ATO Interpretative Decision

ATO ID 2003/577 (Withdrawn)

Excise

• This ATO ID is withdrawn from the database because it contains a view in respect of the diesel fuel rebate provisions of the Excise Act 1901 and or the Customs Act 1901 that were repealed with effect from 1 July 2003. Despite its withdrawal from the database, this ATO ID continues to be a precedential view in respect of decisions for fuel purchased before 1 July 2003.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is a client who operates a marine charter business entitled to claim a diesel fuel rebate in respect of diesel fuel purchased for use in the chartering of the client's vessels under paragraph 78A(1)(ac) of the Excise Act 1901 and corresponding paragraph 164(1)(ac) of the Customs Act 1901?

Decision

Yes. However, the client is only entitled to claim a diesel fuel rebate for diesel fuel they:

1.

purchase at the start of the charter for the purpose of hiring out the vessel by charter

2.

purchase at the end of the charter, from a fuel supplier, for use in marine transport; and,

3.

purchase at the end of the charter, from the entity chartering the vessel, for use in marine transport.

It is only in these circumstances that the client has purchased the diesel fuel for use in marine transport.

Facts

A client provides marine transport services. The client supplies vessels with crews (under a charter arrangement), to transport passengers and goods.

The client has a standard written contract the client uses for charters. The contract specifies a daily rate 'plus fuel' and other charges such as mobilisation, demobilisation, meals, accommodation, wharf and cranage charges.

Before leaving port at the start of the charter, the client checks the fuel level of the tank for the vessel being chartered. The fuel already in the vessel has been purchased by the client. During the charter, additional fuel is purchased by the entity chartering the vessel and added to the boat's fuel tank. On return to port at the end of the charter, the client again checks the fuel level of the tank for the vessel that was chartered.

The client then refills the vessel's tank by obtaining fuel from a fuel supplier. The fuel supplier either:

•

charges the client for the fuel (who then on-charges the entity that chartered the vessel); or

•

charges the entity that chartered the vessel directly for refilling the client's vessel to the level at the start of the charter.

The entity chartering the vessel is not permitted to siphon off, sell, or otherwise dispose of the fuel that is in the boat's tank at the commencement of the charter.

Reasons for Decision

Paragraph 78A(1)(ac) of the Excise Act and corresponding paragraph 164(1)(ac) of the Customs Act state that rebate is payable to a person who purchases diesel fuel for use by them in marine transport in the course of carrying on an enterprise.

Paragraph 78A(2)(b) of the Excise Act and corresponding paragraph 164(2)(b) of the Customs Act provides that rebate is not payable to a person who subsequently sells or otherwise disposes of the fuel.

Therefore, the client is entitled to a diesel fuel rebate provided the client satisfies the following tests:

•

the client must have purchased the diesel fuel

•

the client must intend to use the fuel in marine transport in the course of carrying on an enterprise; and

•

the client must not have sold or otherwise disposed of the fuel.

The Administrative Appeals Tribunal (AAT) considered the issues of 'use' and to a lesser extent 'sale or disposal' in Riviera Nautic Pty Ltd v. Federal Commissioner of Taxation [2002] AATA 657 (Riviera Nautic Case). Riviera Nautic operates a fleet of yachts and motor cruisers which it hires to customers to drive themselves around the Gippsland Lakes. They purchase bulk diesel fuel and fill the tanks of each vessel prior to delivering the vessels to its customers. They charge their customers a fee inclusive of all fuel used irrespective of the quantity. No separate charge is made for the fuel.

On the issue of 'use' the AAT found that it was a term of broad meaning. They said:

37 I was puzzled during the hearing by what seemed to be the very narrow meaning of the word 'use' advanced by Mr Sest. I suggested that the appropriate analysis appeared to be that both Riviera Nautic and its clients use the fuel purchased by Riviera Nautic in marine transport, but only Riviera Nautic does so 'in the course of carrying on an enterprise.

38 I consider that there is an analogy between a restaurant purchasing and using food, to prepare meals, and Riviera Nautic purchasing and using fuel to hire out fully fuelled boats. They are both carrying on an enterprise. The fact that the restaurant's customers consume the food or that the clients of Riviera Nautic cause the fuel to be consumed by using the boat's engine to transport themselves on the Gippsland Lakes, does not mean that the food and fuel are not used by the restaurant and Riviera Nautic in the course of carrying on an enterprise. The business of the restaurant is to use food to offer customers food. The business of Riviera Nautic is to provide marine transport including fuel to hirers. Another example would be a hotel which purchases and uses soaps and shampoos to provide those products in guests' bathrooms. The products are used by the hotel, and are also used by the guests.

The AAT had the following to say on sale of the fuel by Riviera Nautic to hirers:

There is a problem in determining on the facts of this matter whether, if there were a sale, it would be of specific goods namely the fuel in the tank at the commencement of the hire, or of unascertained goods, namely so much fuel as is required for the period of the hire, being either more or less than the fuel in the tank. There is no evidence of any price for the sale ever being agreed, and in fact the evidence is that Riviera Nautic never intends that property in the fuel will pass to its clients

The Macquarie Dictionary, 2001, rev. 3rd edn, The Macquarie Library Pty Ltd, NSW defines 'sell' as:

1. to give up or make over for a consideration; dispose of to a purchaser for a price

Four arrangements exist in relation to purchase and use of fuel. In each arrangement the fuel is used in the client's vessel. It is clear from the decision in Riviera Nautic that this is sufficient to establish that the client has used the fuel in each case. As the fuel is used in the vessel to transport passengers and goods it is used in marine transport (refer ATO Interpretative Decision ATO ID 2002/643). The fuel is also used in carrying on an enterprise.

Therefore the client will be able to claim diesel fuel rebate in respect of the fuel if the client can be considered to have purchased (and not on-sold) the fuel. Each arrangement is considered separately below:

1. Diesel fuel purchased at the start of the charter, by the client, for the purpose of hiring out the vessel by charter

By virtue of the arrangement that occurs at the end of the charter the client will ultimately be reimbursed for this fuel. However, the fuel was purchased by the client and remains in the tanks of the client's vessel. There is nothing to suggest that there is any intention that property in the fuel will pass to the contracting entity. Given this, it is consistent with the decision in the Riviera Nautic Case and The Macquarie Dictionary definition of 'sell' that the client has not sold or otherwise disposed of the fuel.

Accordingly, the client is eligible for the rebate in respect of fuel the client purchases at the start of a charter and uses in the client's vessel during a charter for marine transport activities.

2. Diesel fuel purchased at the end of the charter, by the client, from a fuel supplier, for use in marine transport

Despite the fact the client is reimbursed by the entity chartering the vessel for the cost of this fuel, there is nothing to suggest property in the fuel will pass to the contracting entity. Rather:

•

the fuel has been purchased by the client for use in marine transport subsequent to the charter; and

•

the fuel remains in the tanks of the client's vessel.

Given this, it is consistent with the decision in the Riviera Nautic Case and The Macquarie Dictionary definition of 'sell' that the client has not sold the fuel.

Accordingly, the client is eligible for the rebate in respect of fuel the client purchases at the end of a charter and uses in the client's vessel for marine transport activities subsequent to the charter.

3. Diesel fuel purchased at the end of the charter, by the client, from the entity chartering the vessel, for use in marine transport

The fuel is used in the tanks of the client's vessel. The fuel is intended to be used by the client for purposes unrelated to the charter. Therefore, dispositive power over the fuel has clearly passed to the client. Although the client has not made a monetary payment for the fuel, the client has provided consideration by allowing the charter to occur.

It is consistent with the decision in the Riviera Nautic Case and The Macquarie Dictionary definition of 'sell' to determine that the fuel has been sold to the client.

Accordingly, the client is eligible for the rebate in respect of fuel sold to the client and used in the client's vessel after a charter if it is used for marine transport activities.

4. Diesel fuel purchased by the entity chartering the vessel and consumed during the charter

The contracting entity purchases the fuel. Although the fuel is used in the client's vessel there is nothing to suggest the fuel has been sold to the client. Rather:

•

the contracting entity does not charge the client for the fuel added to the vessel's tank; and

•

the fuel is intended to be used as directed by the contracting entity under the terms of the charter.

Given this, it is consistent with the decision in the Riviera Nautic Case and The Macquarie Dictionary definition of 'sell' to determine that the fuel has not been sold to the client.

Accordingly, the client is not eligible for the rebate in respect of fuel purchased by the entity chartering the client's vessel during a charter and used in the client's vessel during a charter for marine transport activities.

Legislative References:
Excise Act 1901
   paragraph 78A(1)(ac)
   paragraph 78A(2)(b)

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

Related ATO Interpretative Decisions
ATO ID 2002/643

Other References:
The Macquarie Dictionary, 2001, rev. 3rd edn, The Macquarie Library Pty Ltd, NSW

Keywords
DFRS marine
Diesel fuel rebate scheme
Excise
Excise payments

Business Line:  Excise

Date of publication:  18 July 2003

ISSN: 1445-2782