Private ruling: Bunker fuel - carbon reduction, excise refund and drawback application
Published: August 2013
Ruling period: 2011-12 income year | 2012-13 income year | 2013-14 income year | 2014-15 income year | 2015-16 income year
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you entitled to a fuel tax credit at the full rate for the duty paid bunker fuel you acquired that remains onboard your vessels when they leave Australian waters? | A1: No. | Q2: Are you entitled to a fuel tax credit, less amount of carbon reduction for the duty paid bunker fuel you acquired that remains onboard your vessels when they leave Australian waters? | A2: Yes. | Q3: Where you are entitled to a fuel tax credit for the duty paid bunker fuel you acquired that remains onboard your vessels when they leave Australian waters, are you entitled to an excise drawback or excise refund equal to the applicable carbon reduction amount? | A3: No. | Q4: Are you entitled to recover the full amount of any excise duty paid on fuel that has been exported from Australia as ship's stores? | A4: No.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You are registered for goods and services tax (GST) and fuel tax credits. You have stated you acquire marine gas oil namely diesel fuel (bunker fuel) and combust this fuel in your business activities, being marine transport activities. Excise duty has been paid on this bunker fuel. The fuel is purchased as ship's stores on which excise duty has been paid. In reference to this statement you have advised that the fuel is residual bunker fuel. That is, duty paid bunker fuel remaining onboard when a vessel leaves Australia on an international journey. You have advised an export declaration is made to Customs for this fuel. You have also advised that the types of journeys that your vessels undertake include international voyages. For the purposes of this private ruling, this refers to vessels which leave Australia and travel to a foreign port. You claim fuel tax credits for the diesel fuel consumed in your marine transport activities and claim for the fuel exported from Australia. You are not currently an entity that has opted-in to the carbon pricing mechanism (CPM). You claim fuel tax credits at the full rate (38.143 cpl) reduced by an amount equivalent to what the carbon price on the fuel emissions would be, if those emissions were subject to a carbon price. Assumptions Nil.

Relevant legislative provisions: Fuel Tax Act 2006 section 41-5 | Fuel Tax Act 2006 subdivision 43-B | 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(4) | Fuel Tax Act 2006 paragraph 43-8(4)(a) | Fuel Tax Act 2006 paragraph 43-8(4)(b) | Fuel Tax Act 2006 subparagraph 43-8(4)(b)(i) | Fuel Tax Act 2006 subparagraph 43-8(4)(b)(ii) | Fuel Tax Act 2006 subparagraph 43-8(4)(b)(iii) | Fuel Tax Act 2006 paragraph 43-8(4)(c) | Fuel Tax Act 2006 paragraph 43-8(4)(d) | Fuel Tax Act 2006 section 110-5 | Excise Act 1901 section 78 | Excise Act 1901 section 79 | Excise Act 1901 section 160A | Excise Act 1901 subsection 160A(5) | Excise Tariff Act 1921 the Schedule item 10 | Excise Tariff Act 1921 the Schedule subitem 10.10 | Excise Regulations 1925, regulation 50 | Excise Regulations 1925, sub-regulation 50(1) | Excise Regulations 1925, paragraph 50(1)(d) | Excise Regulations 1925, subparagraph 50(1)(d)(i) | Excise Regulations 1925, subparagraph 50(1)(d)(ii) | Excise Regulations 1925, regulation 76 | Excise Regulations 1925, sub-regulation 76(2) | Excise Regulations 1925, regulation 78 | Excise Regulations 1925, sub-regulation 78(3) | Excise Regulations 1925, paragraph 78(3)(a) | Excise Regulations 1925, paragraph 78(3)(b) | Excise Regulations 1925, paragraph 78(3)(c) | Excise Regulations 1925, subparagraph 78(3)(c)(i) | Excise Regulations 1925, subparagraph 78(3)(c)(ii) | Clean Energy (Fuel Tax Legislation Amendment) Act 2011

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 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. Some of these changes included: · 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)). · the addition of subdivision 43-B providing for definitions of agriculture, fishing operations, forestry and related expressions, and · the inclusion of circumstances where the amount of carbon reduction to apply to fuels will be nil (subsection 43-8(4) of the FTA). Subsection 43-5(1) of the FTA 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 FTA provides for working out the amount of carbon reduction for a particular quantity of taxable fuel using the following formula: Quantity of taxable fuel x carbon price x carbon emission rate The carbon emission rate for diesel is 0.0027 and the carbon price varies depending on the applicable financial year until 1 July 2015 where it will change bi-annually. For the financial year 1 July 2012 to 30 June 2013 the carbon price is fixed at 2,300 cents, for 1 July 2013 to 30 June 2014 the carbon price is fixed at 2,415 cents and for 1 July 2014 to 30 June 2015 the carbon price is fixed at 2,540 cents. However, as highlighted above, subsection 43-8(4) of the FTA provides for the circumstances where the amount of carbon reduction to apply to the fuel will be nil. These include: (a) the fuel is *covered by the Opt-in-Scheme; or (b) you acquire, manufacture or import the fuel for use in: (i) *agriculture; or (ii) *fishing operations; or (iii) *forestry; or (c) you acquire, manufacture or import the fuel for use in a vehicle with a gross vehicle mass of more than 4.5 tonnes travelling on a public road; or (d) you acquire, manufacture or import the fuel for use otherwise than by combustion of the fuel. You stated that you acquired marine gas oil, commonly referred to as diesel fuel. Excise duty is payable on that diesel fuel. Diesel fuel is classified to subitem 10.10 of the Schedule to the Excise Tariff Act 1921 (the Schedule) and is thus accepted to be a eligible taxable fuel as defined within section 110-5 of the FTA The fuel is purchased as ship's stores on which excise duty has been paid. In reference to this statement you have advised that the fuel is residual bunker fuel. That is, duty paid bunker fuel remaining onboard when a vessel leaves Australia on an international journey. You have advised an export declaration is made to Customs for this fuel. You have also advised that the types of journeys that your vessels undertake include international voyages. For the purposes of this private ruling, this refers to vessels which leave Australia and travel to a foreign port. As you acquire taxable fuel and use as part of your marine transport enterprise you satisfy section 41-5 of the FTA and an entitlement to a fuel tax credit arises. Based on your circumstances, the amount of carbon reduction of nil under subsection 43-8(4) of the FTA does not apply. That is, the fuel is not covered by the Opt-in scheme as you have not currently applied to be a designated opt-in person within that scheme where you manage your liabilities within the carbon pricing mechanism. Nor is the taxable fuel you acquire used in any other activity within paragraphs 43-8(4)(b) to (d) of the FTA. Therefore, 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 remains onboard your vessels when they leave Australian waters. The rate will be dependent upon when the fuel was acquired, as the carbon price is determined at the time of acquisition and the carbon emission rate for diesel fuel of 0.0027. You refer to the Excise Act 1901 (Excise Act) in relation to drawbacks and state that in your view it provides an entity can claim a drawback on fuel excise where the fuel tax credit entitlement does not exist and could therefore be considered a possible mechanism to recover that component of excise duty paid on the bunker fuel. Section 78 of the Excise Act provides for remissions, rebates and drawbacks of excise duty. 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. | Detailed Reasoning - Drawback of excise duty: Regulation 76 provides for the drawback of excise duty on excisable goods. Specifically, Regulation 76(2) states that a "...drawback of excise duty may be paid on the exportation of excisable goods..." Sub-regulation 78 of the Excise Regulations provides for the certain circumstances in which a drawback of duty is not payable on the exportation of goods. That is: … 78(3) Drawback of excise duty is not payable under regulation 76 on the exportation of goods if: (a) the excise duty paid on the goods has been refunded; or (b) after exportation, the goods are relanded in Australia; or (c) for goods that are fuel - either: (i) an entity: (A) has an entitlement to a fuel tax credit or decreasing 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 adjustment in relation to that fuel; and (B) did not have an increasing fuel tax adjustment in relation to that fuel. A drawback of customs or excise duty may apply where duty-paid goods are exported. Duty-paid fuel is considered exported when it is landed at an overseas port. Even if a drawback could apply to ships bunkers, as you are entitled to a fuel tax credit for the duty paid bunker fuel you acquired that remains onboard your vessels when they leave Australian waters, the excise drawback circumstances provided for under section 78 of the Excise Regulations are not applicable to your situation. As such, there is no drawback available for the amount of the carbon reduction (carbon charge) where you have an entitlement to a fuel tax credit. There are no other provisions within the Excise Act or Excise Regulations that allow for a drawback of duty to the extent of the carbon reduction when a fuel tax credit entitlement exists. | Detailed Reasoning - Ships' stores and refund of excise duty: For the purposes of this ruling you have advised bunker fuel is to be treated as ship's stores which is discussed in section 160A of the Excise Act. 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. 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 Regulations provides that the following circumstance is prescribed for the purposes of section 78 of the Excise Act, namely where: | Detailed Reasoning - …: (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 explained previously you are entitled to a fuel tax credit for the duty paid bunker fuel you acquired that remains onboard your vessels when they leave Australian waters, the excise refund circumstances provided for under section 160A and paragraph (d) of sub-regulation 50(1) of the Excise Regulations are not applicable to your situation because an entitlement to fuel tax credits exists. You are not entitled to recover the full amount of any excise duty paid on fuel to be used as ships stores. There is no provision in the Excise Act or the Excise Regulations to allow for a refund in the amount of the carbon reduction (carbon charge) to be claimed where you have an entitlement to claim fuel tax credits for fuel acquired and used for marine transport and specifically as ships stores. In summary, for the fuel you domestically acquire at a particular price including excise duty and use as part of your marine transport activities you are entitled to a fuel tax credit under section 41-5 of the FTA. 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 FTA. The amount of carbon reduction applies to you when calculating your fuel tax credits. There are no other provisions within the Excise Act or Excise Regulations to allow for an excise drawback or refund or, to allow for the amount of carbon reduction to be recovered under that legislation for fuel used in marine transport or specifically used as ships stores.