Private ruling: Fuel tax credit - apportionment
Published: March 2014
Ruling period: 2009-10 income year | 2010-11 income year | 2011-12 income year | 2012-13 income year
Date scheme commenced: 1 July 2009.

Ruling: Q1: Does the proposed method for apportioning fuel used in your concrete agitator vehicles between fuel used to power the vehicle and fuel to power the auxiliary equipment result in a fair and reasonable apportionment? | A1: No. . | Q2: Can you claim fuel tax credits for a period from 1 July 2009 that is outside the four year limit? | A2: No.

Relevant facts and circumstances: You are a subcontractor for a head contractor. You own and operate several concrete agitator vehicles in the metropolitan area. Each vehicle has a gross vehicle mass of greater than 4.5 tonnes and 20 tonnes when loaded. The vehicles load concrete at the batching plant and deliver the concrete to the building site where it is discharged. The vehicles then return to the batching plant, with the barrel empty, and the process is repeated. The barrel is rotating at all times during this process. The head contractor issues you a separate fuel card for each of the vehicles you operate. The fuel cards are in the head contractor's name. You typically refuel your vehicles at large fuel supplier's service stations. The fuel supplier charges the head contractor for the fuel which the head contractor on-charges to you, at an agreed rate. Your deliveries (jobs) are generally within the central business district (CBD). The average distance from the batching plant to the delivery site is 5 kilometres (km) (one way). The vehicles spend some time stationary during the travel to and from the delivery site due to the traffic conditions of the CBD jobs. In a specific period fifty to sixty per cent of your jobs were in the CBD. The remainder were in the inner suburbs. The vehicles travel five to ten km (one way) to service jobs in the inner suburbs. The methodology to apportion the fuel used in your vehicles between the fuel used for travelling and the fuel to power the auxiliary equipment is summarised as: 1. work out the average fuel consumption of the PTO when the vehicle is travelling using the PTO Fuel Burn Calculation Schedule 2. work out the average litres consumed per job - general calculations 3. apportion fuel consumed. Step 1 - PTO Fuel Burn Calculation Schedule Determine the: · litres / hour for powering the vehicle with the PTO on · litres / hour for powering auxiliary equipment when the vehicle is travelling. The fuel burn rate is determined using a hand held computer which is specifically designed to monitor and record diesel engine performance. The computer calculates the fuel burn in litres per hour as the fuel is consumed. The PTO Fuel Burn Calculation Schedule (Schedule) records the fuel consumption, of the vehicles which are computerised, when travelling: · Route A: Flat road where the vehicle generally travels at 60 km per hour. · Route B: Uphill travel. · Route C: The vehicle travels between 80 km per hour to 100 km per hour. · Route D: Includes roundabouts and the vehicle travels at a slower speed. The vehicles use the above roads occasionally. You consider that the four routes sampled are a representative of the travel conditions of your jobs. The Schedule records the range of fuel consumed by each vehicle when travelling the road while fully loaded and unloaded, with the PTO on and with the PTO off. An average of the fuel consumed by the vehicle under the varying condition is determined. This figure is used to determine the average fuel consumption of the fleet of vehicles in relation to each condition. The average variation in fuel consumed by the vehicle when the PTO is on and off when the vehicle is loaded and unloaded is recorded. The difference in fuel consumption when the PTO is on is attributed to powering the PTO. The difference is represented as a percentage of the total fuel consumed by the vehicle. This figure is used to determine the average percentage of fuel consumption by the auxiliary equipment of the fleet of vehicles. The results of the trials, as stated in the PTO Fuel Burn Calculations Schedule, are: · total fuel consumed when the vehicle is travelling with the PTO operating is 18.7 litres per hour · fuel consumed by the PTO is 27% of the total fuel consumed. The vehicles leave the plant loaded but return to the plant from the building site in an unloaded state and the PTO operates all the time. You are not calculating the fuel burn when the vehicles are stationary at the plant or at the building sites. Step 2 - General Calculations Calculate the (a) kilometres / job the sum of the kilometres of all jobs during the period is multiplied by two (to allow for the return trip) and divided by the total jobs for the period (b) litres consumed during period the sum of dollar amount paid to the head contractor for the fuel is divided by the rate per litre charged by Boral (c) litres / kilometre the number of litres for all jobs (calculated at (b)) is divided by the total kilometres travelled (calculated at (a)) (d) litres / job the number of kilometre for each job (calculated at (a)) is multiplied by the number of litres / kilometres (calculated at (c)) (e) litres / minute the litres / hour, when travelling with the PTO engaged (determined under the PTO Fuel Burn Calculation Schedule), is divided by the number of minutes in an hour (f) minutes / job on the assumption that it takes 1.5 minutes to travel 1 kilometre the number of kilometres / job (10.6 kilometres calculated at (a)) is multiplied by 1.5 (g) litres / job the number of minutes per job (calculated at (f)) is multiplied by the number of litres per minute (calculated at e)) Step 3 - Apportionment The total amount of litres / job is calculated at 12.61, 4.95 litres is used in travelling, therefore 39% of the total fuel consumed is used in travelling. The remaining 61% is used in powering the auxiliary equipment. *Of the 39% of the fuel used in travelling, 27% of this fuel is used to power the auxiliary equipment while travelling. Example, where 100 litres is consumed Powering vehicle litres Powering auxiliary equipment litres 61% used while not travelling 0 61 39% used while travelling 73% in powering vehicle 27% in powering auxiliary equipment 28 11 Total fuel used in activity 28 72 Fuel used in activity as a percentage of total fuel 28% 72% There is no direct relationship between the routes in the Schedule and the kilometres or loads factored into the General calculations.

Relevant legislative provisions: Fuel Tax Act 2006 | Fuel Tax Act 2006 Division 47

Reasons for decision: Summary: 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 on the requirement to apportion fuel for the purposes of determining a fuel tax credit entitlement. At paragraph 7 of FTD 2010/1 the Commissioner states that an entity can use any apportionment method that is fair and reasonable in its circumstances to calculate its fuel tax credit entitlement. In Practice Statement Law Administration (PSLA) 2010/3: Apportioning for the purposes of the Fuel Tax Act , the Commissioner explains how an entity can satisfy the far and reasonable requirement in determining a fuel tax credit entitlement. Relevantly, PSLA 2010/3 explains some of the methodologies that may be used to apportionment fuel used in a vehicle between fuel used to power the vehicle and fuel used to power the auxiliary equipment of the vehicle. At paragraph 140 the Commissioner explains in part that: An entity can use any methodology, which is fair and reasonable in the circumstances in determining the fuel used to power auxiliary equipment. In considering whether a methodology used by the entity is fair and reasonable in the circumstances regard should be given as to whether the methodology takes into account the type and use of the auxiliary equipment, the variables in the use of the auxiliary equipment, the mechanisms available to measure the fuel usage and the records required to substantiate the amount of fuel apportioned. It is important to note that the methodology for the apportionment of the fuel must take into account the circumstances of the use of the fuel. In this situation, the fuel being apportioned is used in the cement transit vehicles used in your enterprise and therefore it is the road and traffic conditions that are typically encountered by your vehicles that must be taken into account. | Detailed Reasoning - Test routes: The amount of fuel that is attributed to powering the vehicle in travelling, and to powering the auxiliary equipment when the vehicle is travelling, is determined by reference to the PTO Fuel Burn Calculation Schedule. Several of the vehicles of your fleet were driven under varying road and traffic conditions to determine that average fuel consumption. The road and traffic conditions included: · Route A: Flat road where the vehicles generally travel at 60 km per hour. · Route B: Uphill travel. · Route C: The vehicles travel between 80 km per hour to 100 km per hour. · Route D: Includes roundabouts and the vehicles travel at a slower speed. Whilst the roads used to test the fuel consumption of the vehicle vary in condition, none included CBD travel. It is reasonable that the fuel consumption would be affect by city travel as the vehicle is often idling while stopped at traffic lights and in the additional power needed to move the vehicle after stopping at traffic lights. You have stated that 50 to 60 per cent of your jobs are in the CBD and as such, it is considered that the routes used for the PTO Fuel Burn Calculation Schedule are not representative of your circumstances. | Detailed Reasoning - Average of fuel consumption: The methodology used in the Schedule is to work out the average fuel consumption when the vehicle when the vehicle is loaded and unloaded, and when the PTO is on off. The difference is fuel consumption is attributed to powering the PTO. However, the difference in fuel consumption may not necessarily be due to the use of the PTO. The difference in fuel consumption may be because the vehicle has used less power in travelling. This point is demonstrated by the difference in fuel consumption when travelling Route A, which is a flat road where the vehicle generally travels as 60 km per hour, and when travelling Route B, which is uphill. When travelling Route A when the vehicle is loaded the difference in fuel consumption between travelling when the PTO is on and when it is off is 4.8 litres per hour. The difference in fuel consumption is attributed to powering the PTO and is represented as 26% of the total fuel. However, when travelling the Route B when the vehicle is loaded the difference in fuel consumption between travelling when the PTO is on and when it is off is 2.5 litres per hour. The difference in fuel consumption is attributed to powering the PTO and is represented as 6% of the total fuel used. It is however reasonable to expect little variation in the fuel consumption of the PTO between travelling on a flat road or an uphill road. Any variation in fuel consumption under different road conditions would reasonably be attributed to powering the vehicle. It is reasonable to suggest that more power would be expended in moving the vehicle greater than 20 tonne uphill than in moving the vehicle on a flat road. In contrast it is reasonable that there would be minimal affect to the amount of power required to rotate the barrel while it is tilted when vehicle travels uphill and rotate the barrel while the vehicle is level. Attributing the variation in fuel consumption to the PTO alone distorts the amount of fuel actually consumed by the PTO under these varying road conditions. In addition, working out the average differential of fuel used in each vehicle under each road and load condition and then averaging these amounts (shown as a percentage of fuel used) to give the overall average (as a percentage) of total fuel used by all the PTOs in the fleet of vehicles further distorts the amount of fuel attributed to powering the PTO. It is more accurate to work out the fuel consumption of all the vehicles under each road and load condition when the PTO is on and when the PTO is off. The difference in the fuel consumption is then attributed to the PTO and only that difference is shown as a percentage of the total fuel consumed. The following tables demonstrate the above conclusion. | Detailed Reasoning - Table 1 - methodology used in the PTO Fuel Burn Schedule:: This method averages the fuel consumption of each vehicle under each road and load condition. The variation in fuel consumption between when the PTO is on and off is attributed to powering the PTO and shown as a percentage of the total fuel consumed. The percentage of fuel attributed to the PTO of each vehicle is then taken into account to determine an average percentage used by the PTOs of the fleet of vehicles. The table below is an extract of the Schedule of the travel of Route A and Route B. The result is 24.25% of the fuel is attributed to powering the PTO Average Fuel Burn Over-all average fuel burn Difference in % PTO On / Off Route A vehicle A vehicle B vehicle C Loaded PTO ON 19.50 17.00 19.00 18.50 26% Loaded PTO OFF 13.00 14.00 14.00 13.70 Unloaded PTO ON 5.90 5.25 5.55 5.57 36% Unloaded PTO OFF 3.75 3.60 3.75 3.70 Route B Loaded PTO ON 52.50 44.00 53.00 49.8 6% Loaded PTO OFF 49.00 42.50 50.50 47.30 Unloaded PTO ON 6.25 5.75 5.75 5.92 29% Unloaded PTO OFF 4.50 4.00 4.25 4.25 | Detailed Reasoning - Table 2 - difference in total fuel consumed under each road and load condition:: Under this method the total fuel consumed by the vehicles under each road and load condition, when the PTO is on, is calculated. The total fuel consumed by the vehicles under the same road and load conditions, when the PTO is off, is calculated. The difference in fuel consumption is then attributed to the PTO which is shown as a percentage of the total fuel consumed by the vehicles. The result is 7.45% the fuel attributed to powering the PTO. Average Fuel Burn Over-all average fuel consumed Difference in % PTO on / off vehicle A vehicle B vehicle C Route A: Loaded PTO ON 19.50 17.00 19.00 18.50 Route B: Loaded PTO ON 52.5 44.00 53.00 49.80 Route A: Unloaded PTO ON 5.90 5.25 5.55 5.57 Route B: Unloaded PTO ON 6.25 5.75 5.75 5.95 | Detailed Reasoning - 79.82: Route A: Loaded PTO OFF 13.00 14.00 14.00 13.70 Route B: Loaded PTO OFF 49.00 42.50 50.50 47.30 Route A: Unloaded PTO OFF 3.75 3.60 3.75 3.70 Route B: Unloaded PTO OFF 9.75 7.75 10.00 9.17 | Detailed Reasoning - 7.45%: The methodology used in the PTO Fuel Burn Schedule does not give a fair and reasonable apportionment of the fuel used in the vehicle while the vehicle is travelling between fuel used to power the vehicle and fuel used to power the PTO. | Detailed Reasoning - The General Calculations: The object of the General Calculations is to apportion the fuel used to complete a job between fuel used in travelling to and from the batch and the delivery site and fuel used to power the barrel during the loading and unloading process. | Detailed Reasoning - Step (b): At step (b) the litres per job are calculated. To work out this amount the total dollar amount paid to the head contractor for the fuel is divided by the rate per litre charged by the head contractor. This calculation works out the amount of litres that would be purchased at a particular rate for a litre of fuel. It does not accurately calculate the litres of fuel dispensed at the fuel pump as an inaccurate unit price is used in the calculation. The following examples demonstrate the above. For the purpose of the example is it assumed that the actual pump price is $1.50 per litre. Example 1 - head contractor agreed rate. total $ paid to the head contractor for the fuel $2,762.57 divided by: the rate per litre charged by the head contractor: $0.x number of litres = 3,339.26 litres Example 2 - actual pump rate at time of dispensing fuel total $ paid to the head contractor for the fuel is: $2,762.57 divided by: actual pump rate : $0.1500 number of litres = 1,841.71 litres Using the rate charged by the head contractor to work out the amount of litres distorts the amount of fuel that was dispensed into the vehicles during the test period. This is a critical factor in the General Calculations. | Detailed Reasoning - Step (c): At step (c) the amount of litres / kilometre is calculated by dividing the amount of litres acquired by the amount of kilometres travelled. However, not all of the litres acquired were used to travel those kilometres. Fuel is also consumed when the vehicle is loading and unloading at which time no kilometres are accrued. Therefore dividing the amount of litres acquired by the amount of kilometres travelled during the period to determine the amount of litres per kilometre gives a flawed result. In addition, unless the unit price charged by the head contractor is the same as the unit price of the fuel when dispensed into the vehicle, the amount of litres used in the calculation at step (b) will not accurately reflect the amount of litres dispensed into the vehicles. | Detailed Reasoning - Steps (d) through to (f): At step (d) the amount of litres per load is determined using the amount of litres per kilometre as a factor in the calculation. As both the litres dispensed during the period, and the assumption that all these litres were used in travelling the kilometres for the loads done over the period, are flawed, all other calculations give a flawed result. It is therefore concluded that the methodology does not give a fair and reasonable apportionment of the fuel used in the vehicle between fuel used to power the vehicle and fuel used to power the PTO. | Detailed Reasoning - Claims including period outside four years of acquisition of fuel: As it has been determined that the proposed methodology does not give a fair and reasonable outcome it cannot be used to claim fuel tax credits amount in relation to auxiliary equipment of your cement transit vehicle irrespective of the date of acquisition of the fuel. Furthermore, Division 47 of the Fuel Tax Act 2006 provides that any entitlements to fuel tax credits cease unless they are included in your assessed net fuel amounts within a limited period (generally 4 years). As such, even if the methodology had been fair and reasonable you would not be entitled to claim fuel tax credits outside a four year period (that is, from 1 July 2009).