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Ruling

Subject: Biodiesel use in Electricity Generation

Question 1

For B100 biodiesel purchased under bond and used to generate electricity, for use in an enterprise, what is the grant amount under the Energy Grants (Cleaner Fuels) Scheme Act 2004 (EGCFS Act) that you can claim?

Answer

The amount of cleaner fuel grant under the EGCFS Act (grant) to which you are entitled to in relation to a quantity of biodiesel (B100) is the volume of biodiesel in litres multiplied by the relevant excise duty rate at the time the fuel is entered into home consumption.

Question 2

What is the rate of excise duty for the B100 biodiesel when used by you to generate electricity?

Answer

The excise duty rate for biodiesel is prescribed under sub-item 10.21 in The Schedule to the Excise Tariff Act 1921 (Tariff Act). The current rate of excise duty as at 31 October 2014 is $0.38143 per litre.

Question 3

For a 20:80 biodiesel to diesel blend (B20) manufactured by you and used to generate electricity, what is the grant amount under the EGCFS Act that can be claimed?

Answer

The amount of grant that you are entitled to in relation to a quantity of biodiesel in a B20 biodiesel blend is the volume of B20 in litres, multiplied by 20% and further multiplied by the biodiesel duty rate at the time the blend was entered.

Question 4

What is the amount of excise duty payable for a B20 biodiesel blend manufactured from under bond B100 and duty paid diesel when entered into home consumption?

Answer

The amount of excise duty payable for a B20 biodiesel blend manufactured from under bond B100 and duty paid diesel when entered into home consumption is worked out under Section 6G of the Tariff Act. As at 31 October 2014 this equates to $0.38143 per litre for the entire B20 blend minus any previous duty paid on any constituent of the blended.

Question 5

What is the fuel tax credit amount that you may claim for the use of B20 in generating electricity?

Answer

The fuel tax credit amount that you may claim for the use of B20 in electricity generation as worked out under subsection 43-7(2) of the Fuel Tax Act 2006 (Fuel Tax Act) is the effective diesel excise duty rate for the entire quantity of B20 used. Currently as at 31 October 2014 the effective diesel excise duty rate is $0.38143 per litre.

Question 6

What is the carbon reduction amount for the period of July 1^st 2014 to June 30^th 2015 that would apply on a B20 fuel blend when working out the fuel tax credit amount?

Answer

As the carbon charge was removed for fuel acquired or manufactured from July 1st 2014 there is no carbon reduction amount for the period of July 1^st 2014 to June 30^th 2015.

Question 7

What is the fuel tax credit amount that you may claim for a biodiesel blend used in generating electricity, where the proportion of biodiesel in the blend exceeds 20% (B20)?

Answer

The fuel tax credit amount for a biodiesel blend used in electricity generation, where the proportion of biodiesel in the blend exceeds 20% (B20) is worked out under subsection 43-7(3) of the Fuel Tax Act. The effective fuel tax amount equates to the excise duty rate for a blend of diesel and biodiesel on the day it was entered for home consumption minus the grant amount paid on the biodiesel portion contained in the blend. In effect, a fuel tax credit can only be claimed for the taxable diesel portion of the blend.

This ruling applies for the following period:

01 July 2014 to 30 June 2015.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

An excise licensed entity purchases mineral diesel (supplied duty paid) and B100 biodiesel (supplied under bond and on which no previous grant has been claimed) for use in an internal combustion engine generator to produce electricity for their enterprise.

Both the mineral diesel and B100 fuels meet their applicable fuel quality standards.

The entity also intends to produce a B20 biodiesel blend by blending 80% mineral diesel with 20% biodiesel (B100) for use in generating electricity on their licensed premises.

Relevant legislative provisions

Energy Grants (Cleaner Fuel) Scheme Act 2004 Section 4,

Energy Grants (Cleaner Fuel) Scheme Act 2004 Section 5,

Energy Grants (Cleaner Fuel) Scheme Regulations 2004 Regulation 3,

Energy Grants (Cleaner Fuel) Scheme Regulations 2004 Regulation 7,

Excise Tariff Act 1921 section 6G,

Fuel Tax Act 2006 Section 43-7 and

Fuel Tax Regulations 2006 Regulation 43-7.

Reasons for decision

Question 1

For B100 biodiesel purchased under bond and used to generate electricity, for use in an enterprise, what is the grant amount under the EGCFS Act that you can claim?

Detailed reasoning

Section 5 of the EGCFS Act details the requirements to be provisionally entitled to a cleaner fuel grant (grant).

You are eligible to claim a grant if:

• you are registered for the cleaner fuels grants scheme

• you are an importer, manufacturer or a licensed person who acquires the fuel

• the fuel is an eligible cleaner fuel

• the cleaner fuel meets the applicable fuel quality standard under the Fuel Quality Standards Act 2000 or complies with a variation given by the Minister for the Environment,

• you are the last licensed person in the distribution chain, and at the qualifying time you either: 

• enter the fuel for home consumption, or

• consume the fuel in your business operations.

• There is no other provisional entitlement for the fuel

In the above facts, you have an excise manufacturer license, are registered for the cleaner fuels grants scheme and have purchased a quantity of biodiesel (B100) that complies with the applicable fuel standard. The fuel is purchased under bond, meaning no excise duty has been paid on it and it is used without further blending. There are no other EGCFS entitlements for the fuel that can be claimed by any other entity.

Section 5 of the EGCFS Act does not place any limitation on how the fuel is to be used in order for an entitlement to the grant. Therefore the use or consumption of the fuel for generating electricity will meet the criteria for eligibility to a grant.

Subsection 8(1) of the EGCFS Act prescribes that the amount of the grant for a quantity of biodiesel is worked out in accordance with the regulations by reference to biodiesel's excise duty rate.

Regulations 6 and 8 of the EGCFS Regulations prescribe that where a licensed person enters (or consumes) a quantity of biodiesel, the amount of grant to which a claimant is entitled to is:

(V x duty rate) - previous grant

Where V means the volume, in litres, of the biodiesel corrected to 15°C.

Therefore, the amount of grant to which you are entitled to in relation to a quantity of biodiesel (B100) is the volume of biodiesel in litres multiplied by the relevant excise duty rate at the time the fuel is entered for home consumption. The current excise duty rate as at 31 October 2014 is $0.38143 per litre.

Question 2

What is the rate of excise duty for the B100 biodiesel when used by you to generate electricity?

Detailed reasoning

The current excise duty rates for excisable goods are tabled in The Schedule to the Tariff Act. The rate of duty for biodiesel (B100) is listed at sub-item 10.21 in the Schedule. The current excise duty rate as at 31 October 2014 is $0.38143 per litre.

Question 3

For a 20:80 biodiesel to diesel blend (B20) manufactured by you and used to generate electricity, what is the grant amount under the EGCFS that can be claimed?

Detailed reasoning

Analogous to Question 1 above, the requirements of section 5 of the EGCFS Act must be met for you to be provisionally entitled to a cleaner fuel grant.

Section 4 of the EGCFS Act defines a cleaner fuel as:

(a) biodiesel or renewable diesel; or

(b) a fuel (including a fuel blend) prescribed by the regulations that complies with each applicable fuel standard for such fuel.

Regulation 4 of the Energy Grants Cleaner Fuels Scheme Regulations 2004 (EGCFS Regulations) prescribes a biodiesel blend as a cleaner fuel for subsection 4(1) of the EGCFS Act.

Regulation 3 of the EGCFS Regulations defines that a biodiesel blend means fuel:

(a) for use in an internal combustion engine; and

(b) that is a blend, in any proportion, of:

i. biodiesel; and

ii. diesel that, if used as automotive diesel, would comply with the applicable fuel standard for automotive diesel.

As both the biodiesel and diesel meet their respective applicable fuel standards and the final B20 fuel blend is used in an internal combustion engine (for generating electricity), you meet all the requirements to be entitled to a cleaner fuel grant for the B20 blend.

Subsection 8(1A) of the EGCFS Act prescribes that for a quantity of a 'cleaner fuel' (not covered by Subsection 8(1)), the amount of the grant is worked out in accordance with the regulations.

Regulation 7 of the EGCFS Regulations provides that for subsection 8(1A) of the Act the amount of grant to which a claimant is entitled in relation to a quantity of biodiesel blend is:

(V x biodiesel% x biodiesel rate) - previous grant

where:

V means:

(a) the volume, in litres, of the biodiesel blend; or

(b) if regulation 8 applies to the claimant - the volume, in litres, of the blend, worked out in accordance with subregulation 8 (2).

biodiesel % means the percentage, by volume, of biodiesel in the blend.

biodiesel rate means the rate that would have been the duty rate for the quantity of biodiesel in the blend, if the quantity of biodiesel were taken to have been entered as a cleaner fuel at the time when the blend is entered.

previous grant means the total amount of cleaner fuel grant worked out in relation to any of the biodiesel, contained in the quantity of biodiesel blend, for which any provisional entitlements arose before the qualifying time under section 5 of the EGCFS Act.

Therefore, the amount of grant to which you are entitled in relation to a quantity of B20 biodiesel blend is the volume of B20 in litres, multiplied by 20% and further multiplied by the biodiesel excise duty rate at the time when the blend is entered. The current excise duty rate for biodiesel as at 31 October 2014 is $0.38143 per litre.

Question 4

What is the amount of excise duty payable by you for a B20 biodiesel blend manufactured from under bond B100 and duty paid diesel when entered into home consumption?

Detailed reasoning

The current excise duty rates for excisable goods are tabled in The Schedule to the Tariff Act. The rate of duty for blends of diesel and biodiesel listed at sub-item 10.12 in the Schedule is worked out under Section 6G of the Tariff Act.

As of 31 October 2014, section 6G of the Tariff Act prescribes the following steps to work out the amount of duty payable on a blend:

Step 1. Add up the amount of duty that would be payable on each constituent of the blended goods, that is classified to item 10 of the Schedule, if the constituent had not been included in the blended goods.

Step 2. Work out the volume, in litres, of the blended goods that is not attributable to those constituents or to water added to manufacture the blended goods.

Step 3. Multiply the result of step 2 by $0.38143.

Step 4. Total the results of steps 1 and 3.

Step 5. Subtract from the total any duty paid on a constituent of the blended goods that is classified to item 10 or 15 of the Schedule.

As such the amount of duty payable for a B20 blend manufactured from under bond B100 and duty paid diesel is $0.38143 per litre for the entire B20 blend minus any previous duty paid on any constituent of the blend. In effect, excise duty is payable on any constituent of the blend on which duty has not been previously paid.

Question 5

What is the fuel tax credit amount that you may claim for the use of B20 in generating electricity?

Detailed reasoning

The fuel tax credit amount that you may claim for the use of B20 in electricity generation is worked out under subsection 43-7(2) of the Fuel Tax Act.

Subsection 43-7(2) of the Fuel Tax Act prescribes:

The effective fuel tax for taxable fuel that:

(a) is a blend of biodiesel and one or more other kinds of fuel; and

(b) meets the requirements prescribed by the regulations;

is worked out under subsection 43-5(2) as if the fuel were entirely diesel.

Subregulation 43-7(2) of the Fuel Tax Regulations 2006 (Fuel Tax Regulations) provides that:

For paragraph 43-7(2)(b) of the Fuel Tax Act, a prescribed requirement is that the taxable fuel must:

(a) be a blend of diesel and biodiesel; and

(b) contain an amount of biodiesel that is 20% or less of the total amount of the fuel.

As the B20 biodiesel blend that you will use for generating electricity is a blend of diesel and biodiesel and contains an amount of biodiesel that is 20% or less of the total amount of the fuel, then the effective fuel tax for that fuel is worked out under subsection 43-5(2) of the Fuel Tax Act as if the fuel were entirely diesel.

Subsection 43-5(2) provides that:

The amount of effective fuel tax that is payable on the fuel is the amount (but not less than nil) worked out using the formula:

Fuel tax amount - grant or subsidy amount

where:

fuel tax amount means the amount of fuel tax that was or would be payable on the fuel at the rate in force on the day worked out using the table in subsection (2A).

grant or subsidy amount means the amount of any grant or subsidy, except a grant specified in subsection (3), that was or would be payable in respect of the fuel by the Commonwealth at the rate in force on the day worked out using the table in subsection (2A).

The table in subsection 43-5(2A) of the Fuel Tax Act prescribes that the day used to determine the fuel tax amount and the grant amount if you are registered for Goods and services tax (GST), manufactured and entered the fuel for home consumption the fuel between 30 November 2011 and 1 July 2015 is the day you entered the fuel.

In applying subsection 43-5(2) of the Fuel Tax Act to the quantity of fuel as if it were entirely diesel, the grant or subsidy amount is nil. Thus the amount of effective fuel tax that is payable on all the fuel is the fuel tax amount. The fuel tax amount is the effective diesel excise duty rate. As at 31 October 2014 the effective diesel excise duty rate is $0.38143 per litre.

Therefore the fuel tax credit amount that you may claim for the use of B20 in electricity generation as worked out under subsection 43-7(2) of the Fuel Tax Act is the current effective excise duty rate of $0.38143 per litre for the entire quantity of B20 used.

Question 6

What is the carbon reduction amount for the period of July 1^st 2014 to June 30^th 2015 that would apply on a B20 fuel blend when working out your fuel tax credit amount?

Detailed reasoning

The Clean Energy Legislation (Carbon Tax Repeal) Act 2014 repealed the carbon charge effective from 1^st July 2014. Therefore there is no carbon reduction amount when working out the effective fuel tax under Section 43-5 of the Fuel Tax Act for any fuel acquired or manufactured on or after 1^st July 2014.

Question 7

What is the fuel tax credit amount you may claim for a biodiesel blend used in generating electricity, where the proportion of biodiesel in the blend exceeds 20% (B20)?

Detailed reasoning

The fuel tax credit amount that you may claim for a biodiesel blend used in electricity generation, where the proportion of biodiesel in the blend exceeds 20% (B20) is worked out under subsection 43-7(3) of the FTA.

Subsection 43-7(3) of the Fuel Tax Act prescribes:

The effective fuel tax for taxable fuel:

(a) that is a blend of more than one kind of fuel; and

(b) to which neither subsection (1) nor (2) applies; and

(c) for which you have documentary evidence that satisfies the Commissioner of the actual proportions of the kinds of fuel in the blend;

is worked out under subsection 43-5(2) in accordance with those proportions.

As neither subsection 43-7(1) that deals with ethanol blends or 43-7(2) which deals with biodiesel blends that meet the Fuel Tax Regulations, applies in this instance the effective fuel tax is worked out under subsection 43-5(2) of the Fuel Tax Act in accordance with the proportions of the blend in question.

As detailed in Question 5 above, Subsection 43-5(2) provides that:

The amount of effective fuel tax that is payable on the fuel is the amount (but not less than nil) worked out using the formula:

Fuel tax amount - Grant or subsidy amount

Therefore the effective fuel tax amount that is payable on a biodiesel blend where the proportion of biodiesel in the blend exceeds 20% is the effective excise duty rate for a blend of diesel and biodiesel (as listed in sub-item 10.12 of the Schedule) minus the grant amount paid on the biodiesel portion contained in the blend. In effect, a fuel tax credit can only be claimed for the taxable diesel portion of the blend.

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