Private ruling: fuel tax credits - electricity generation & burner fuel
Published: February 2012
Ruling period: 2010-11 income year | 2011-12 income year
Date scheme commenced: 1 July 2010

Ruling: Q1: Is taxable fuel used in generating electricity onboard your vessel an eligible use of fuel for the purposes of the 'electricity generation' provisions of the Fuel Tax Act 2006 (FTA) and the Fuel Tax (Consequential and Transitional Provisions) Act 2006 (FTCTPA)? | A1: Yes. | Q2: Is the portion of taxable fuel used in an auxiliary boiler onboard your vessel an eligible use of fuel for the purposes of the FTA and the FTCTPA? | A2: Yes.

Relevant facts and circumstances: Company A (contractor) has been engaged to provide services to Company B (principal) in a State. The works commenced in June 2011 and will continue until mid 2012. The vessel subject to this ruling is an electrically propelled cutter and will be one of the vessels utilised for the works. You provided a photo and general description of the vessel at Appendix A of your application for private ruling. You state that during the claim period, the vessel will primarily consume taxable fuel to drive various generators and that only a very minor amount of fuel is not consumed in generators, that being fuel used in an auxiliary boiler. The vessel has a range of equipment on-board. The larger fuel consuming components of the vessel include: o three main generators each powered by a corresponding engine o an auxiliary generator, and o an auxiliary boiler. The vessel also has an emergency generator which consumes taxable fuel on rare occasions. The electricity generated by the various generators is fed into the vessel's main electricity grid via a main switchboard. The electricity grid powers various electrical components onboard the vessel including the pumps and propellers for example. These are illustrated in Appendix B of your application. You have advised that per your application and discussions with us that both the contractor and principal are the recipients for this private ruling. Both entities are registered for GST. You wish the ATO only to consider whether the use of fuel itself can be described as an eligible activity. You do not seek an opinion on acquisition of taxable fuel or any other element which would need to be satisfied for a claimant to be entitled to a fuel tax credit.

Relevant legislative provisions: Fuel Tax Act 2006 section 41-5 | Fuel Tax (Consequential and Transitional Provisions) Act 2006 Division 2 of Schedule 3 | Fuel Tax (Consequential and Transitional Provisions) Act 2006 subparagraph 11(1)(b)(iii) of Schedule 3 | Fuel Tax (Consequential and Transitional Provisions) Act 2006 subparagraph 11(1)(b)(v) of Schedule 3

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 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 for fuel acquired between 1 July 2008 and 30 June 2012. | Detailed Reasoning - Electricity generation: Subparagraph 11(1)(b)(iii) of the FTCTPA provides that an entitlement to a fuel tax credit arises under section 41-5 of the FTA if you acquire taxable fuel for use by you in generating electricity. Fuel is used for the purpose of generating electricity where the electricity is an end in itself and can in turn be used for any purpose for which electricity is required. For example, fuel is used in generating electricity when it is used in a generator so as to make power available to business premises (vessel). Similarly, the use of fuel in a generator to provide power to a range of external equipment (such as electrically powered machinery in a factory) would constitute a use in generating electricity. The above uses of fuel can be contrasted with the use of fuel within the actual equipment that is to be powered by the fuel. For example, fuel acquired for use in the internal combustion engine of a vehicle/vessel is for the purpose of driving or propelling the vehicle/vessel. Similarly the use of fuel in the internal combustion engine of a machine where the electrical power generated by the machine is for use by that machine is for the purpose of operating the machine. For example, the generator attached to a cars' engine is for generating electricity to operate the engine. | Detailed Reasoning - Main and auxiliary generators: The vessel has three main generators each powered by a corresponding engine. The sole purpose of these engines is to drive the generators which in turn provide electricity throughout the vessel. None of the fuel used in these engines is for direct propulsion of the vessel as the vessel is an electrically propelled cutter suction. The electricity generated by the various generators is fed into the vessel's main electricity grid via a main switchboard. The electricity grid powers the various electrical components of the vessel as illustrated in Appendix B of your application. As these activities are considered to be electricity generation, it is an eligible activity under subparagraph 11(1)(b)(iii) of Schedule 3 to the FTCTPA. Therefore, the taxable fuel used in generating the electricity onboard the vessel is an eligible use of fuel for the purposes of the 'electricity generation' provisions of the FTA and the FTCTPA. | Detailed Reasoning - Auxiliary Boiler: Subparagraph 11(1)(b)(v) of the FTCTPA provides that an entitlement to a fuel tax credit arises under section 41-5 of the FTA if you acquire taxable fuel for use other than as a fuel in an internal combustion engine, such as where fuel is used in burner applications i.e. heating. You state a portion of taxable fuel is used in an auxiliary boiler, that is, fuel used in a burner. This is considered a use of taxable fuel for use other than as a fuel in an internal combustion engine under subparagraph 11(1)(b)(v) of Schedule 3 to the FTCTPA. Therefore, the portion of taxable fuel used in the auxiliary boiler onboard the vessel is an eligible use of fuel for the purposes of the FTA and the FTCTPA.

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.