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  • Fuel Schemes Stakeholder Group meeting 13 July 2017

    Meeting details

    Venue: ATO Office, 26 Narellan Street, Canberra

    Date: 13 July 2017

    Start: 10.00am Finish: 12.00 noon

    Chair: Rajitha Srikhanta

    Secretariat: Rowena Troth

    Attendees

    Rajitha Srikhanta

    ATO

    Michael Hughes

    ATO

    Michelle Scott

    ATO

    Siau Goh

    ATO

    Claudia Bianco

    ATO

    Kurt Enchelmaier

    Treasury

    Paul Cornick

    PWC

    Chris Sant

    Deloitte

    Sam Mohammad

    KPMG

    Teresa Lloyd

    Maritime Industry Australia Ltd

    Samuel Marks

    Australian Trucking Association

    Richard Calver

    NatRoad Limited

    Scott Kompo-Harms

    National Farmers' Federation (NFF)

    James Sorahan

    Minerals Council of Australia (MCA)

    Chris Melham

    Civil Contractors Federation

    Grace Leung

    Caltex Australia Petroleum Pty Ltd

    David Wilson

    ShineWing Australia Pty Ltd

    Peter Quattrochi

    Pitcher Partners Advisory Pty Ltd

    Rowena Troth

    ATO - Secretariat

    Apologies

    Simon Bennison

    AMEC

    Noel Mullen

    APPEA

    Mark Sutton

    Biofuels Association

    Cate Kemp

    SBDO, BAS Agent representative

    Renee Vajtauer

    Commonwealth Fisheries Association

    Nathan Dickens

    Australian Institute of Petroleum

    Darryl Daisley

    AMEC

    Bill McKinley

    Australian Trucking Association

    Michael Gardiner

    Environment Standards Division, Department of the Environment and Energy

    Discussion summary

    Disclaimer

    The Fuel Schemes Stakeholder Group agendas, minutes and related papers are not binding on the ATO or the other bodies referred to in these papers. While every effort is made to accurately record views expressed, the wording necessarily represents a summary of statements of general position only, and care should be taken in interpreting those statements. These papers reflect the position at the date of release (unless otherwise noted) and readers should note that the position on any issue may subsequently change.

    Agenda item 1 – Welcome and introductions

    Outcome: It was noted that the minutes of the meeting of 14 September 2016 had been finalised. An update for Action Item 14092016-4-2 was provided at the meeting. All other action items had been completed.

    In response to Action Item 14092016-4-2, Michelle Scott advised members that section 105-55 notifications only apply to tax periods commencing before 1 July. For tax periods after 1 July 2012, you will need to lodge a valid objection before the period of review for that tax period ends if you want to make changes to your fuel tax credits already claimed. The period of review starts on the day you lodge your BAS and ends 4 years and 1 day after that start date.

    No conflicts of interest were declared by members.

    Agenda item 2 – Compliance focus areas

    Results from 2016/17 and focus areas for 2017/18 - Michael Hughes and Siau Goh

    Outcome: Members noted the summary by Michael Hughes regarding compliance results for 2016/17. There are currently approximately 230,000 clients claiming $6.1b per year. Large claimants are generally in the mining, transport and construction industries with client population numbers highest in agriculture and road transport.

    During 2016/17, there was a focus on the management of large back claims by clients, usually as a result of reviewing their claims for fuel used in heavy vehicles that also travel off public roads or use auxiliary equipment. Clients are selected from a check of claiming patterns, ie if a client who normally claims $20,000, instead claims $175,000 as they are claiming for previous periods, the ATO will look at those in particular. These reviews identified a number of common errors:

    • calculations being made using, for example, fuel consumption rates based on a claimed industry average rather than business vehicle specific rates, eg manufacturer consumption rates. Most businesses have a good idea of their fuel consumption and can provide evidence of fuel acquired and distance travelled to calculate this
    • the use of buffers in calculations, eg reducing claims by 5% to account for other ineligible use, is often a sign that the underlying methodology is not robust enough and usually requires further testing or evidence
    • spreadsheet transposition errors
    • claiming for the same fuel twice – where back claims include fuel which had been already claimed in full
    • clients needing to double check whether travel was on a public road or not – or whether fuel was being used in a light vehicle on a public road
    • confusion regarding s105-55 notices where the original notice related to a specific back claim, eg refrigerated trailers, but later claims were based on unrelated matters.

    During 2016–17, behavioural insights in correspondence were used for initial contact to lower claiming clients rather than traditional audits. These letters highlighted to clients that they were claiming amounts of FTCs that were not consistent with similar sized businesses in the same industry. A review found that there was a quite high self-adjustment rate following receipt of the letter. This was an example of our approach of prevention better than cure – in order to raise issues before reaching the audit stage. Ratio analysis was then refined after discussion with several recipients of the letters.

    In another body of work, ATO staff revisited clients who had been the subject of an audit or review in the past which had resulted in an adjustment, to gain knowledge of whether their compliance had improved. 30 cases were selected. Of those, 23 were now fully compliant. Of the 7 cases where errors were still found, those errors were all different and were small. Only one case was found where the error was the same as previously corrected.

    The ATO also implemented findings from our FTC tax gap work which was designed to measure the estimated amount of over / under claiming for the whole FTC scheme and to identify errors or issues clients were having. Following that work we considered how we could simplify our guidance material to help clients get their FTC claims right and as a result, in January an amendment was made to the FTC rates table to greatly simplify the table. The ATO has received good feedback on this change and we continue to see increases in the use of the FTC calculator following changes that were made last year.

    The ATO also worked with ASIC during the year on an investigation relating to non-compliance that seemed to facilitate phoenixing and involved various areas of the tax system. This has resulted in action being taken against one of the liquidators involved in the activity.

    For 2017/18, the ATO will be continuing to track and treat claim errors. One area of particular focus is to identify a small number of tax agents who seem to have had a large number of amendments. Those agents will be contacted to ascertain what can be done to assist in reducing errors.

    The ATO will be carrying out work on income matching to ensure that fuel tax credits have been declared as assessable income. This is particularly important for clients who have claimed large back claims of FTCs over the last couple of years.

    A small number of large client assurance activities will be carried out in the mining industry. Rajitha Srikhanta reinforced the ATO’s overall approach of the compliance focus being on prevention rather than cure. The ATO would prefer to work with clients on issues before reaching the audit stage.

    In relation to the apportionment of fuel between different uses, Michelle Scott advised that if a client was not confident regarding their methodology, particularly whether it met the fair and reasonable criteria, they could approach the ATO for advice. If that advice were provided by phone, it would not be binding, however if a client sought a private ruling, the decision on the ruling would be binding.

    Samuel Marks queried whether the ATO would publish benchmarks about what was reasonable in a specific industry – similar to the advice around work-related costs.

    Action item 13072017-2-1 – The ATO to advise whether benchmarks could be published relating to industry-specific fuel tax claims.

    Action item 13072017-2-2 – The ATO to provide a summary of common FTC errors to the FSSG for sharing with their members.

    Agendaitem 3 - ATO updates

    Safe Harbour Post Implementation Review - Michelle Scott

    Outcome: Michelle Scott provided background to the introduction of several safe harbours that were released in March 2016. These were predominantly focused on the small client market (80% of the current population) claiming less than $10,000. Clients could apply one or all of the safe harbours to their claims.

    In addition to the separate links, the ATO has combined the advice into a page on the ATO website – www.ato.gov.au/ftc_simplified.

    PCG 2016/2 – Fuel tax credits – practical compliance methods for small claimants

    PCG 2016/3 – Fuel tax credits – fuel tax credit rate for non-business claimants

    PCG 2016/4 – Fuel tax credits – incidental travel on public roads by certain vehicles

    During December 2016, a post-implementation review was undertaken to investigate the effectiveness of the safe harbours. The safe harbours had received positive commentary on social media and there were several requests from FSSG members for information for articles. The safe harbours were also highlighted during Key Agent Program sessions with tax agents and videos were developed for ATO internal use. The ATO is considering tailoring these videos for external release.

    As part of the review, a small proportion of clients were interviewed. 100 clients were selected who were self-preparers and tax agents claiming up to $10,000. Of that group, 27% were aware of the safe harbours. Most were using the safe harbour for record keeping. There was higher take up of the safe harbours which led to the original estimate of compliance cost savings for clients of around $10m over a number of years being revised to $14m. With regard to the safe harbour for domestic electricity and not-for-profit agencies, where claims would be processed using the rate at the time of lodgement, it was found that the time taken to process claims had greatly reduced and was now around four days.

    Feedback on PGC 2016/4 relating to incidental travel was that it was well received and simplified the process. The ATO are not able to estimate the savings and any feedback from members on this PCG would be welcome.

    The recommendations in the review were that the safe harbours should remain with another review being carried out in March 2018 – two years after implementation.

    Action item 13072017-3-1 – A summary of the Post Implementation Review of FTC Safe Harbours Report to be provided to FSSG members.

    FTC Entitlement Matters - Michelle Scott

    Outcome: Members noted the update provided by Michelle Scott. There are a number of FTC issues dealing with fuel consumed in vehicles for travelling and on public roads. These relate to the impact of the Road User Charge. In September 2016, the ATO released a determination, FTD 2016/1, which confirmed the Commissioner’s view that idling is subject to the Road User Charge. Information clarifying a vehicle’s travel on a public road was provided in FTR 2008/1. In basic terms, the definition of a public road is one that is a road available to use by members of the public.

    Action item 13072017-3-2 – The ATO to consider inclusion of a reference to toll roads being included under the term "public roads".

    Michelle provided further information regarding section 105-55 notifications. These apply to tax periods to preserve an entitlement for claims made before 1 July 2012. If the notification is narrow, then the claims for the periods identified in the notification are related to that narrow notification. For example, a notification stating that the client was entitled to additional fuel tax credit claim related to fuel used in the refrigeration units of its heavy vehicles would not capture other fuel related claims. If you have lodged a notification in the past, check records before claiming. Claims can only be made subject to the time limits (4 years) unless the client has a relevant notification.

    Members discussed whether this was the same relating to treatment of GST matters. Rajitha Srikhanta advised that it would be as it was the same provision with the same wording – Miscellaneous Tax Ruling 2009/1 provides guidance on section 105-55 notifications.

    PCG 2016/8 – Fuel Tax credits – apportioning fuel for fuel tax credits

    With regard to PCG 2016/8 around apportioning fuel, these guidelines provide guidance to clients on acceptable and practical methodologies. Clients should review the methodology they are using to ensure there are no circumstances that might distort the results and that the methodology is fair and reasonable. Any methodology used should ensure that the client is not claiming more fuel than has been acquired.

    GPS Technology (including Class rulings) - Michelle Scott

    Outcome: PCG 2016/8 advised that the use of GPS or other software are examples of known reliable measures and are accepted by the ATO - when used appropriately. New technology may be considered appropriate if it provides a fair and reasonable apportionment.

    Two class rulings, CR 2015/13 and CR 2017/42, have been published regarding the use of technology in recordkeeping.

    Michelle advised that reports generated by the technology will be accepted as a record for fuel tax credit purposes. Members were asked to note that the ATO does not endorse particular products. Class Rulings relate to reports generated and whether they satisfy as a record for the Tax Administration Act - not products. Michelle also noted that if a client were using technology that related to a particular class ruling, it would not mean that they would be exempt from compliance activity. It would be expected that the source data behind the report would be appropriate for the ATO to refer to for verification. The source data relates to other information behind vehicle information – parameters etc. Clients are able to go back to software providers to obtain the source data if required.

    Members discussed the use of technology, noting that it is now more robust than paper log books, but was not at the stage yet to determine whether travel was on a public or private road.

    Members sought clarification regarding whether a class ruling was specific to a company, eg NavMan. Michelle clarified that although one of the class rulings related to the technology by NavMan, the class ruling actually applied to a particular product. If a software provider wanted to apply for a class ruling, they are able to, however the class ruling was not compulsory.

    Discussion was held around different variances in use of the software, including where tolerances were increased or decreased and how often the travel was “pinged”. The ATO took note of this information. Given that the class rulings relate to reports only, this will not result in a class ruling.

    Action Item 13072017-3-3 – Links to the Software Developers home page and the Australian Business Software Industry Association website will be provided to members.

    The ATO will consider including details on fuel schemes pages at ato.gov.au to advise that a class ruling does not provide an ATO endorsement of that product.

    A final item for members to note regarding FTC issues was to remind members that fuel tax credits are part of business income and are to be included as assessable income for income tax purposes. Any back claims increasing credits needed to be declared on the relevant income tax return.

    Findings of FTC Gap Work - Update - Siau Goh

    Outcome: Members noted the update provided by Siau Goh. One of the more common errors found as part of this work was due to clients misreading the rates table. In late January, a simplified rates table was published. To date, feedback has been positive. The ATO was keen to receive any feedback from members.

    Another finding related to errors made by tax agents with a small number of FTC clients, either in using an old or incorrect rate or other clerical errors. As a result of these findings, the ATO are planning two webinars for smaller / regional agents. The first will be for small businesses, including self-preparers, and will be held on 17 or 18 October (prior to the September quarterly BAS being due) and the other will be for tax agents and will be at the end of October. It is proposed that these webinars would be saved on ato.gov.au for future reference. Raj Srikhanta noted that the ATO are able to ascertain who has registered and ask which industry they belong to in order to arrange for industry-specific examples to be used.

    Agenda item 4 – Industry/member updates

    Outcome: Members raised various issues for discussion.

    James Sorahan, MCA – shared a publication from the FTC Alliance looking at ways to reduce compliance costs for clients, particularly relating to off-road use of vehicles. The group were not advocating radical change but looking at other options, for example fuel being excise free at the point of acquisition. This would require policy change from Treasury.

    Discussion took place around members suggesting potential policy changes to make fuel excise free at the point of acquisition. At present in the UK, some fuel is dyed to identify fuel purchased excise-free. James Sorahan gave the example of fuel being purchased in bulk from Singapore and going from the port straight to a remote site – with around 99% being used off road. Scott Kompo-Harms advised that this would be a similar case for many farmers – ie where the fuel was predominantly used off road.

    Scott Kompo-Harms queried whether, with regard to PCG 2016/3, electricity generated on farm for household use only could be claimed. Michelle Scott advised that there was a separate claiming mechanism for those not registered for GST. If however, they are registered for GST, this would have to be claimed on the BAS.

    With regard to safe harbours, the ATO are exploring other opportunities and would be keen to receive any suggestions from FSSG members.

    Action Item 13072017-4-1 – FSSG members to provide information about any irritants / suggestions for potential safe harbours for consideration.

    Samuel Marks raised a discussion paper (PDF, 2.15MB)External Link issued by the Department of Infrastructure and Regional Development regarding independent price regulation of heavy vehicle charges. The paper proposes three options for independent price regulation, including Option 3 – to have state and territory-based economic regulators undertake regulation of heavy vehicle charges. This could lead to different rates being charged for different states / territories. He advised that the ATA had concerns about the administrative burden that would be imposed by clients having to separate claims between multiple rates. Scott Kompo-Harms advised that the NFF were also looking at options, including advocating a differentiation between metropolitan / regional use along the lines of a type of congestion charge.

    James Sorahan queried the reference to taxes used for “fuel and energy category” on the letters sent to income tax payers. Given that fuel tax credits were a rebate, this was not considered to be accurate reporting.

    Action Item 13072017-4-2 – The ATO to clarify the reference to fuel and energy in the letters to taxpayers at Tax Time.

    Agenda item 5 – Other business

    There was no other business.

    The meeting concluded at 11.25am.

      Last modified: 19 Sep 2017QC 53318