Decision impact statement

Gem Plant Hire Pty Ltd atf The Condello Family Trust and Commissioner of Taxation

Venue: Administrative Appeals Tribunal
Venue Reference No: 2011-4448
Judge Name: Senior Member O'Loughlin
Judgment date: 4 December 2012
Appeals on foot: No
Decision Outcome: Unfavourable to the Commissioner

Impacted Advice

Relevant Rulings/Determinations:

• Fuel Tax Ruling FTR 2009/1

Subject References:
Fuel tax credits
FTC use
FTC carrying on an enterprise

Précis

Outlines the ATO's response to this case, which concerns whether a hire company is considered to have used fuel in carrying on its enterprise under section 41-5 of the Fuel Tax Act 2006 when it provides fuelled vehicles and equipment to a hirer.

Brief summary of facts

The taxpayer supplied trucks and equipment under a hire arrangement to a hirer. The taxpayer was required to fuel, service, maintain and insure the trucks and equipment, and the hirer did not, nor was it required to reimburse fuel charges or other expenses. The hirer paid the hire charges levied for the trucks and equipment and was responsible for providing drivers or operators as part of the hire arrangement.

The taxpayer acquired fuel in discharge of its responsibilities to provide the trucks and equipment on a fuelled basis to the hirer. The hirer used the hired trucks and equipment to supply earthwork services to its own customers, and the fuel acquired by the taxpayer was consumed in the process of doing so. The taxpayer provided fuel cards enabling drivers and operators of the hirer to act as agents of the taxpayer when purchasing fuel for the trucks and equipment.

Issues Decided by the Tribunal

This decision concerns subsection 41-5(1) of the Fuel Tax Act 2006 which provides - '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'. The specific issue was whether the taxable fuel acquired by the taxpayer through the agency of the hirer's drivers and operators was 'for use in carrying on your [the taxpayer's] enterprise'.

The Administrative Appeals Tribunal (AAT) observed at [16] that section 41-5 does '...not impose a requirement that the use is to be only or exclusively by the taxpayer in question in a personal sense ...' The AAT also said at [16] that the provision '...is expressed in terms wide enough to contemplate use by actions of another entity so long as the use is in carrying on the enterprise of the taxpayer in question, whether or not the use might also be in carrying on another taxpayer's enterprise.'

Given the taxpayer's enterprise consisted of hiring out trucks and equipment on a fuelled basis in return for rental income, the AAT concluded at [17] that the 'only consumption of the fuel is by the use of the vehicles which is as an incidental part of that enterprise.' This was unaffected by the fact that the hirer may also use the vehicles in their own enterprise, or possibly in their customers' enterprises. The AAT observed at [19] that its approach was consistent with Riviera Nautic Pty Ltd v Commissioner of Taxation, 'albeit that decision concerned different legislation'.

ATO view of decision

The Commissioner accepts that, based on material before the AAT, it was open to conclude that the taxpayer had used the fuel in carrying on its enterprise. On this basis, the Commissioner has discontinued an appeal to the Federal Court. The Commissioner considers that, as this decision relates to specific facts and circumstances, it does not have broader implications for subsection 41-5(1).

It was agreed before the AAT that the taxpayer and not the hirer had acquired the fuel. The taxpayer did not dispose of the fuel to the hirer, but instead gave the hirer a 'licence to use' the fuel under the hire arrangement. The decision, therefore, is consistent with the view in FTR 2009/1 at [47], which states that 'fuel is used by a hire company in carrying on their enterprise in licence to use arrangements - when it ceases to exist when the hirer operates the vehicle and equipment'.

FTR 2009/1 emphasises that, in determining if a hire company has disposed of fuel or provided a licence to use fuel, reference must be had to the contract and surrounding circumstances. Other taxpayers should not rely on similarities in their arrangements producing the same outcome as in this case. Taxpayers should also be aware that, given that this issue was not a matter in dispute before the AAT, material facts relevant to its determination are not set out in the AAT decision. Instead, they should seek guidance from FTR 2009/1.

Further, as the issue was limited to whether the fuel was used in carrying on the taxpayer's enterprise, the AAT was not required to consider other matters that may be relevant to quantifying a taxpayer's fuel tax credit entitlement. For example, a hire company may need to determine the quantity of fuel used for particular purposes in order to calculate the correct effective rates for available fuel tax credits.

The AAT indicated that consumption of fuel and the use of the vehicles by the hirer was 'incidental' to the taxpayer's enterprise. The Commissioner considers that this is an alternative way of expressing the view in FTR 2009/1 at [47]. The Commissioner also agrees that, based on the facts and circumstances of each case, once it is concluded that the hire company has provided a licence to use fuel to the hirer, this decision and Rivera Nautic resulted in similar outcomes.

Administrative Treatment

Implications for ATO precedential documents (Public Rulings & Determinations etc)

The AAT decision on the facts before it is consistent with the treatment of a hire arrangement for FTR 2009/1 purposes where a licence to use fuel has been given. FTR 2009/1, therefore, does not require amendment in this regard. However, to provide further guidance where there is a licence to use fuel, the Commissioner will consider if an additional example should be included in FTR 2009/1.

Implications on Law Administration Practice Statements

Not applicable.

Court citation:
[2012] AATA 852
(2012) 91 ATR 483

Legislative References:
Fuel Tax Act 2006
s 2-1
s 40-5
s 41-1
s 41-5

Case References:
Riviera Nautic Pty Ltd v Commissioner of Taxation
[2002] AATA 657
50 ATR 1106

Northern Territory v Collins
[2008] HCA 49
235 CLR 619
249 ALR 621

Roy Morgan Research Centre Pty Ltd v Commissioner of State Revenue
[2001] HCA 49
207 CLR 72
47 ATR 541

Project Blue Sky Inc v Australian Broadcasting Authority
[1998] HCA 28
194 CLR 355

Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue
[2009] HCA 41
239 CLR 27
73 ATR 256
2009 ATC 20-134