Private ruling: Fuel tax credits - calculation methods
Published: June 2014
Ruling period: 1 September 2009 to 30 June 2014
Date scheme commenced: 1 September 2009.

Ruling: Q1: Is the method you have proposed for calculating your entitlement to fuel tax credits considered to be fair and reasonable? | A1: Yes.

Relevant facts and circumstances: You are registered for goods and services tax (GST) as a road freight transport business. You are also registered for fuel tax credits. You operate a small transport business with heavy vehicles that operate power take off (PTO) units to load and unload freight by way of a walking floor trailer. Your vehicles travel on public roads, have a gross vehicle mass (GVM) of greater than 4.5 tonnes, were manufactured after January 1996 and use liquid diesel fuels. One of your vehicles is equipped with an on-board computer that allows engine management reports to be generated and printed at regular intervals. You currently have regular monthly reports printed by an entity that shows the actual fuel used for the PTO and the separate fuel use of the vehicle. These reports are produced by taking the vehicle to the entity at regular intervals and paying a fee. As this can be a costly exercise you intend to obtain these reports 4 times a year at the same time as the vehicle is serviced. You intend to use the average fuel consumption from four consecutive reports to determine the fuel consumption of the vehicle PTO. Each time your vehicle is serviced and a new report obtained, you intend to recalculate the average fuel used and make any adjustments if required. This average will also be applied to another vehicle which has the same engine manufacturer, same capacity and doing the same activities.

Relevant legislative provisions: Fuel Tax Act 2006: section 41-5 | Fuel Tax Act 2006 : Division 43 | Fuel Tax Act 2006 : section 47-5

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 at the time you acquire the fuel. Under Division 43 of the FTA, the amount of the fuel tax credit to which you are entitled for taxable fuel can be reduced by: • the carbon reduction, or · • the amount of any applicable grant or subsidy, or • the road user charge (RUC), to the extent that fuel is acquired for use, in a vehicle, for travelling on a public road. 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 ?, sets out the Commissioner's view. At paragraph 5 of FTD 2010/1 the Commissioner states that the use of the phrase 'to the extent that', in the context of determining fuel tax credit entitlements, contemplates apportionment between uses of fuel that: • entitles you to a fuel tax credit and one that does not, and • that give rise to different rates of fuel tax credit. In FTD 2010/1, the Commissioner considers that an entity can use any apportionment method that is fair and reasonable in its circumstances to calculate its fuel tax credit entitlement. Further guidance on whether a method of apportionment to calculate an entity's fuel tax credit entitlement is fair and reasonable in its circumstances is provided for in Practice Statement Law Administration (PSLA) 2010/3 - Apportionment for the purposes of the Fuel Tax Act 2006 . 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 method (actual use or planned use) • the deductive method (actual use or planned use) • the percentage use method, and • the estimate use method. At paragraph 17 of PS LA 2010/3 the Commissioner states that the method an entity chooses to determine the amount of fuel used to power the auxiliary equipment of a heavy vehicle must also be fair and reasonable in the circumstances and goes on to outline the following: • meter readings - generally the hourly use of the auxiliary equipment • engine monitoring system • fuel consumption trials, or • driver refuelling records. In paragraph 84 of PS LA 2010/3 the Commissioner states that that an entity can use any appropriate reliable measure as the basis for calculating the amount of taxable fuel that it acquires for use in an eligible activity and goes on to outline the following examples of known reliable measures: • odometer readings of kilometres actually travelled • route distances if a vehicle operates on fixed routes • kilowatt hours of electricity generated • hours of operation of vehicle or equipment, or • average hourly fuel consumption of vehicle or equipment In paragraphs 86 to 88 of PS LA 2010/3 the Commissioner gives an example of a fair and reasonable basis, being the use of average hourly fuel consumption of a vehicle or equipment. Like the Commissioner's example in paragraphs 86 to 88 of PS LA 2010/3, you intend to use the average actual fuel consumption of the auxiliary equipment one of your vehicles, derived from specialist engine monitoring reports, to determine the fuel used in the same equipment of like vehicles. The method you have proposed for calculating your entitlement to fuel tax credits is an accepted methodology. That said, whilst the methodology of using the data from the electronic control module is accepted, if the data extracted is applied to a formula for determining the apportionment, it is the way the data is applied in the formula that will determine if it is fair and reasonable. | 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 used. 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 in the future. | Detailed Reasoning - Four year rule: Please note that section 47-5 of the FTA provides that your fuel tax credit entitlements cease four years from the due date of the relevant business activity statement or fuel tax return