ATO Interpretative Decision

ATO ID 2005/1

Excise

• This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is an entity entitled to an off-road credit under paragraph 53(4)(a) of the Energy Grants (Credits) Scheme Act 2003 (EGCSA) for the diesel fuel that they purchase and use in generating electricity that they supply to another enterprise in close proximity to their own premises?

Decision

No. An entity is not entitled to an off-road credit under paragraph 53(4)(a) of the EGCSA for the diesel fuel that they purchase and use in generating electricity that they supply to another enterprise in close proximity to their own premises.

Facts

An entity (entity A) operates an enterprise which has, as its principal purpose, the retail sale of goods or services.

Within the grounds where entity A carries on its own enterprise, it leases premises to another entity (entity B). Entity B carries on, at the leased premises, an enterprise that has, as its principal purpose, the retail sale of goods or services or the provision of hospitality.

Entity A, which purchases the diesel fuel and uses it to generate electricity, provides electricity free of charge to entity B.

Neither entity has ready access to a commercial power supply.

Reasons for Decision

Subsection 53(1) of the EGCSA states that an entity is entitled, subject to certain prescribed conditions, to an off-road credit if they purchase diesel fuel for a use by them that qualifies.

Paragraph 53(4)(a) of the EGCSA provides that the following is a use that qualifies:

... use at particular premises to generate electricity for use in the course of carrying on, at those premises, an enterprise that:

(i)

has, as its principal purpose, the retail sale of goods or services (other than electricity) or the provision of hospitality; and

(ii)

does not have, at those premises, ready access to a commercial supply of electricity ...

Paragraph 53(4)(a) refers to use at 'particular premises' to generate electricity for use in the course of carrying on at 'those' premises an enterprise that meets certain requirements.

The presence of the phrase 'particular premises' in paragraph 53(4)(a) can be contrasted with the wording in paragraph 53(4)(b) of the EGCSA under which diesel fuel used at residential premises to generate electricity is eligible for an off-road credit.

Under paragraph 53(4)(b), an entity may be entitled to an off-road credit for the diesel fuel they use to generate electricity at a number of residential premises, provided that it can be said that the generator is 'at' each residential premises.

However, paragraph 53(4)(a) is more restrictive and requires the diesel fuel to be used at the particular premises where the resultant electricity will be used to carry on an enterprise that meets certain tests.

In this instance there are two distinct enterprises being carried on by two distinct entities. As the two enterprises are being carried on within the same grounds it could be argued that the entire area comprises a single 'premises'.

However, as this particular provision is focused on allowing an entity to be eligible for an off-road credit for the diesel fuel they purchase for use in carrying on, at particular premises, an enterprise that meets certain tests - the phrase 'particular premises' refers to the premises used by that particular entity to carry on their particular enterprise. Where the enterprise being carried on is a business, the 'particular premises' would refer to the 'business premises' of each entity.

In this instance, although two enterprises are being carried on in the same grounds, some premises are used by the entity that has purchased the diesel fuel to generate the electricity, and some premises are used by the entity that has leased them for the purposes of carrying on their own enterprise. Consequently, in this instance there are two business premises - even though the premises are in close proximity.

Therefore, the entity that has purchased the diesel fuel for use at particular business premises to generate electricity is only entitled to an off-road credit to the extent to which the power is for use in those particular business premises. However, no entitlement to an off-road credit exists under paragraph 53(4)(a) to the extent to which the diesel fuel is used to generate power for use in different business premises, regardless of whether or not those premises are in close proximity.

The energy grants (credits) scheme essentially replaces and replicates many of the provisions and entitlements of the diesel fuel rebate scheme which was administered under the Customs Act 1901 and the Excise Act 1901. The activities covered by paragraph 53(4)(a) of the EGCSA replicate identical provisions in the Customs Act and Excise Act.

Consequently, statements made in the Explanatory Memoranda about the provisions as they were inserted or amended in the Customs Act or Excise Act remain pertinent.

The distinction between the generation of power for use in one's own premises versus the generation of power for use in other premises is supported by the Explanatory Memorandum to the Diesel Fuel Rebate Scheme Amendment Bill 2002 which states:

There is no requirement that the enterprise that generates the electricity has to be the sole user of the electricity. However rebate is only payable for the diesel fuel used to generate that portion of electricity that the enterprise itself actually uses.

Example 1.1

South Seas Pty Ltd operates a tourist resort in a remote part of Western Australia that does not have ready access to a commercial supply of electricity. It uses diesel fuel to generate power for its own use in van sites, motel accommodation, a retail store and residential accommodation. It also provides power to nearby private residences and businesses who have no other access to electricity.

South Seas Pty Ltd is eligible for a rebate for diesel fuel used to generate electricity for its own business ... Diesel fuel used in generating electricity for supply to the private residences and other businesses, however, is not eligible for a rebate as the electricity is not used by South Seas Pty Ltd. South Seas Pty Ltd can determine the amount of fuel eligible for a rebate by apportioning the total amount of fuel used in the generator on the basis of the amount of electricity generated for use in its enterprise, compared to the total amount of electricity generated.

Therefore an entity is not entitled to an off-road credit under paragraph 53(4)(a) of the EGCSA for the diesel fuel that they purchase and use in generating electricity that they supply to another enterprise in close proximity to their own premises.

Legislative References:
Energy Grants (Credits) Scheme Act 2003
   subsection 53(1)
   paragraph 53(4)(a)
   paragraph 53(4)(b)

Keywords
EGCS off-road
EGCS use to generate electricity
EGCS use to generate electricity at a retail/hospitality enterprise

Business Line:  Excise

Date of publication:  14 January 2005

ISSN: 1445-2782