Fuel Tax Bill 2006

Fuel Tax (Consequential and Transitional Provisions) Bill 2006

Revised Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello MP)


The following abbreviations and acronyms are used throughout this explanatory memorandum.

Abbreviation Definition
ATO Australian Taxation Office
BAS business activity statement
Commissioner Commissioner of Taxation
EGCS Energy Grants(Credits) Scheme
GST goods and services tax
GST Act A New Tax System (Goods and Services Tax) Act 1999
TAA 1953 Taxation Administration Act 1953

General outline and financial impact

The fuel tax credit system

These Bills provide a single system of fuel tax credits to remove or reduce the incidence of fuel tax levied on taxable fuels, and a framework for the taxation of gaseous fuels from 1 July 2011, when fuel tax is levied on liquefied petroleum gas, liquefied natural gas and compressed natural gas for the first time.

Under the fuel tax credit system, all taxable fuel acquired or manufactured in, or imported into, Australia for use in off-road applications for business purposes will become tax-free over time. This will, for the first time, provide fuel tax relief to businesses involved in a range of activities. For example, businesses involved in manufacturing, quarrying and construction will become entitled to fuel tax relief. Other major beneficiaries will include primary production, mining and commercial power generation. Further, the excise currently levied on burner fuels - such as heating oil and kerosene - and on fuels used in commercial and household electricity generation will be effectively removed from 1 July 2006.

Fuel tax relief will be expanded under the fuel tax credit system for fuel used in road transport by allowing a partial fuel tax credit for all taxable fuels, including petrol, acquired or manufactured in, or imported into, Australia for use on-road for all business purposes in registered vehicles with a gross vehicle mass of more than 4.5 tonnes. The partial credit will be equal to the effective fuel tax rate minus a road-user charge.

Concessions, refunds and remissions currently delivered through the excise and customs system for the use of fuel other than fuel in an internal combustion engine, will be replaced by fuel tax credits.

Claiming of fuel tax credits for large claimants and operators of on-road diesel vehicles will be conditional on businesses meeting certain environmental criteria. Businesses claiming more than $3 million per year in fuel tax credits will be required to be members of the Greenhouse Challenge Plus Programme, while diesel heavy vehicles will need to meet one of four emissions performance criteria to be entitled to a fuel tax credit.

Fuel tax credits will be claimed by businesses via the business activity statement (BAS) in the same way as input tax credits are claimed for the goods and service tax. Business interactions with the Australian Taxation Office (ATO) will be simplified and reduced as businesses will have a single point of contact with the ATO and the necessity of separate claim forms will be removed.

Separate claiming arrangements from the BAS will apply to non-business claimants claiming for household use of fuel in electricity generation.

The administration of the Fuel Tax Bill 2006 will align with the administration of the other indirect taxes under the Taxation Administration Act 1953 .

Consequential amendments

The following Acts are amended as a consequence of the implementation of the fuel tax credit system:

The Energy Grants (Credits) Scheme Act 2003 , the A New Tax System (Goods and Service Tax) Act 1999 , the Taxation Administration Act 1953 , the A New Tax System (Luxury Car Tax) Act 1999 , the A New Tax System (Wine Equalisation Tax) Act 1999 , the Crimes (Taxation Offences) Act 1980 , the Freedom of Information Act 1982 , the Income Tax Assessment Act 1936 , the Income Tax Assessment Act 1997 and the Taxation (Interest on Overpayments and Early Payments) Act 1983 .

The Fuel Tax (Consequential and Transitional Provisions) Bill 2006 also repeals the Fuel Sales Grants Act 2000 , from 1 January 2007, and the States Grants (Petroleum Products) Act 1965 from 1 July 2007, in accordance with the Government's decision to abolish the Fuel Sales Grants Scheme and the Petroleum Products Freight Subsidy Scheme from 1 July 2006. Claims for outstanding entitlements will be able to be made for a transitional period before the Acts are repealed.

Date of effect : The fuel tax credit system will be phased in, commencing 1 July 2006, with the final changes taking effect on 1 July 2012.

Proposal announced : These Bills give effect to the Government's announcement of 15 June 2004 in the energy white paper, Securing Australia's Energy Future , to introduce a single fuel tax credit system to replace the current complex system of fuel tax concessions.

Financial impact : During the transition in which the proposed changes are brought in from 10 July 2006 to 1 July 2012, the measure is expected to cost:

2006-07 $m 2007-08 $m 2008-09 $m 2009-10 $m 2010-11 $m 2011-12 $m 2012-13 $m
Off-road credits
Diesel 0 0 -260 -290 -320 -340 -750
Petrol 0 0 -70 -70 -70 -70 -120
Electricity generation -100 -110 -70 -70 -80 -80 -
On-road credits
Road user charge (energy white paper) 210 240 280 320 360 400 450
Removal of metropolitan boundaries criteria -120 -120 -120 -110 -110 -110 -100
Road user charge (2006-07 Budget) -240 -280 -330 -380 -430 -490 -550
Burner fuels -10 -10 -10 -10 -10 -10 -10
Alternative fuels - grants phase-out -4 -3 -2 -1 - - -
Total -270 -280 -580 -620 -650 -700 -1,080

Year of maturity: 2012-2013

A negative sign indicates a cost to the budget (increase in expenditure) a positive number indicates a saving to the budget (decrease in expenditure).

Discrepancies in the table between sums and totals of components are due to rounding.

Compliance cost impact : The fuel tax credit system will lower compliance costs, reduce tax on business and remove the burden of fuel tax from thousands of individual businesses and households.
When the fuel tax credit system is fully implemented there will be a substantial reduction in compliance costs because of the removal of the restrictive and complex eligibility criteria that exist under the Energy Grants (Credits) Scheme. This will lead to a significant reduction in record keeping required to substantiate entitlements. In addition, businesses will no longer have to clarify complex eligibility criteria, including through costly and time consuming litigation.
The claiming of fuel tax credits via the BAS will simplify and reduce business interactions with the ATO as businesses will have a single point of contact and the necessity of separate claim forms will be removed. In addition, the alignment of fuel tax credit administrative arrangements with the administrative and compliance responsibilities for other indirect taxes will further reduce complexity for business.
Compliance costs for businesses currently claiming energy grants through third parties or receiving fuel effectively excise-free under the excise remission arrangements will be rebalanced, as the end users of fuel, rather than third party fuel suppliers, will claim fuel tax credits directly via the BAS.
The environmental measures applying to on-road diesel vehicles and large fuel users may involve additional compliance costs for some businesses.

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