ATO Interpretative Decision

ATO ID 2004/813 (Withdrawn)

Excise

• This ATO ID is withdrawn from 1 July 2012, the date the Energy Grants (Credits) Scheme Act 2003 was repealed.
  Despite its withdrawal, this ATO ID continues to be a precedential ATO view in respect of the period the Act was in force, 1 July 2003 up to and including 30 June 2012.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Does a mining company purchase diesel fuel for use in mining operations as required by section 53 of the Energy Grants (Credits) Scheme Act 2003 (EGCSA), where the mining company provides the diesel fuel to an independent power supplier that will use the diesel fuel exclusively to meet the mining company's electricity needs?

Decision

Yes. The mining company does purchase diesel fuel for use in mining operations as required by section 53 of the EGCSA, where the mining company provides the diesel fuel to an independent power supplier that will use the diesel fuel exclusively to meet the mining company's electricity needs.

Facts

The mining company conducts mining operations 24 hours a day, all year round.

A power station, previously owned and operated by the mining company and situated on a mining lease held by the mining company, was sold to an independent provider of electricity.

A sub-lease of that area of the mining lease upon which the power station is situated was granted to the independent power supplier to allow operation.

The majority of the independent power station's output is purchased by the mining company for use in its mining operations on the mining lease. The balance of the power station's output is sold for public distribution.

Power for the mine is taken from the station on dedicated transmission lines owned by the mining company and located on the mining lease. The transmission lines were not part of the sale. The power sold for public distribution is transmitted on a separate transmission line.

The mining company purchases diesel fuel and supplies it to the independent power provider exclusively for use in generating power for the mining company's operations. The independent power supplier is not required to make any payment for the fuel. Legal title over the fuel remains with the mining company.

Reasons for Decision

Under Section 53 of the EGCS, an entity is entitled to an off-road credit if the entity purchases or imports into Australia off-road diesel fuel for a use by that entity that qualifies.

This establishes a series of tests that must be satisfied in order for an entity to be entitled to an off-road credit:

1.

The entity must purchase the off-road diesel fuel.

2.

The fuel must be purchased or imported for a use that qualifies.

3.

The fuel must be used by the entity for the qualifying use.

Each of these requirements will be examined in turn:

1. Has the mining company purchased the off-road diesel fuel?

This requirement is clearly satisfied.

2. Has the fuel been purchased or imported for a use that qualifies?

Subsection 53(2) of the EGCS states that:

Use in mining operations (otherwise than for the purpose of propelling any vehicle on a public road), or in primary production (otherwise than for the purpose of propelling a road vehicle on a public road), is a use that qualifies.

The Product Grant and Benefit Ruling PGBR 2003/3, Energy Grants: off road credits for mining operations, states:

In the context of the phrase 'in mining operations' if an activity takes place 'in the course of mining operations', it takes place in mining operations.

In the phrase 'in mining operations' in subsection 53(2) of the EGCS, the preposition 'in' means 'in the course of ' or 'in the process or act of '; (see Chief Executive Officer of Customs v. WMC Resources Ltd (as agent for East Spar Alliance) (1998) 87 FCR 482 per Nicholson J ). Therefore, if an activity can be said to have taken place 'in the course of' mining operations, it can be concluded that it also takes place 'in' mining operations.

Accordingly, the meaning of 'in mining operations' is not restricted to merely the physical act of removing minerals or ore bearing minerals from the ground.

The generation of electricity for use at a mine site, that is for use in a mining operation as defined in subparagraph 11(1)(b)(i) of the EGCS, is also part of the operations for the recovery of minerals and hence a qualifying use.

As stated in PGBR 2003/3, we consider the following three criteria relevant in determining if an activity takes place 'in the course of' a mining operation. These are:

•

a causal link exists - in other words, a certain activity is 'functionally integrated' with a mining operation, thereby forming an essential part of it

•

a spatial link exists - meaning that an activity takes place in an area set aside or occupied for a mining operation,

•

a temporal link exists - the activity takes place in a timely fashion, not prior to, or after the completion of, the mining operation.

The relevance or weighting afforded to these criteria will vary depending on the facts of each case.

In this case, the generation of electricity is considered to be causally linked to the mining operations. To be functionally integrated an activity must be so closely related to the mining operation that it is impossible to distinguish between the activity undertaken and the mining operation. In this case, the mining company purchases diesel fuel and makes it available to the independent power provider whilst retaining ownership. The fuel is used to generate electricity to meet the mining company's needs. The independent power provider supplies the electricity generated to the mining company for use in mining operations. Therefore, the generation of electricity, although undertaken by the independent power provider, occurs in order to provide power to the mining company. It is therefore causally linked to the mining operations.

The power plant is situated on the mining lease held by the mining company. Therefore the generation of the electricity and the actual recovery of minerals occur on an area set aside or occupied for a mining operation, and the spatial requirement is satisfied.

A temporal link exists because the electricity is generated by the independent power provider as and when required by the mining company for its mining operations.

3. Was the fuel used by the mining company?

In this instance, the mining company retains ownership of the fuel at all times, and does not receive any consideration for the fuel they supply to the independent power provider.

A similar issue was considered by the Administrative Appeals Tribunal (AAT) in the case Re Riviera Nautic Pty Ltd v. Federal Commissioner of Taxation [2002] AATA 657, which concerned an entity that owned various leisure craft, purchased fuel and made it available for use by people who leased the leisure craft. No separate fee was charged for the fuel, regardless of the amount consumed. It was held that the fuel was used by the owner of the leisure craft in marine transport, notwithstanding that the vessel was crewed by the persons renting the leisure craft.

Based on this logic, the mining company is using the fuel in mining operations, notwithstanding the fact that the power is actually generated by the independent power supplier.

Conclusion

It has been established that the off-road diesel fuel was purchased by the mining company, and that a causal, spatial and temporal link exists between the use of that diesel fuel and the recovery of minerals. It has also been established that the diesel fuel is in fact used by the mining company, notwithstanding the fact that the electricity is generated by the independent power supplier. Therefore it can be concluded that the mining company does purchase diesel fuel for use in mining operations as required by section 53 of the EGCS, where the mining company provides the diesel fuel to an independent power supplier that will use the diesel fuel exclusively to meet the mining company's electricity needs.

Legislative References:
Energy Grants (Credits) Scheme Act 2003
   subsection 53
   subsection 53(2)
   subparagraph 11(1)(b)(i)

Case References:
Chief Executive Officer of Customs v. WMC Resources Ltd (as agent for East Spar Alliance)
   (1998) 87 FCR 482

Related Public Rulings (including Determinations)
Product Grant and Benefit Ruling PGBR 2003/3

Keywords
EGCS electricity generation
EGCS mining operation
EGCS off-road diesel
EGCS payments
EGCS power stations
EGCS sundry mining activity
Energy grants (credits) scheme

Business Line:  Indirect Tax

Date of publication:  15 October 2004

ISSN: 1445-2782