Private ruling: Fuel Tax Credits - Apportionment - Deductive Method
Date of advice: 2 February 2016
Published: March 2016
Ruling period: 1 April 2011 to 30 June 2012

Ruling: Q1: Is your use of the deductive methodology in determining its entitlement to a fuel tax credit (FTC) for fuel purchased and used in business operations, considered to be fair and reasonable? | A1: Yes

Relevant facts and circumstances: You owned and operated businesses. Diesel is the primary source of fuel used in your vehicles and equipment. All diesel fuel purchased was delivered directly to the business and stored in fuel tanks on site. The fuel storage tanks located at the business site is situated in exceptionally remote locations. The diesel fuel was dispensed from the business fuel tanks into your vehicles and equipment for use in relevant activities. You maintained a record of all fuel dispensed for vehicles and equipment. Detailed consumption records are kept for heavy haulage vehicles which identify on-road and off-road travel.

Relevant legislative provisions: Fuel Tax Act 2006 Subsection 41-5(1) | Fuel Tax (Consequential and Transitional Provisions) Act 2006 Item 11 | Energy Grants (Credits) Scheme Act 2003 Subsection 11(1) | Paragraph 11(1)9a) | Paragraph 11(1)(b) | Section 53

Reasons for decision: Detailed Reasoning - Detailed reasoning: Apportioning fuel for tax credits 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 that you acquire or manufacture in, or import into, Australia to the extent that you do so for use in carrying on your 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 and that you can use any apportionment method that is fair and reasonable in your circumstanced to determine the FTC that is available for the taxable fuel you acquire. Paragraph 8 of FTD 2010/1 confirms that where there is more than one fair and reasonable way of apportioning fuel, an entity may choose any method as long as it is fair and reasonable in the entity's circumstance. Practice Statement Law Administration PSLA 2010/3: Apportioning fuel for tax credits (PSLA 2010/3) explains how an entity can satisfy the 'fair and reasonable' requirement in determining a fuel tax credit entitlement. Relevantly, at item 5 the application of the deductive method is explained as follows: To work out how much taxable fuel was actually used, an entity deducts the quantity of disqualified fuel from all the fuel used in the tax period ('Disqualified fuel' is the taxable fuel for which there is no FTC entitlement and the fuel that isn't taxable.) You have proposed to adopt the deductive method to calculate your FTC entitlement. You have taken into account the circumstances of your operations when determining that this method is appropriate. The calculation of your FTC entitlement will be based on deducting the quantity of ineligible fuel, or fuel on which the fuel tax credit rate is reduced, from the total amount of fuel you acquired. Taking the above matters into account, the Commissioner considers that the methodology adopted by you (referred to as the deductive method), will provide a 'fair and reasonable' apportionment in determining your FTC entitlement. | Detailed Reasoning - Further issues for you to consider: Tax Period 1 April 2011 to 30 June 2012 Section 41-5 of the FTA provides that you are entitled to an FTC for taxable fuel that you acquire for use in carrying on your enterprise. However, for taxable fuel acquired between 1 July 2008 and 30 June 2012 this entitlement is affected by Item 11 of Division 2 of Part 3 of Schedule 3 to the Fuel Tax (Consequential and Transitional Provisions) Act 2006 (Item 11 of the FTCTPA). Item 11 of the FTCTPA operated to limit any FTC entitlement to the specific activities listed in the item and continued the previous entitlements of the Energy Grants (Credits) Scheme Act 2003 (EGCSA). Sub-item 11(5) of the FTCTPA states that you are not entitled to an FTC under the FTA unless you would have been entitled to an off-road credit under the EGCSA. Section 53 of the EGCSA provides that, subject to certain conditions and restrictions, you are entitled to an off-road credit if you purchase off-road diesel fuel for a use by you that qualify ( in business operations ). Use in business operations (otherwise than for the purpose of propelling any vehicle on a public road) is a use that qualifies. The term business operations is defined in subsection 11(1) of the EGCSA as: (a) exploration or prospecting for minerals, or the removal of overburden and other activities undertaken in the preparation of a site to enable business for minerals to commence; or (b) operations for the recovery of minerals, being: (i) business for those minerals including the recovery of salts by evaporation; or (ii) the beneficiation of those minerals, or of ores bearing those minerals; and includes: … (f) a business construction activity; or … Business construction activity A business construction activity is relevantly defined in paragraph 15(d) of the EGCSA as the construction or maintenance of buildings, plant or equipment, if: • the buildings, plant or equipment are for use in the following business operations (as mentioned in paragraph 11(1)(a) or 11(1)(b) of the EGCSA): (1) Subject to subsection (2), the expression business operations means: (a) exploration or prospecting for minerals, or the removal of overburden and other activities undertaken in the preparation of a site to enable business for minerals to commence; or (b) operations for the recovery of minerals, being: (i) business for those minerals including the recovery of salts by evaporation; or (ii) the beneficiation of those minerals, or of ores bearing those minerals; and includes: (c) a business transport activity; or (d) a business rehabilitation activity; or (e) a business water activity; or (f) a business construction activity; or (g) a business waste activity; or (h) a business vehicle activity; or (i) a sundry business activity. • the construction or maintenance occurs at the place where the business operation is carried on; and • the construction or maintenance is carried out by the person who carries on the business operation or by a person contracted by that person. Diesel is the primary source of fuel used in your business operations which includes site vehicles and equipment. Accordingly, any business construction (as listed above), performed at 'the Business', falls within subsection 11(1) of the EGCSA. Therefore, you satisfy this requirement. Full or Half Rate Entitlement to FTCs for taxable fuel acquired between 1 July 2006 & 30 June 2012 for use in business operations. • For diesel fuel and petrol acquired between 1 July 2008 & 30 June 2012 for use in that activity, you are entitled to the full amount of the FTC. • For all taxable fuels acquired between 1 July 2008 & 30 June 2012 for use in an activity in business operations for which an off road credit under the energy grants scheme was not previously available, you are entitled a half credit.