House of Representatives

Tax Laws Amendment (2012 Measures No. 3) Bill 2012

Income Tax (Seasonal Labour Mobility Program Withholding Tax) Bill 2012

Income Tax (Seasonal Labour Mobility Program Withholding Tax) Act 2012

Tax Laws Amendment (Income Tax Rates) Bill 2012

Explanatory Memorandum

(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)

Taxation of blends of gaseous and aviation fuels - further consequential amendments

Outline of chapter

2.1 Schedule 2 to this Bill amends the Excise Act 1901 , so that blending of liquefied petroleum gas (LPG) with other LPG that has been taxed at a different rate, blending of liquefied natural gas (LNG) with other LNG that has been taxed at a different rate, blending of compressed natural gas (CNG) with other CNG that has been taxed at a different rate, blending of aviation kerosene with other aviation kerosene that has been taxed at a different rate, and blending of aviation gasoline with other aviation gasoline that has been taxed at a different rate in some specified circumstances is not treated as excise manufacture and therefore subject to additional excise. The specified circumstances are those that arise from the phase-in (progressive increase in rates) of excise and excise-equivalent customs duty on LPG, LNG and CNG, and from fluctuations in the carbon price.

Context of amendments

Gaseous fuel blends

2.2 LPG, LNG and CNG (the gaseous fuels) intended for use in an internal combustion engine for road transport entered the excise and excise equivalent customs duty systems on 1 December 2011, when excise and excise equivalent customs duty was applied to these fuels. Non-transport LPG and LNG is also subject to duty. However, the duty, under current law is fully remitted via a customs or excise remission. CNG manufactured for a non-transport use is exempt and therefore not subject to excise or excise equivalent customs duty.

2.3 Excise and excise equivalent customs duty on the transport gaseous fuels is to be phased in over the period 1 December 2011 to 1 July 2015, with the final full rate applying from 1 July 2015.

2.4 As a result of the phase-in, it is likely that gaseous fuel for transport at the new rate will be delivered into tanks containing the same gaseous fuel that has been taxed at the old rate. Under current law this is a blend of two types of transport fuel taxed at different rates and will constitute excise manufacture and the resultant blend will be subject to duty.

Example 2.6 : Mixed duty rates - current law On 3 July 2012 Simon received a tanker load of 18,000 litres of LPG intended for transport use at the new excise rate of $0.05 per litre to top up his bulk tank. There was already 1200 litres of LPG intended for transport use remaining in the tank on which excise duty of $0.025 per litre had already been paid using the pre 1 July duty rate. The blending of these two quantities of LPG that have been subject to duty at different rates is excise manufacture under the Excise Act 1901 and as such Simon is required to be licensed to manufacture LPG and the resultant blend will be subject to duty.

2.5 A similar situation of blends of fuels taxed at different rates giving rise to additional fuel tax arises when an effective carbon charge is applied to non-transport use LPG and LNG using the fuel tax system. In this circumstance, the full remission that currently applies is reduced to a partial remission from 1 July 2012 to 30 June 2013. Around the beginning and end of this period, under current law, the blending would constitute excise manufacture and the resultant blend would be subject to duty.

Example 2.7 : Mixed remission arrangements - current law Prior to 1 July 2012 Universal LPG delivered LPG to Neroli's BBQ Supplies in bulk for non-transport use under the automatic remission as Neroli fills 9 kilogram bottles with the LPG for use by her clients in their barbeques. On the 2 July 2012 Universal LPG delivered 4,000 litres of LPG to Neroli's BBQ Supplies under the partial remission which now includes a carbon charge of $0.0368 per litre. As there was already 2000 litres in Neroli's Tank the blending of full remission LPG with partial remission LPG is excise manufacture under the Excise Act 1901 . As such Neroli is required to be licensed to manufacture LPG and the resultant blend is subject to duty.

2.6 From 1 July 2013, LPG and LNG used for non-transport purposes will be subject to the carbon pricing mechanism directly. This should result in a return to the current remission arrangements where a full remission of duty in relation to non-transport LPG and LNG is available. As a result, there are no implications for excise manufacture when goods subject to full remission are subsequently blended after they have been entered into home consumption.

Aviation fuel blends

2.7 Aviation fuel (gasoline or kerosene for use as fuel in aircraft) is currently subject to a small rate of excise, which is earmarked for funding the operations of the Civil Aviation Safety Authority. For domestic aviation fuel, the 2011 Clean Energy legislation package will adjust this excise upwards from 1 July 2012 by an amount equal to the notional carbon price that would be put on the fuel emissions had aviation fuel been subject to a carbon charge. Fuels used in international aviation will not be subject to a carbon charge.

2.8 During the fixed price period of the carbon charge, the non-earmarked part of the excise that represents the effective carbon price will vary each time a new carbon price is implemented. As a result, blending of aviation kerosene with other aviation kerosene and blending of aviation gasoline with other aviation gasoline around the time of the carbon price change will involve the blending of fuels that have been taxed at different rates, and therefore, under the current law, would constitute excise manufacture, and the resultant blend would be subject to duty.

2.9 A similar situation will arise after the fixed price period when the carbon price is set by the price prevailing in the market for emission permits. The market price will vary so that the excise that represents the carbon price will also vary, resulting in additional duty because of the excise manufacture.

2.10 Under the current law, the blending of kerosene or gasoline that are for use as fuel in an aircraft with like kerosene or gasoline that are not for use as fuel in an aircraft (essentially blending aircraft fuel with non-aircraft fuel) constitutes excise manufacture and the resultant blend is subject to duty. The new blending exemptions are not intended to alter this outcome.

Summary of new law

2.11 To avoid these potential situations of duty being imposed a second time the law will be amended to exclude blends of the same type of gaseous fuel from being treated as excise manufacture in specified circumstances and therefore subject to additional duty. This is achieved by considering the intended use of each component of the blend, when the duty payable (if any) on each component was first determined. If the duty liability of all components of a blend was determined on the same basis (transport or non-transport) at the time they were entered, then their blending will not constitute excise manufacture. A further requirement is that any duty that was payable on each of the components of the blend has been paid.

Example 2.8 : Mixed duty rates - new law A quantity of LPG was duty paid on 3 July 2012 at a rate of $0.05 per litre (with no remission available because it was intended for use in transport), and it is added to a tank containing a quantity of LPG that was duty paid prior to 1 July 2012 at a rate of $0.025 (also with no remission available because it was intended for a transport use), then the blending will not constitute manufacture.

2.12 The blending exemptions will also cover the blending of non-transport like gaseous fuel in instances where the fuel has been eligible for an excise or customs remission, regardless of the level of remission.

Example 2.9 : Blending fuels subject to remission - new law Euan's BBQ Bonanza Gas receives a delivery of 10,000 litres of LPG on 15 July 2012 that his supplier has applied the partial remission to as he knows that Euan's BBQ Bonanza only supply LPG in 9 kilogram barbeque bottles. The LPG is delivered into Euan's bulk tank that already contains 4,000 litres of LPG delivered on 20 June 2012 that was the subject of the full remission. Under the new law the blending of these two quantities of LPG, although subject to different duty rates does not constitute excise manufacture and therefore the blend is not subject to duty.

2.13 However, the blending exemptions do not exempt the blending of a quantity of transport gaseous fuel with a quantity of non-transport gaseous fuel. This is because the components of the blend were not subject to duty on the same basis when they were entered.

Comparison of key features of new law and current law

New law Current law
The exemption for blending fuels taxed at different rates only applies to relevant fuels (that is, gaseous and aviation fuels) when blended with the same relevant fuel. Exemption from excise is available only for fuels that have been taxed at the same rate.
A test is applied to such blends arising as a result of the phase-in arrangements or a changing carbon price to determine whether they should be exempt from further excise. The blending of fuels is treated as excise manufacture of a fuel and hence subject to excise, unless the fuels have been taxed at the same rate, in which case an exemption applies. A phase-in of excise and excise equivalent customs duty was implemented when gaseous fuels became subject to excise and excise equivalent customs duties from 1 December 2012. On 1 July each year an increased rate of excise applies until 1 July 2015 when the final rate of excise applies. Near the time of the duty increases, gaseous fuels taxed at different rates will be blended as fuel taxed at the new rate is delivered into tanks containing fuel taxed at the old rate, hence subject to additional duty. A similar situation applies to aviation fuels when excise rates change as the carbon price changes.

Detailed explanation of new law

Definition of 'relevant fuel'

2.14 The excise blending exemptions specified in these amendments apply only to relevant fuel , which is defined as gasoline for use in aircraft; kerosene for use in aircraft; liquefied petroleum gas; liquefied natural gas; or compressed natural gas classified to subitem 10.19C of the Schedule to the Excise Tariff Act 1921 . [Schedule 2, item 3, subsection 77H(5)]

Blending exemptions for certain blends of 'relevant fuels'

2.15 The intention of the amendments in this section is to exclude the blending of some 'relevant fuels', where the same rate of tax does not apply to each amount in the blend, from being treated as excise manufacture and subject to additional duty.

2.16 In general, the different tax rates on these fuels result from either the phase-in of excise and excise-equivalent customs duty (including the blending of non-transport gaseous fuels subject to a different level of remission), interaction between the excise and excise-equivalent customs duty systems with the carbon pricing mechanism, or the varying carbon prices applied to these relevant fuels. However, this does not include different effective tax rates resulting from the blending of transport and non-transport fuels. [Schedule 2, item 1, subsection 77H(2A) and subsection 77(H)2B]

Application and transitional provisions

2.17 The amendments to the Excise Act 1901 and the Excise Tariff Act 1921 made by this Schedule apply in relation to goods that are the product of blending 'relevant fuel' if the blending occurs after 1 July 2012, whether the relevant fuel being blended was manufactured, produced or imported before or after that time.


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