Edited version of private advice

Authorisation Number: 1012649264180

Ruling

Subject: Fuel tax credits - taxable fuel

Question

Are you entitled to fuel tax credits for Diesel Emission Fluid (DEF), a urea solution you acquire and use in your heavy vehicles travelling on a public road?

Answer

No.

This ruling applies for the following periods:

1 July 2010 to 30 June 2014

The scheme commences on:

1 July 2010

Relevant facts and circumstances

You are registered for goods and services tax (GST) in the road freight transport industry. You are also registered for fuel tax credits.

As part of your business, you acquire and use diesel fuel in your heavy vehicles. You also acquire and use Diesel Emission Fluid (DEF).

DEF is stored in a separate tank on your vehicles.

New model trucks are required by legislation to be fitted with a Selective Catalytic Reduction (SCR) system which reduces exhaust emissions of the vehicle. The SCR system requires DEF to be added.

You estimate that for every 100 litres of diesel you use in your trucks, you need 5 litres of DEF which costs approximately $1.00 per litre.

You advise that there are plenty of websites that explain what DEF is and one such site is http://www.polydieseltanks.com.au/adblue_def_aus32.htm .

This website states that:

Since January 2011, all new heavy vehicles using diesel in Australia, have been fitted with systems to limit the pollution coming from their exhaust. The most popular system uses DEF or diesel exhaust fluid. In practice this means new heavy diesel vehicles now have two tanks- one for the diesel, and one for the DEF (Diesel exhaust fluid). The DEF tank inlet is blue because the most popular brand of DEF is AdBlue®. AdBlue is NOT a diesel fuel additive. It is used to treat the exhaust, not the diesel fuel. Do not add it to your diesel tank!

Legislation: ADR 80/03 -Emission Control for Heavy Vehicles The function of this Australian Design Rule is to prescribe exhaust emission requirements for heavy vehicles in order to reduce air pollution, the new emissions regulations introduced on 1 January 2011 by the federal government, impose strict standards on Australia's truck companies. To meet the ADR80/03 legislation, nitrogen oxide (NOx) in vehicle exhaust must be extremely low (2.0 grams per kilowatt hour). To meet this Euro 5 international standard, all new heavy vehicles are fitted with a treatment unit. The unit is fitted to the exhaust and uses a mist of aqueous urea (AUS32) and a catalytic reactor chamber to convert the emissions to nitrogen and water.

How does it work? The fluid used in the DEF tank is a 32.5% aqueous solution of urea. Hence the name AUS32 (aqueous urea solution), the most common brand name offered is AdBlue, but it is not the only AUS32 available. There is also CatBlue, NoNox® and Air1®. Any AUS32 that passes the ISO 22241 can be used in your DEF tank. The purity of the solution is very important to the long life of the SCR - selective catalytic reduction chamber. As you can see in the diagram, new vehicles have a separate storage tank where the AUS32 is stored. It is sprayed in the mixer directly onto the exhaust, which changes the NOx gases into ammonia. The SCR chamber converts the pollutants into safe atmospheric nitrogen (N2). The mix works out at about 5% of the diesel usage. That is, for every 100 litres of diesel you need 5 litres of DEF. But this varies depending on how the machinery is used. Urea and AUS32 are corrosive, so your external storage tank and delivery system must be purpose built for this use. Ours uses urea-grade polyethylene, stainless steel fittings, and a urea compatible pump.

Relevant legislative provisions

Fuel Tax Act 2006 section 2-1

Fuel Tax Act 2006 section 41-5

Fuel Tax Act 2006 section 110-5

Excise Act 1901

Excise Tariff Act 1921

Customs Act 1901

Customs Tariff Act 1995

Reasons for decision

Section 2-1 of the Fuel Tax Act 2006 (FTA) explains that the FTA provides a single system of fuel tax credits which are paid to reduce or remove the incidence of the fuel tax levied on taxable fuels with a view to fuel tax only being applied to:

1. fuel used in private vehicles and certain private purposes; and

2. fuel used on-road in light vehicles for business purposes.

Section 41-5 of the FTA states that you are entitled to a fuel tax credit for taxable fuel that you acquire for use in carrying on your enterprise if you are registered for GST.

Therefore, for an entitlement to a fuel tax credit under the FTA, you must first acquire taxable fuel and then use it in an eligible activity in carrying on your enterprise.

Taxable fuel is defined in section 110-5 of the FTA as:

(a) fuel in respect of which duty is payable under:

(i) the Excise Act 1901 and the Excise Tariff Act 1921; or

(ii) the Customs Act 1901 and the Customs Tariff Act 1995;

or

(b) compressed natural gas, liquefied petroleum gas, or liquefied

natural gas, that is subject to the carbon pricing mechanism

(within the meaning of subsection 42A-5(3) or (4));

but does not include fuel covered by:

(c) item 15, 20 or 21 of the Schedule to the Excise Tariff

Act 1921; or

(d) any imported goods that would be classified to item 15 of the

Schedule to the Excise Tariff Act 1921, if the goods had been

manufactured in Australia………

Neither DEF nor its various trade names is subject to duty as a fuel under any of these Acts and therefore is not a taxable fuel for the purposes of section 41-5 of the FTA.

Moreover, DEF is not a fuel. This is supported by the fact that the product is distributed into the exhaust of heavy vehicles rather than the engine.

As we have determined that DEF is not a taxable fuel, you are not entitled to fuel tax credits for its acquisition and use in your heavy vehicles travelling on public roads.

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).