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Edited version of your written advice

Authorisation Number: 1012935129074

Date of advice: 13 January 2016

Ruling

Subject: Fuel Tax Credits - Deductive Method

Question

Is the use of the deductive methodology in determining its entitlement to a fuel tax credit (FTC) for fuel purchased and used in mine operations considered to be fair and reasonable?

Answer

Yes

Relevant facts and circumstances

You operated a fleet of support, logistical and construction vehicles at the mine site during 20XX and 20YY.

You were contracted to provide mining support, transport and construction works at the mining site.

The contract involved the construction of internal roads, diversion channels, fencing and building a temporary accommodation camp at the site and on the mining lease.

You purchased X litres of diesel fuel during the period from your supplier.

The fuel was delivered into on-site tanks. The diesel fuel was dispensed from your on-site fuel tanks into your construction vehicle fleet for the use of 'off-road' operations.

You sold X litres of diesel fuel at the completion of the contract.

The balance of the diesel fuel was consumed by you in mining activities.

Relevant legislative provisions

Fuel Tax Act 2006

Subsection 41-5(1)

Fuel Tax (Consequential and Transitional Provisions) Act 2006

Item 11

Energy Grants (Credits) Scheme Act 2003

Subsection 11(1)

Paragraph 11(1)9a)

Paragraph 11(1)(b)

Section 53

Reasons for decision

Apportioning fuel for tax credits

Subsection 41-5(1) of the Fuel Tax Act 2006 (FTA) provides that an entity is:

The Commissioner has considered the implications of the phrase 'to the extent that' for the purposes of entitlement to a fuel tax credit in FTD 2010/1 Fuel tax: is apportionment used when determining total fuel tax credits in calculating the net fuel amount under section 60-5 of the Fuel Tax Act 2006? (FTD 2010/1)

At paragraph 5 of FTD 2010/1 the Commissioner relevantly states:

At paragraph 6 and 7 of FTD 2010/1 it is explained that the 'fair and reasonable' principle applies in determining the extent of your fuel tax credit entitlement and that you can use any apportionment method that is fair and reasonable in your circumstanced to determine the FTC that is available for the taxable fuel you acquire.

Practice Statement Law Administration PSLA 2010/3: Apportioning fuel for tax credits (PSLA 2010/3) explains how an entity can satisfy the 'fair and reasonable' requirement in determining a fuel tax credit entitlement. Relevantly, at item 5 the application of the deductive method is explained as follows:

You have proposed to adopt the deductive method to calculate your FTC entitlement. You have taken into account the circumstances of your operations when determining that this method is appropriate.

The calculation of your FTC entitlement will be based on deducting the quantity of fuel sold at the completion of your contract from the total taxable fuel acquired. The circumstances you have taken into account include such matters as:

As such the Commissioner considers that the methodology adopted by you (referred to as the deductive method), will provide a 'fair and reasonable' apportionment in determining your FTC entitlement.

Tax Period 1 August 20XX to 30 June 20YY

Section 41-5 of the FTA provides that you are entitled to an FTC for taxable fuel that you acquire for use in carrying on your enterprise. However, for taxable fuel acquired between 1 July 2008 and 30 June 2012 this entitlement is affected by Item 11 of Division 2 of Part 3 of Schedule 3 to the Fuel Tax (Consequential and Transitional Provisions) Act 2006 (Item 11 of the FTCTPA). Item 11 of the FTCTPA operated to limit any FTC entitlement to the specific activities listed in the item and continued the previous entitlements of the Energy Grants (Credits) Scheme Act 2003 (EGCSA).

Sub-item 11(5) of the FTCTPA states that you are not entitled to an FTC under the FTA unless you would have been entitled to an off-road credit under the EGCSA.

Section 53 of the EGCSA provides that, subject to certain conditions and restrictions, you are entitled to an off-road credit if you purchase off-road diesel fuel for a use by you that qualify (in mining operations).

Use in mining operations (otherwise than for the purpose of propelling any vehicle on a public road) is a use that qualifies.

The term mining operations is defined in subsection 11(1) of the EGCSA as:

(ii) the beneficiation of those minerals, or of ores bearing those minerals;

Mining construction activity

A mining construction activity is relevantly defined in paragraph 15(d) of the EGCSA as the construction or maintenance of buildings, plant or equipment, if:

You were contracted during that period to supply a fleet of support, logistical and construction vehicles at the mine site.

Your contract provided the project site with mining support which included construction of internal roads, diversion channels, fencing and building a temporary accommodation camp at the project site. All vehicles and equipment are used and based on the mine site.

Accordingly, any construction activity (as listed above) which is performed at the mine site falls within subsection 11(1) of the EGCSA. Therefore, you satisfy this requirement.

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