credits at the full rate. Your method of calculating fuel tax credits for diesel fuel you acquired and used on the Project 2 site is therefore the total quantity of fuel acquired from your fuel supplier (for which you hold records) less fuel subsequently sold to your sub-contractors and less fuel used in all light vehicles on that site. Project 3 The overall purpose of the Project 3 was to construct a new rail line immediately adjacent to an existing line from a mine site to the harbour. You were engaged to perform services on the project from 20AA to 20BB. You were responsible for a portion of the rail. This location is not adjacent to any town or regional centre. The services you performed on Project 3 included earthworks, rock excavation, land fill, drilling and blasting, the construction of a camp and track installation. Your activities were confined to the Project 3 rail location. You have been able to accurately and precisely identify the amount of fuel you acquired for use on Project 3 through the holding of invoices issued by your fuel supplier. Quantities of fuel you have subsequently sold to your sub-contractors and for which you are ineligible to claim fuel tax credits, have been determined by you using reconciled back charge documents supplied by those sub-contractors. You acknowledge that fuel used in light vehicles operating on public roads is not eligible for fuel tax credits and so, to be conservative, you have disqualified all fuel used in your light vehicles on Project 3 from your fuel tax credit calculations. Based on your analysis of the activities you undertook on Project 3, pursuant to subitem 11(6) of Schedule 3 of the FTCTPA, you consider that the fuel you acquired and used on this project is eligible for fuel tax credit at the half rate. Your method of calculating fuel tax credits for diesel fuel you acquired and used on the Project 3 site is therefore the total quantity of fuel acquired from your fuel supplier (for which you hold records) less fuel subsequently sold to your sub-contractors and less fuel used in all light vehicles on that site.

Relevant legislative provisions: Fuel Tax Act 2006 section 41-5 | Fuel Tax Act 2006 subdivision 41-B | Fuel Tax Act 2006 section 47-5 | Fuel Tax Act 2006 section 60-5 | Fuel Tax (Consequential and Transitional Provisions) Act 2006 Division 2 of Part 3 of Schedule 3 | Fuel Tax (Consequential and Transitional Provisions) Act 2006 subitem 11(1) of Schedule 3 | Fuel Tax (Consequential and Transitional Provisions) Act 2006 subitem 11(3) of Schedule 3 | Fuel Tax (Consequential and Transitional Provisions) Act 2006 subitem 11(4) of Schedule 3 | Fuel Tax (Consequential and Transitional Provisions) Act 2006 subitem 11(5) of Schedule 3 | Fuel Tax (Consequential and Transitional Provisions) Act 2006 subitem 11(6) of Schedule 3 | Energy Grants (Credit) Scheme Act 2003 subsection 11(1) | Energy Grants (Credit) 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 for use in carrying on your enterprise if you are registered for GST. However this entitlement is affected by 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(3) of Schedule 3 of the FTCTPA provides that an entitlement arises under section 41-5 of the FTA if you would have been entitled to an on-road credit under the EGCSA, that is, operating certain vehicles on a road. The fuel tax credit is reduced by the road user charge by operation of subitem 11(4) of the FTCTPA. | Detailed Reasoning - Full rate: Subitem 11(5) of the FTCTPA relevantly 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. Subsection 53(2) of the EGCSA provides that you are entitled to an off-road credit if you purchase off-road diesel fuel in mining operations, other than for propelling any vehicle on a public road. | Detailed Reasoning - Half rate: From 1 July 2008, subitem 11(6) of Schedule 3 of the FTCTPA provides that an entitlement to a fuel tax credit will arise under the FTA if you would not have been entitled to a credit previously. That is, if you acquire taxable fuel for use in carrying on your enterprise, and were not entitled to a credit previously, then you are entitled to half of the amount of the fuel tax credit. These provisions are subject to the disentitlement rules of subdivision 41-B of the FTA which disallows a fuel tax credit: · if another entity was previously entitled to the credit; · for fuel used in vehicles with a GVM of less than 4.5 tonnes travelling on public roads; · for fuel used in motor vehicles that do not meet environmental criteria; or · for fuel used in aircraft. | Detailed Reasoning - Apportionment: Section 41-5 of the FTA provides that an entity is entitled to a fuel tax credit for taxable fuel they acquired to the extent that the entity acquires the fuel for use in carrying on their enterprise. The use of the phrase 'to the extent that' in the FTA contemplates the apportionment of fuel between multiple uses as well as allocation of the fuel to a specific use to ensure that fuel tax credits are only claimed for fuel that is acquired for use or actually used in carrying on your enterprise. In addition, as discussed above, entitlement to a fuel tax credit may be affected by the operation of the FTCTPA. Of the fuel you acquire and use in your business for undertaking the civil and mining related works at your three project sites, you have self-assessed that a portion of the fuel is: · used in mining operations and will attract fuel tax credits at the full rate; · not used in mining operations and will attract fuel tax credits at the half rate; and · used in light vehicles for which you decline to claim. As such, to determine the amount of your fuel tax credit entitlement, you are required to apportion the taxable fuel you acquired to the different uses. | Detailed Reasoning - Need for separate calculations: In Practice Statement Law Administration PS LA 2010/3: Apportionment for the purposes of the Fuel Tax Act 2006 (PSLA 2010/3), the Commissioner provides guidance in determining whether a method of apportionment used to calculate an entity's fuel tax credit entitlement is fair and reasonable in the entity's circumstances. Whilst PS LA 2010/3 discusses commonly used methods, an entity is not limited to the particular methods set out in the statement and, the examples used in PS LA 2010/3 are to illustrate the 'fair and reasonable' principle in the application of apportionment methods. A claimant can use any apportionment method that is fair and reasonable in their circumstances to determine the fuel tax credit entitlement for the taxable fuel that they acquire. Where there is more than one fair and reasonable way of apportioning, claimants may choose any method as long as it is fair and reasonable in their circumstances. Relevantly, paragraph 18 of PSLA 2010/3 provides that: 18. The entity may choose any method that is fair and reasonable. If the circumstances of the entity allows for more than one fair and reasonable method, but the methods produce different results, the entity may nevertheless choose any method that is fair and reasonable. In this case, you have previously used a constructive method to determine your fuel tax credit entitlement; you have now determined that an alternate method is preferred. Your proposed method includes: · determining the fuel acquired for use in your business on your work sites · apportioning that fuel between use in; · mining operations attracting fuel tax credits at the full rate and · fuel used in other previously ineligible activities and attracting fuel tax credits at the half rate · fuel used in light vehicles which you not intend to claim. This method is known as the deductive - actual use method. This is a method that the Commissioner discusses at paragraphs 33 to 40 of PS LA 2010/3. Therefore, based on the information you have provided, your proposed method of calculating fuel tax credits for taxable fuel you have acquired and used in construction activities, based on the actual usage of the fuel, is considered to be fair and reasonable. | Detailed Reasoning - Four year rule: Please note that section 47-5 of the FTA provides that basically your fuel tax credit entitlements cease four years from the due date of the relevant business activity statement or fuel tax return. 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.