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Edited version of private ruling

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Ruling

Subject: Fuel tax credits - electricity generation

Question 1

Is the use of diesel fuel in powering the main generators to generate electricity on board a vessel an eligible activity for fuel tax credits?

Answer

Yes.

Question 2

Is the use of diesel fuel in powering the auxiliary generator-set to generate electricity on board a vessel an eligible activity for fuel tax credits?

Answer

Yes.

Question 3

Is the use of diesel fuel to power the emergency generator-set to generate electricity on board a vessel an eligible activity for fuel tax credits?

Answer

Yes.

Period the ruling applies to:

2007-2008 income year

2008-2009 income year

2009-2010 income year

2010-2011 income year

Commencement date of scheme:

1 July 2007

Relevant facts and circumstances

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

You perform marine service operations for a project. You used a vessel to conduct these operations.

You have advised that the vessel used diesel and is powered by the following machinery:

The electricity generated from all generators is fed into the vessel's main electricity grid via a main switchboard.

This electricity grid then provides power to all equipment operating on board the vessel (other than the variable pitch propellers which operate via a reduction gearbox).

You have advised that the vessel's operational processes can include:

The variable pitch propellers operate via reduction gearboxes and can be progressively set to zero pitch whilst the engines are running to power the generators when the vessel is stationary or performing specific operations. You state that this indicates the functions of propulsion and electricity generation are distinct and separate activities.

Therefore, you state that any fuel used to drive the propellers of the vessel is not considered to be for the purposes of electricity generation and as such you will not be entitled to claim fuel tax credits for this portion.

You advise that the emergency generator is only operated on occasions where there is a failure in the main and/or auxiliary generators.

You have stated that you are seeking an opinion on whether the use of fuel is a fully eligible activity. You are not seeking comments on other elements which must be necessary to claim a fuel tax credit, such as acquisition.

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)

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

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 and 2 of Schedule 3 to the Fuel Tax (Consequential and Transitional Provisions) Act 2006 (FTCTPA) which 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 Grants (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 a 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.

The vessel is powered by main engines, directly coupled to generators. It is also powered by an auxiliary generator and emergency generator set.

The electricity generated from all generators is fed into the vessel's main electricity grid via a main switchboard. This electricity grid then provides power to all equipment operating on-board the vessel.

Main generators

All power generated by the two main generators is fed directly into the main electrical grid of the vessel via the main switchboard. This electricity is then distributed as needed to power all of the electrically driven equipment on board the ship.

All equipment on board the vessel, other than the propellers which are variably driven by the engine, is powered by the two main generators.

The variable pitch propellers operate via reduction gearboxes and can be progressively set to zero pitch whilst the engines are running to power the generators when the vessel is stationary or performing specified operations. You state that this indicates that the functions of propulsion and electricity generation are distinct and separate activities.

You use diesel fuel to power the main engines, which are each directly coupled to generators for the generation of electricity on board the vessel. This meets the requirement that the fuel is for the purposes of electricity generation within subparagraphs 10(1)(b)(iii) and 11(1)(b)(iii) of Schedule 3 to the FTCTPA.

Accordingly, the use of diesel fuel in powering the two main generators to generate electricity on board a vessel is an eligible activity for fuel tax credits.

Auxiliary generator

Unlike the main generator, the auxiliary generator does not provide any direct drive propulsion to the vessel.

All power generated by the auxiliary generator is fed directly into the main electrical grid of the vessel via the main switchboard. This electricity is then distributed as needed to power all of the electrically driven equipment on board the vessel.

As the auxiliary generator does not contribute in any way to the propulsion of the vessel all fuel consumed is used solely for the purpose of powering the auxiliary generator. As such, all fuel consumed by the auxiliary generator is used in the activity of electricity generation within subparagraphs 10(1)(b)(iii) and 11(1)(b)(iii) of Schedule 3 to the FTCTPA.

Accordingly, the use of diesel fuel in powering the auxiliary generator-set to generate electricity on board a vessel is an eligible activity for fuel tax credits.

Emergency generator

When required, the vessel is also powered by an emergency generator set. This generator-set does not provide any direct drive propulsion to the vessel.

The emergency generator is only operated on occasions where there is a failure in the main and/or auxiliary generators. It is used solely for the purpose of providing electricity to the vessel and does not provide any direct drive propulsion to the vessel.

As the emergency generator does not contribute to the propulsion of the vessel, all fuel consumed by the engine is used solely for the purpose of powering the emergency generator. All fuel consumed by the emergency generator is used in the activity of electricity generation within subparagraphs 10(1)(b)(iii) and 11(1)(b)(iii) of Schedule 3 to the FTCTPA.

Accordingly, the use of diesel fuel to power the emergency generator-set to generate electricity on board a vessel is an eligible activity for fuel tax credits.

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