Private ruling: Fuel tax credits - four year rule and calculation methodology
Published: July 2012
Ruling period: 2008-09 income year | 2009-10 income year | 2010-11 income year | 2011-12 income year
Date scheme commenced: July 2008

Ruling: Q1: Are you entitled to backdate any unclaimed entitlements for fuel tax credits for the tax period commencing 1 July 2008 to 30 June 2012 on your 30 June 2012 business activity statement? | A1: Yes. | Q2: Is the method you have proposed for calculating your entitlement to fuel tax credits considered a fair and reasonable method of apportionment? | A2: Yes.

Relevant facts and circumstances: You acquire petrol and diesel for use in your business within the construction industry. You undertake works for a variety of clients using various light and heavy vehicles, plant and equipment. You are registered for goods and services tax (GST) and fuel tax credits. To date, you have not claimed fuel tax credits for any of the fuel you have acquired for use in your business. You have calculated your fuel tax credit entitlements over four years and intend claiming these on your 30 June 2012 business activity statement (BAS). In calculating this back claim you have utilised figures for one financial year, that being the financial year ending 30 June 2011 and created an estimate of the quantities and use of fuel. You have then applied these estimates to the fuel records covering the financial years from 1 July 2008 to 30 June 2010 and the financial year 1 July 2011 to 30 June 2012. You seek confirmation that you have permission to lodge these entitlements for the last four financial years and also whether the method you have used to calculate your fuel tax credits is considered fair and reasonable. The estimate you calculated was based on the total quantity of fuel you bought and the jobs undertaken throughout one financial year during the period you want to back claim for. To ascertain an annual figure for the litres of fuel used by your business you undertook what you called a 'logic test' where you looked at the jobs you undertook for each year and compared this with the annual turnover. From this you were able to ascertain that 'x' number of litres of fuel was used per turnover per year and this was displayed as a percentage. It was considered that the quantity of fuel, vehicle/equipment use and the jobs undertaken by you throughout that one year were consistent and as such representative of each financial year for the four year period. Each activity you undertook was broken down by the applicable fuel tax rate. You also identified the activities not eligible for fuel tax credits and excluded these from your calculations. Your fuel quantities for each of the activities are based on various records - fuel cards which are linked to individual vehicles/trucks and are identifiable by registration numbers. Some of these are petrol vehicles and others diesel trucks - some which have two tanks - one for the propulsion of vehicle and one for attached equipment, i.e. a forklift. Other estimates of fuel quantities were based on other records such as fuel dockets for small amounts where fuel was filled directly into pieces of equipment and/or jerry cans. You provided examples of the 14 day statements you receive from your fuel supplier, (motor charge invoice), an excel spreadsheet which detailed your calculations based on the records mentioned above as well as your annual job list and machinery details. The following explanation of your calculations from your excel spreadsheet was provided: · The 1st column represents the total litres of fuel acquired over the 14 day fortnight billed to you by the fuel distributor. · The 2nd column represents the total litres of fuel you have excluded from your calculations based on activities and use of the fuel where an entitlement to a fuel tax credit does not arise. You state as each vehicle has a fuel card identified by registration number, light vehicles were easily excluded. Any litres attributed back to those fuel cards have been excluded. · The 3rd column represents the total litres of fuel that you have reconstructed from fuel dockets showing only small purchases i.e. those purchases less than 15 litres which you attribute back to small jerry cans but also fuel you believe was placed directly into small plant and equipment i.e. where petrol purchases appear on your diesel fuel card accounts and vice versa. · The total litres are then broken up based on percentages you have calculated based on consumption rates you reconstructed from assessing how many litres of fuel each piece of equipment uses per day, per job and then by looking at how many days per year you have worked, (excluding weekends and public holidays) and comparing these figures with the total litres of fuel purchased over course of the year. You state you also cross referenced this information based on foreman expertise and that for your generators, you took into account the proportion of jobs where mains power was available and where your generators were not required. Further, the 7th column identifies total litres of diesel acquired for an eligible use by the business and columns 8-10 break these total litres down by vehicle/equipment etc. In some cases you state estimates have been included, one example being the amount of fuel used in the forklift for example. You state that this is a piece of equipment used all year round and your estimates are based on adding all fuel dockets together and removing identifiable litres to see what average litres of diesel remain and utilising this for the average forklift litres where necessary. You have also formulated percentage breakdowns of fuel quantities acquired for multiple uses that attract different fuel tax credit rates and utilised a deductive method where ineligible litres were identified for exclusion. You have applied these estimates and percentages to the actual fuel purchases for each of the prior financial years. This methodology is for this four year back claim period only. You have advised you will be using the constructive method moving forward, where claimable litres will be based on actual litres for all vehicles/equipment for jobs undertaken and records will be kept when vehicles/equipment are used.

Relevant legislative provisions: Fuel Tax Act 2006 section 41-5 | Fuel Tax Act 2006 section 41-20 | Fuel Tax Act 2006 section 47-5 | Fuel Tax Act 2006 paragraph 47-5(a) | Fuel Tax Act 2006 paragraph 47-5(b) | Fuel Tax Act 2006 subsection 65-5(1) | Fuel Tax Act 2006 subsection 65-5(4) | 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 paragraph 11(1)(b) of Schedule 3 | Fuel Tax (Consequential and Transitional Provisions) Act 2006 subitem 11(6) of Schedule 3 | Energy Grants (Credits) Scheme Act 2003 | A New Tax System (Goods and Services Tax) Act 1999 Other references | Practice Statement Law Administration PS LA 2010/1 Apportionment for the purposes of the Fuel Tax Act 2006 | Fuel Tax Determination 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?

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 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 Division 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 and continues the previous entitlement provisions of the Energy Grants (Credits) Scheme Act 2003 (EGCSA) for fuel purchased between 1 July 2008 and 30 June 2012. For an entitlement to a fuel tax credit under the FTA you must acquire taxable fuel for use in a specific activity in carrying on your enterprise. The specific activities are listed in paragraph 11(1)(b) of Schedule 3 to the FTCTPA. These are as follows: · for use in a vehicle travelling on a public road; or · for incidental use in relation to a vehicle travelling on a public road, or · for use by you in generating electricity; or · for use other than as a fuel; or · for use other than as a fuel in an internal combustion engine; or · for use as heating oil. However, where an entitlement does not arise under one of these specific activities or under any of the previous entitlement provisions of the EGCSA, subitem 11(6) of the FTCTPA provides that if you acquire taxable fuel for use in carrying on your enterprise between 1 July 2008 and 30 June 2012, you are entitled to half of the amount of the fuel tax credit if you would not have been entitled to a credit previously. This entitlement is restricted by section 41-20 of the FTA which disallows fuel used in light vehicles, i.e. vehicles with a gross vehicle mass (GVM) of 4.5 tonnes or less, travelling on public roads. Whilst we are not assessing the eligibility of your activities for fuel tax credit purposes, you have identified a number of activities and different fuel tax credit rates for which you believe an entitlement arises for fuel you have acquired during the period 1 July 2008 to 30 June 2012. You have calculated your fuel tax credit entitlements over this four year period and intend claiming these on your 30 June 2012 business activity statement (BAS). | Detailed Reasoning - Fuel tax credits and the four year rule: Section 47-5 of the FTA provides that you cease to be entitled to a fuel tax credit to the extent that you have not taken it into account in working out your *net fuel amount for: (a) the *tax period or *fuel tax return period to which the fuel tax credit would be attributable under subsection 65-5(1), (2) or (3); or (b) any other tax period, or fuel tax return period, for which you give to the Commissioner a return under section 61-15 during the period of 4 years after the day on which you were required to give to the Commissioner such a return for the tax period or fuel tax return period referred to in paragraph (a). Subsection 65-5(1) of the FTA provides that you would generally attribute your fuel tax credit for fuel that you have acquired to the same tax period that your input tax credit for the fuel would be attributable to under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). Subsection 65-5(4) of the FTA also provides that you can attribute a credit to a later tax period for which you give the Commissioner a return that does take it into account. However, later attribution under subsection 65-5(4) of the FTA cannot be applied where entitlement has ceased under section 47-5. That is, later attribution cannot be used when this is over four years from the date on which a return should have been given to the Commissioner under subsection 65-5(1). You have not claimed all of your fuel tax credit entitlement for fuel acquired during the period 1 July 2008 to 30 June 2012. You lodge your business activity statements quarterly and thus to be within the four year rule for your unclaimed fuel tax credit entitlements for the earliest tax period of 1 July 2008 to 30 September 2008, the return must be lodged with the Commissioner by 28 October 2012. You have indicated that you intend on attributing your entire fuel tax credit entitlement to your 30 June 2012 BAS and seek permission to lodge these claims as such. As at the date of this ruling, the four year time limit for your earliest tax period of 1 July 2008 to 30 September 2008 has not yet expired. It follows that for the subsequent tax periods you are still within the four years. Accordingly, you are entitled to backdate any unclaimed entitlements for fuel tax credits for the tax period commencing 1 July 2008 to 30 June 2012 on your 30 June 2012 business activity statement. | Detailed Reasoning - Is your methodology considered fair and reasonable?: The Commissioner considers that the phrase 'to the extent that' in section 41-5 of the FTA requires apportionment between a use that entitles you to a fuel tax credit and one that does not. You can use any method that is appropriate to your circumstances to work out the portion of fuel of which you are entitled to a fuel tax credit. However, the apportionment method you choose needs to: · be fair and reasonable · reflect the use of the taxable fuel, and · be appropriately documented in your individual circumstances. The Commissioner's view on which methods can be used to calculate the quantity of taxable fuel that you acquire for use in your enterprise is expressed in Practice Statement Law Administration PS LA 2010/3 Apportionment for the purposes of the Fuel Tax Act 2006 . This practice statement provides guidance in determining whether a method of apportionment to calculate an entity's fuel tax credit entitlement is fair and reasonable in the entity's circumstances. While the following commonly used methods are considered to be a fair and reasonable basis for apportionment, there may be other methods or variations to these methods which could prove to be a fair and reasonable basis for apportionment, depending on the entity's circumstances. The methods are: · the constructive methods (actual use or planned use) · the deductive methods (actual use or planned use) · the percentage use method, and · the estimate use method. As part of your business you acquire petrol and diesel fuel for use in a number of light vehicles, heavy vehicles and in various plant and equipment, including generators. That is you need to account for a range of activities and fuel tax credit rates in order to calculate your fuel tax credit entitlement. To date, you have not claimed fuel tax credits for any of the fuel you have acquired for use in your business. To remedy this, you have calculated your fuel tax credit entitlements over four years, that is for the tax periods starting 1 July 2008 and ending 30 June 2012 and as stated above, intend claiming these on your 30 June 2012 BAS. You have utilised a number of methods in an attempt to reconstruct your entitlements for the four year period. In calculating this back claim you have utilised figures for one financial year, that is, the 2010-11 income year and created an estimate of the quantities and use of fuel covering the relevant financial years. Your overall estimate of fuel used was calculated on the total quantity of fuel you bought and the jobs undertaken throughout one financial year during the period you want to back claim for. To ascertain a annual figure for the litres of fuel used by your business you undertook what you called a 'logic test' where you looked at the jobs you undertook for each year and compared this with the annual turnover. From this you were able to ascertain that 'x' number of litres of fuel was used per turnover per year and this was displayed as a percentage. You have also formulated percentage breakdowns of fuel quantities acquired for multiple uses that attract different fuel tax credit rates and utilised a deductive method where ineligible litres were identified for exclusion. You have applied these estimates and percentages to the actual fuel purchases for each of the prior financial years. | Detailed Reasoning - Estimated & percentage use methodologies: The estimate use method may be considered a basis of apportioning eligible and ineligible purposes, and/or multiple eligible purposes that attract different fuel tax credit rates. The estimate use method of working out the quantity of taxable fuel that an entity acquires for use in an eligible activity in a tax period requires the entity to make a fair and reasonable estimate of the quantity of taxable fuel it acquires for use or actually uses in a tax period. Further, where an entity's taxable fuel usage between activities is fairly constant over tax periods, the percentage use method may provide a fair and reasonable basis for apportioning the following taxable fuel uses in subsequent periods: · eligible and ineligible purposes, and/or · multiple eligible purposes that either attract a full fuel tax credit, half fuel tax credit, or where the amount of the fuel tax credit entitlement may be reduced by the cleaner fuel grant or the road user charge. By using this method, the amount of taxable fuel that an entity acquires for use in an eligible activity is expressed as a percentage of the total quantity of taxable fuel that it acquires. If an entity acquires one or more types of taxable fuel for use in one or more activities it should establish a separate percentage for each taxable fuel type and each activity for which they are not entitled to a fuel tax credit, entitled to a fuel tax credit and/or a different amount of fuel tax credit. In your case, you have constructed percentages for each of your activities based on a range of records at your disposal, including fuel card receipts & dockets which you then cross referenced with job sheets and total quantities of fuel acquired for the year and then used these in formulating your entitlement. You account for the total quantity of fuel acquired over a 14 day fortnightly statement cycle based on invoices received from your fuel supplier. Based on the fuel card receipts you are able to identify those vehicles by registration number that are light vehicles and you have calculated the number of litres to be excluded from your claim. Further, you state you are able to use the fuel card receipts and dockets to reflect small purchases of fuel as any petrol purchased on the diesel fuel card is easily identifiable as fuel for jerry cans or direct placement into small plant and equipment. To calculate the percentage of different taxable fuel uses, an entity must keep detailed records of its taxable fuel usage over a sample period that it chooses depending on its circumstances (for example, if the pattern of use is regular, a four week sample period may be appropriate). You were able to ascertain consumption rates for each of the various pieces of equipment used in your business by reviewing how many litres of fuel each piece of equipment uses per day, per job and then cross referenced that with how many days per year you have worked. You have excluded weekends and public holidays to ensure these reflect the true use and have compared these figures with the total litres of fuel purchased over course of the year to ensure there are no large discrepancies. You state you also cross referenced your findings based on foreman expertise and that for your generators, you took into account the proportion of jobs where mains power was available and where your generators were not required. In addition to the above processes you have also advised that your taxable fuel usage pattern over the course of your sample year is representative of your taxable fuel usage in your eligible activities and your ineligible activities and that you compared your calculations with the total litres of fuel acquired over the course of the year to ensure that it corresponded with your findings. Whilst utilising figures for one financial year and using this as a basis for creating an estimate of the quantities and use of fuel covering the financial years from 1 July 2008 to 30 June 2012 is not an ideal record keeping and calculation methodology, on the basis of the above it is considered that you have been able to reasonably reflect the various uses of the taxable fuels you acquired. Further, your efforts to cross reference your calculations with various business records at your disposal and the fact you made comparisons with your total fuel purchases for the year to ensure there were no large inconsistencies or discrepancies, satisfy us that your method is fair and reasonable in the circumstances. Accordingly, the method you have proposed for calculating your entitlement to fuel tax credits is considered a fair and reasonable method of apportionment | Detailed Reasoning - Review of method(s) used: Note that where your circumstances change, the method of apportionment needs to be reviewed to establish if it is still a fair and reasonable basis on which to calculate your fuel tax credit entitlement. For example, a method should be reviewed if there has been a significant impact on factors that are important to the conduct of an enterprise, or a change in the assumptions which form the basis for the selection and application of the method. This includes the loss of contracts that affect an entity's business operations or a change in the activities undertaken as part of business operations. Therefore, any significant changes to your operations, activities, contracts, vehicles, etc may affect your method of apportionment and as such you may need to review your method or calculations. You have advised that you will be utilising a different method based on records of actual use rather than utilising a sample percentage and average fuel consumption rates for your vehicles, plant and equipment. Further, it is expected that if your business operations change in a way that substantially affects how much eligible fuel you use in a financial year, you will review the method used.

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.