Edited version of private ruling

Authorisation Number: 1011544108046

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Subject: Fuel tax credits - Generation of electricity - vessel

Question 1:

Are you entitled to claim a fuel tax credit at the full rate for the use of diesel fuel to power electric generators on board your vessel?

Answer 1:

Yes

Question 2:

Is it fair and reasonable to apportion the amount of diesel fuel that each engine on board your vessel uses in generating electricity by reference to the number of hours of operation and its average fuel burn rate?

Answer 2:

Yes.

Question 3:

Can you attribute fuel tax credits on your next business activity statement (BAS) for fuel used in electricity generation on board your vessel for an earlier period?

Answer 3:

Yes.

Question 4:

Can you attribute fuel tax credits on your next business activity statement (BAS) for fuel used in electricity generation on board your vessel for the period 1 July 2008 to 30 June 2010?

Answer 4:

No.

This ruling applies for the following period/s:

2006 - 07 income year

2007 - 08 income year

2008 - 09 income year

2009 - 10 income year

The scheme commences on:

1 July 2006

Relevant facts and circumstances

In carrying on your enterprise you operate a vessel.

You acquire the diesel fuel for use in the vessel.

Your vessel is powered by a number of diesel engines. These engines are directly coupled to generators. The electricity produced is fed into the vessel's main switchboard, as per schematic diagram attached to your application. Another engine is directly coupled to a generator. This is an emergency generator.

The main electricity grid provides power to most equipment operating on board the vessel, including:

· Lighting

· Grease pumps

· Hydraulic control systems

· Operators desk and controls

· Air compressors

· Fire alarm system

· Navigation lights

· Communications

· Separators

· Fans

· Sewage systems

· Emergency hydraulic pumps, and

· Other residential requirements of the crew.

The vessel does not have a main propulsion unit, but relies on tugs to be moved in relocation.

You have kept records relating to the hours of operation for each of the engines and you have the manufacturer's specifications in relation to fuel consumption that you used to calculate the average fuel burn rate.

You are registered for goods and services tax (GST).

There are two periods where a fuel tax credit has not been claimed.

For the period 1 July 2008 to 30 June 2010 you have claimed fuel tax credits at the half rate for fuel used in the generation of electricity on the vessel.

Relevant legislative provisions:

Fuel Tax Act 2006 section 41-5

Fuel Tax (Consequential and Transitional Provisions) Act 2006 Division 1 of Schedule 3

Fuel Tax (Consequential and Transitional Provisions) Act 2006 Division 2 of Schedule 3

Fuel Tax (Consequential and Transitional Provisions) Act 2006 subparagraph 10(1)(b)(iii) of Schedule 3

Fuel Tax (Consequential and Transitional Provisions) Act 2006 subparagraph 11(1)(b)(iii) of Schedule 3

Fuel Tax Act 2006 subsection 65-5(1)

Fuel Tax Act 2006 subsection 65-5(4)

Energy Grant (Credits) Scheme Act 2003

A New Tax System (Goods and Services Tax) Act 1999

Reasons for decision

Section 41-5 of the Fuel Tax Act 2006 (FTA) provides that you are entitled to a fuel tax credit for taxable fuel that you acquire in Australia to the extent that you do so for use in carrying on your enterprise if you are registered for GST. However, this entitlement is affected by Divisions 1 & 2 of Part 3 of Schedule 3 to the Fuel Tax (Consequential and Transitional Provisions) Act 2006 (FTCTPA) that operate to restrict this entitlement to specific activities for fuel purchased between 1 July 2006 and 30 June 2012, whilst retaining entitlements under the Energy Grant (Credits) Scheme Act 2003 (EGCSA).

Subparagraphs 10(1)(b)(iii) and 11(1)(b)(iii) of Schedule 3 to the FTCTPA provide that an entitlement to a fuel tax credit arises under section 41-5 of the FTA if you acquire taxable fuel for use by you in generating electricity.

Fuel is used for the purpose of generating electricity where the electricity is an end in itself and can in turn be used for any purpose for which electricity is required.

This includes fuel used in generating electricity when it is used in a generator to provide power to a business premises [or vessel] and/or a range of equipment.

Your vessel is powered by a number of diesel engines. These engines are directly coupled to generators. The electricity produced is fed into the vessel's main switchboard, as per schematic diagram attached to your application. Another engine is directly coupled to a generator. This is an emergency generator.

The main electricity grid provides power to most equipment operating on board the vessel, including lighting; hydraulic control systems; desks and controls; air compressors; other residential requirements of the crew etc.

You acquired diesel fuel to use in these engines to power the generators for use in providing power to the equipment operating on board the vessel. This is use of fuel in the generation of electricity as specified in subparagraphs 10(1)(b)(iii) and 11(1)(b)(iii) of Schedule 3 to the FTCTPA. Accordingly, you are entitled to claim a fuel tax credit at the full rate for the use of diesel fuel to power four electric generators on board your vessel.

Apportionment

As stated above, section 41-5 of the FTA provides that you are entitled to a fuel tax credit for taxable fuel that you acquire in Australia to the extent that you do so for use in carrying on your enterprise if you are registered for GST [emphasis added].

The use of the phrase "to the extent that" allows for apportionment of taxable fuel between a use that entitles you to a fuel tax credit and one that does not.

You can use any apportionment method that is 'fair and reasonable' in your circumstances to determine the amount of your fuel tax credit.

In order to show your method was 'fair and reasonable' and appropriate to your circumstances, you need to keep appropriate records that detail how the quantity of fuel was calculated.

The Commissioner accepts that an entity can use any appropriate reliable measure as the basis for calculating the amount of taxable fuel that it acquires for use in an eligible activity. Examples of known reliable measures include:

· odometer readings of kilometres actually travelled

· route distances if a vehicle operates on fixed routes

· kilowatt hours of electricity generated

· hours of operation of a vehicle or equipment, or

· average hourly fuel consumption of vehicle or equipment.

You have used the hours of operation of each of the generators and calculated the average fuel burn rates of each of the engines based on manufacturer's specifications.

Therefore it is considered to be fair and reasonable for you to apportion the amount of diesel fuel that each engine on board the vessel uses in generating electricity by reference to the number of hours of operation and its average fuel burn rate.

Attribution

Subsection 65-5(1) of the FTA provides that a fuel tax credit is attributable to the same tax period to which the input tax credit for the fuel is attributable under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

However, subsection 65-5(4) of the FTA provides for the later attribution of a fuel tax credit in certain circumstances and states:

If your return for a *tax period or a *fuel tax return period states a *net amount that does not take into account a fuel tax credit that is attributable to the period mentioned in subsection (1), (2) or (3), then the credit:

(a) ceases to be attributable to the period; and

(b) becomes attributable to the first period that does take it into account.

The effect of this subsection is that, if an entity does not claim their fuel tax credit in an activity statement for the tax period to which the fuel credit is originally attributable and chooses to claim the fuel tax credit in an activity statement for a subsequent tax period, the fuel tax credit ceases to be attributable to the earlier tax period and instead becomes attributable to the tax period in which the entity ultimately lodges an activity statement that includes the fuel tax credit. Therefore an entity can choose to include a fuel tax credit in a subsequent tax period.

Accordingly, for a number of periods for the fuel for which you have not claimed, you can choose to either revise the earlier BAS under subsection 65-5(1) of the FTA or include the amount in a subsequent period under subsection 65-5(4) of the FTA.

However for the period 1 July 2008 to 30 June 2010 you have already attributed the fuel tax credits to your activity statements. You applied the half-rate of fuel tax credits for this entitlement. Therefore you have already taken the fuel tax credit into account and subsection 65-5(4) of the FTA does not apply. You should revise those earlier BAS to account for the balance of your fuel tax credits calculated at the full rate.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).