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Edited version of your written advice
Authorisation Number: 1051256242264
Date of advice: 7 August 2017
Ruling
Subject: Fuel tax credits - apportionment
Question 1
Is the methodology applied by an entity in calculating FTC entitlements for the purposes of section 41-5 of the Fuel Tax Act 2006 (FTA) fair and reasonable and consistent with ATO guidelines and pronouncements?
Answer
Yes
This ruling applies for the following periods:
1 July 2013 to 31 May 2017
The scheme commences on:
1 July 2013
Relevant facts and circumstances
The entity owns and operates much of the equipment used in its operations, however utilises the services of contractors and contractors’ equipment.
Fuel is used predominantly in heavy and light vehicles and other construction equipment.
The entity is undertaking a review of its previous FTC entitlements (the Review).
Review of the entity’s methodology
During the Review Period the entity originally used the constructive methodology to claim FTCs in respect of an amount of diesel fuel used in their enterprise.
The entity conducted a review of their circumstances during the Review Period.
In calculating the entity’s FTC entitlements they adopted the following process:
● Quantification of the total amount of fuel acquired by the entity during the Review Period.
● Consideration of the extent to which the fuel was for use in the entity’s business activities.
● Consideration of the extent to which the entity has previously claimed FTCs for the fuel.
● Consideration of the circumstances which may disentitle the entity to claim FTCs.
● Recalculation of the entity’s FTC entitlements under the deductive method.
● Calculation of the quantum of unclaimed fuel and application of the relevant FTC rates to that fuel.
Fuel usage
The entity confirmed that all of the taxable fuel acquired by during the Review Period was used for carrying on their enterprise.
In carrying out these activities, fuel is consumed in various pieces of equipment.
The entity owns and operates much of the equipment on-site, however, the entity also utilises the services of some contractors and their equipment. All fuel issued to contractors during the Review Period was free issued.
During the Review Period, there was some travel on public roads. Because of this, and in order to ensure that all ineligible fuel is appropriately accounted for, the entity excluded all amounts of diesel fuel that was issued to light vehicles.
It was customary in the entity’s business for all light trucks and heavy vehicles to remain on-site at all times.
Fuel Acquisition
During the Review Period, the entity only acquired fuel for carrying out its business activities from two suppliers (the 'Suppliers’).
The fuel was delivered to several tanks the entity had on-site.
The entity keeps tax invoices for all fuel charged by the Suppliers for each month of the Review Period. Each tax invoice is supported by delivery dockets and purchase order numbers and reconciled with payments. Each tax invoice states the exact volume of fuel acquired, enabling the entity to quantify the total volume of fuel acquired.
The entity retained ownership of the fuel at all times, meaning the fuel is not sold to contractors or otherwise disposed of.
Fuel lost or stolen
The entity had no known cases of its fuel being lost or stolen during the Review Period.
Fuel spilt
During the Review Period, there were instances where fuel was spilt. Records kept by the entity indicated the exact amount of diesel fuel spilt during the Review Period.
The entity took this into account and excluded the amount of spilt fuel from their FTC entitlement calculations.
Disposal of fuel
The entity did not dispose of any of its taxable fuel acquired during the Review Period. All fuel issued to contractors was free issues and that were no instances where the contractors where backcharged for the fuel they were issued.
Relevant legislative provisions
Fuel Tax Act 2006, section 41-5
Fuel Tax Act 2006, section 41-20
Fuel Tax Act 2006, section 43-8 (Repealed on 1 July 2014)
Fuel Tax Act 2006, subsections 47-5(1) and (2)
Fuel Tax Act 2006, subsection 65-5(1)
Detailed reasoning
Subsection 41-5(1) of the FTA provides that an entity is entitled to a fuel tax credit for taxable fuel they acquire for use in their enterprise. The entity must be registered for GST at the time of acquisition of the fuel. The subsection refers to taxable fuel acquired “to the extent that” it is acquired for use in the enterprise.
In FTD 2010/1, the Commissioner explains that the phrase “to the extent that” in subsection 41-5(1) of the FTA indicates that the FTA contemplates the requirement to apportion taxable fuel that is acquired for uses that either disentitles an entity to an FTC or gives rise to different rates of FTC for the fuel.
Relevantly, paragraphs 6 and 7 of FTD 2010/1 explain that the apportionment must be “fair and reasonable in your circumstances”. Paragraph 8 of FTD 2010/1 confirms that where there is more than one fair and reasonable way of apportioning fuel, an entity may choose any method as long as it is fair and reasonable in the entity’s circumstances.
Historically, the entity had applied the constructive method of apportionment. Under the review, it has been determined that the deductive method is the preferred method of apportionment. Paragraph 8 of FTD 2010/1 supports the conclusion that an alternate method of apportionment may be applied. However, it must be determined if this method provides a fair and reasonable apportionment in the entity’s circumstances.
Paragraph 14 of PCG 2016/8 explains the deductive method and how an entity can satisfy the 'fair and reasonable’ requirement in determining a FTC entitlement:
Using the deductive method, the apportionment will be fair and reasonable where the total quantity of taxable fuel acquired is determined by reference to the supplier’s documentation or other relevant documentation.
The following matters were taken into account by the entity in determining that the deductive method of apportionment was appropriate in their circumstances:
● Quantification of the total amount of fuel acquired by the entity during the Review Period (with reference to 'fuel delivery reports’ provided by the Suppliers);
● Consideration of the extent to which the fuel was for use in the entity’s business activities;
● Consideration of the extent to which the entity has already claimed FTCs for the fuel under the constructive method (with reference to the entity’s records);
● Consideration of the circumstances which may disentitle the entity to FTCs (with reference to spill incident records);
● That the entity maintained ownership of fuel that it issued freely to contractors during the Review Period and did not backcharge them for its use; and
● Calculation of the quantum of unclaimed fuel and application of the relevant FTC rates to that fuel.
The quantity of fuel acquired by the entity has appropriately been reduced by the amount of fuel:
● Claimed in previous FTC claims;
● Used in activities that do not give rise to an entitlement to FTCs; and
● Fuel which is disentitled to FTCs (i.e. spilt, lost, or otherwise disposed of)
Whilst it is understood that some fuel was used in business activities that included travel of light vehicles on public roads, this fuel has been identified by the entity (on conservative estimate) as being ineligible and has not been taken into account when calculating their FTC entitlement under the deductive method. Reducing the quantity of fuel by all the fuel used by light vehicles, when only some fuel use may not be entitled, does not cause the apportionment not to be fair and reasonable.
Taking the above matters into account, it is considered that the deductive method as applied to determining the entity’s FTC entitlements arising during the Review Period is consistent with the guidelines set out in PCG 2016/8 and FTD 2010/1.
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