Private ruling: Fuel Tax Credits - apportionment
Date of advice: 18 April 2016
Published: June 2016
Ruling period: 1 December 2011 - 30 June 2016
Date scheme commenced: 1 December 2011

Ruling: Q1: Is the method you have proposed for calculating your fuel tax credit entitlement under section 41-5 of the Fuel Tax Act 2006 (FTA) considered to be fair and reasonable? | A1: Yes

Relevant facts and circumstances: You acquired fuel for on-road and other off-road activities. In carrying out these activities, fuel is consumed in various pieces of equipment including: • Off-road vehicles • Heavy road vehicles • Light vehicles including on-road use • Forklifts • Alternators and generators • Compressors • Front end loaders • Skid loaders You have bulk fuel tanks at sites used for the purpose of fuelling off-road vehicles. Only the off-road vehicles can be fuelled from the bulk tanks, and each tank requires a swipe card to start the pumps. The area in which swipe cards are utilised is a secure locked area and only off-road nozzle fittings can be connected to the bulk tanks. No light vehicles or other equipment can be filled from the bulk tanks. You utilise a large number of smaller tanks at various sites for use in off-road activities. All tanks are secured by padlocks, while some tanks also have a swipe card. Your policies stipulate that only off-road vehicles are fuelled from the tanks onsite. All on-road vehicles are fuelled at road houses or petrol stations, not at the site tanks. The fuel is acquired by way of fuel cards. The fuel acquisitions are shown on reports to show the distinction of where the fuel is delivered. As specific assets are aligned with fuel cards, statements provided by retailers facilitate in identifying fuel acquired for use in either heavy or light vehicles. In determining the quantity of fuel acquired, you rely on invoices issued by fuel providers. Valid tax invoices are held to substantiate all fuel purchases. They are matched to delivery dockets and purchase order numbers. Your ineligible fuel usage is limited to fuel used in light vehicles (gross vehicles mass of 4.5 tonnes or less). You have not sold or back-charged fuel and you retain all rights to FTC entitlements for your fuel acquisitions. You have procedures in place to ensure any fuel spills are appropriately recorded. There have been fuel spillages and you have recorded the date and quantity of fuel spilled. FTCs were adjusted at the time to ensure FTCs were not claimed on the fuel spillages. There are no recorded instances of stolen fuel during the review period. Proposed deductive methodology In recalculating your FTC entitlement you have adopted the following process: • Quantifying the total amount of fuel acquired. • Consideration of the extent to which the fuel was used in your business activities. • Quantifying the amount of acquired fuel subsequently disposed by you, or lost or stolen. • Consideration of the circumstances which may disentitle a FTC • Calculate your FTC entitlement by subtracting all ineligible fuel from fuel acquired for each period across the review period using the applicable rates. • Consideration of the extent to which you has previously claimed FTCs on fuel and identifying the gap between that amount and your recalculated FTC entitlement amount.

Relevant legislative provisions: Fuel Tax Act 2006 section 41-5. Summary | The apportionment methodology, referred to in PS LA 2010/3 as the deductive method, has been applied in a manner consistent with the principles in PS LA 2010/3 and FTD 2010/1. | Detailed reasoning | 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 they acquire for use in their enterprise. The entity must be registered for GST at the time of acquisition of the fuel. The subsection refers to taxable fuel acquired 'to the extent that' it is acquired for use in the enterprise. | In Fuel Tax Determination 2010/1 1 the Commissioner explains that the phrase 'to the extent that' in subsection 41-5(1) of the FTA indicates that the FTA contemplates the requirement to apportion taxable fuel that is acquired to uses that either disentitles an entity to an FTC or gives rise to different rates of FTC for the fuel. | Relevantly, paragraphs 6 and 7 of FTD 2010/1 explain that the apportionment must be fair and reasonable in the circumstances. 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 circumstances. | Practice Statement Law Administration PSLA 2010/3 2 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 taken into account the following when determining the deductive method of apportionment is appropriate: | • Quantifying the total amount of fuel you have acquired. | • Consideration of the extent to which the fuel was used in your business activities. | • Quantifying the amount of acquired fuel you subsequently disposed of, lost or had stolen. | • Consideration of the circumstances which may disentitle a FTC | • Recalculate your FTC entitlement by subtracting all ineligible fuel from fuel acquired for each period across the review period using the applicable rates. | More specifically the following matters have been taken into account in determining the deductive method of apportionment is appropriate in your circumstance: | • The quantity of taxable fuel was calculated by reference to the tax invoices and fuel transaction listings issued from the predominate suppliers of the fuel. | • You have bulk fuel tanks used for the purpose of fuelling off road vehicles which requires a swipe card to start the pumps in secure locked areas. No light vehicles or other equipment can be filled from the bulk tanks. | • The small tanks on various sites for use in off-road activities are secured by padlocks and/or swipe cards. | • You do not sell or back-charge fuel and retain all rights to FTC entitlements for your fuel acquisitions. | • For vehicles with a gross vehicle mass greater than 4.5 tonnes, FTCs are claimed at the applicable rate reduced by the road user charge. | • The quantity of fuel purchased has appropriately been reduced by the amount of fuel used in light vehicles, lost and on-sold. | • You have procedures in place to ensure any fuel spills are appropriately recorded and accounted for in your methodology. | • All of your on-road vehicles are fuelled by fuel cards at road houses or petrol stations, not at the site tanks. As specific assets are aligned with fuel cards, statements provided by retailers facilitate the identification of fuel acquired for use in light vehicles which are always excluded from FTC calculations. Although light vehicles are used on both public and private roads, you do not maintain detailed vehicle usage records apportioning such travel. As a result you have elected to exclude all fuel used in light vehicles from their FTC claims. Reducing the quantity of fuel by all the fuel used by light vehicles does not cause the apportionment not to be fair and reasonable. | Taking the above matters into account, it is considered that the deductive method as you have applied in determining your FTC entitlements arising during the period of the Review, is consistent with the principles set out in PS LA 2010/3 and FTD 2010/1. | 1 Fuel Tax Determination (FTD) 2010/1 Fuel Tax: is apportionment used when determining total fuel tax credits in calculation the net fuel amount under section 60-5 of the Fuel Tax Act 2006? | 2 Practice Statement Law Administration PSLA 2010/3: Apportioning fuel for tax credits