Excise guidelines for the fuel industry

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13 OIL RECYCLING

OUR COMMITMENT TO YOU The information in this publication is current at May 2009. This publication is an expression of the Commissioner's opinion on the operation of fuel excise legislation. This publication is not legally or administratively binding on the Commissioner and is not a 'public ruling' for the purposes of Section 105-60 or Division 358 of Schedule 1 to the Taxation Administration Act 1953. The law does not provide for legally binding rulings on fuel excise legislation. If you feel this publication does not fully cover your circumstances, please seek help from the Tax Office or a professional adviser. Since we regularly revise our publications to take account of any changes to the law, you should make sure this edition is the latest. The easiest way to do this is by checking for a more recent version on our website at www.ato.gov.au

13.1 PURPOSE

13.2 INTRODUCTION

13.2.1 WHAT IS OIL RECYCLING?

13.3 POLICY AND PRACTICE

DO I HAVE TO PAY EXCISE ON RECYCLED OIL?

13.3.2 WHAT RECYCLED FUELS ARE NON-EXCISABLE?

13.3.3 HOW DO I WORK OUT THE AMOUNT OF EXCISE DUTY I NEED TO PAY?

13.3.4 WHEN CAN I GET AN EXCISE DUTY REMISSION OR REFUND?

13.3.5 CAN I CLAIM A CREDIT OR BENEFIT FOR THE EXCISE DUTY I HAVE PAID?

13.4 PROCEDURES

13.4.1 WHAT DO I DO IF I NEED MORE INFORMATION?

13.5 WHAT PENALTIES CAN APPLY TO OFFENCES IN RELATION TO OIL RECYCLING?

13.6 TERMS USED

13.7 LEGISLATION (quick reference guide)

13.7.1 Excise Act 1901

13.7.2 Excise Regulations 1925

13.7.3 Excise Tariff Act 1921

13.7.4 Product Grants and Benefits Administration Act 2000

13.7.5 Product Stewardship (Oil) Act 2000

13.7.6 Product Stewardship (Oil) Regulations 2000

13.7.7 Crimes Act 1914

13.1 PURPOSE

This chapter deals with:
  • what constitutes oil recycling
  • how the excise system applies to oil recycling
  • circumstances where duty is not payable on recycled oil, and
  • blending of recycled oil products.

13.2 INTRODUCTION

13.2.1 WHAT IS OIL RECYCLING?

Oil recycling involves the use of processes to convert used oils into saleable products that can be reused. This conversion constitutes excise manufacture and requires an excise manufacturer licence. Some of these products are excisable fuel products.

  For more information about obtaining an excise manufacturer licence see Chapter 2 - Licensing: Applications .
The excise legislation does not define recycling. While this definition does not relate directly to the manufacture of excisable goods, it is our view that to be excise manufacture, there must be some process that alters or transforms waste or used oil for re-use. Merely preparing waste oil for re-use (eg settling or straining for large scale impurities) without processing does not make the end product excisable.

13.3 POLICY AND PRACTICE

13.3.1 HOW DO I KNOW WHEN MY RECYCLING PROCESS ALSO CONSTITUTES EXCISE MANUFACTURE?

Recycling includes filtering, de-watering, separation of contaminants by settlement, centrifuge and refining to treat waste or contaminated oils or fuels.   However, it is noted that these processes can be performed with varying levels of effectiveness depending on the type of equipment or process used. We take the view that the following processes do not constitute recycling:
  • filtering to screen out relatively large solid objects such as nuts, washers and bolts from waste oil or fuel as it is pumped into a truck's collection tank;
  • the removal of water (de-watering) due to settling in a truck's collection tank as part of the collection of waste oil; or
  • de-watering due to settling of waste oil in a tank or other receptacle at workshops, industrial premises or other places where it has been accumulated before being pumped into a truck's collection tank. [252]
Given that the above processes are not recycling, they would not be considered to constitute excise manufacture and no excise licence would be required.

DO I HAVE TO PAY EXCISE ON RECYCLED OIL?

Yes, you must pay excise duty on liquid hydrocarbon products produced through a recycling, manufacturing or other process. [253] This includes products derived from petroleum and non-petroleum sources. You must also pay excise duty on petroleum based oils (including lubricant/fluid/oil products and greases) and their synthetic equivalents that are recycled for use as oils or greases. [254] Excise treatment of blended recycled products depends on whether the blend is an excisable blend or a blend that is not excisable.

  For more information about blending and excisable blends refer to C hapter 11 - Blending .
You need to pay excise on products derived from a petroleum source (for example, used lubricating oil) even if they do not fit into a specific product subitem of the Schedule to the Excise Tariff Act. This is because subitem 10.28 of the Schedule to the Excise Tariff Act covers any product which is not included elsewhere.
Example 13A Mark's Oil Recycling filters and de-waters waste oil (consisting mainly of used engine lubricant oil) to produce an industrial burner fuel. The product does not meet industry product standards for heating oil and is not 'fuel oil' as defined in the Excise Tariff Act. The product is excisable and classified to subitem 10.28 of the Schedule to the Excise Tariff Act.

 

Example 13B Max's manufacturing company uses waste plastic to produce a fuel that meets the diesel standard. The fuel (diesel) is classifiable to subitem 10.10 of the Schedule to the Excise Tariff Act.  

13.3.2 WHAT RECYCLED FUELS ARE NON-EXCISABLE?

Recycled solvents

A recycled solvent product does not attract excise if: [255]
  • the product was originally delivered into the Australian domestic market under subitems 10.25, 10.26, 10.27, 10.28 or 10.30 of the Schedule to the Excise Tariff Act
  • you used the product as a solvent
  • you recycle it for your own re-use as a solvent, and
  • when recycled, the product is classified to its original subitem of the Schedule to the Excise Tariff Act.
Example 13D - solvent recycling that is non- excisable Peter's Spray Shed uses solvents to clean spray painting equipment on a weekly basis.   After two month's use the solvent becomes unusable. The solvents are recycled by Peter's Spray Shed by putting them through a basic filtering process to remove impurities. The recycled solvent is then used for cleaning spray equipment. The recycled solvent does not attract excise duty and Peter's Spray Shed does not require an Excise manufacturer's licence for this recycling.

 

  The exemption does not apply where someone other than the user recycles the solvent.

Recycled oil that will be used to make a non-excisable blend?

Some blended recycled products are non-excisable. Blended products that are not suitable for use in an internal combustion engine are not excisable. However excise duty must be paid on any excisable constituents of the blend.
Example 13E - blend that is non-excisable Mark's Recycling produces low grade burner fuel by recycling waste oil.   The low grade burner fuel is classifiable to subitem 10.28 of the Schedule to the Excise Tariff Act. Mark's Recycling wants to blend the low grade burner fuel with duty-paid diesel to make coal spray oil. Because of the composition of the coal spray oil it cannot be used as a fuel in an internal combustion engine. The coal spray oil is not classified to subitem 10.30 of the Schedule to the Excise Tariff Act as it cannot be used in an internal combustion engine. Even though the coal spray oil is not excisable, Mark's Recycling must pay excise duty on the low grade burner fuel that was used in its production.   The low grade burner fuel is considered to be delivered into the Australian domestic market at the point of blending with the duty paid diesel. Mark's Recycling will need to lodge an excise return and pay the duty liability on the low grade burner fuel.

13.3.3 HOW DO I WORK OUT THE AMOUNT OF EXCISE DUTY I NEED TO PAY?

The amount of excise you're liable to pay depends on the rate of excise on the recycled oil and the quantity of oil you produce.

What is the rate of excise?

The rate of excise you are liable to pay is set out in the Schedule to the Excise Tariff Act.

  For more information refer to Chapter 6 - Payment of Duty .
 
Example 13F A recycler produces a liquid hydrocarbon product that meets industry product standards for heating oil. As their product is classified to subitem 10.15 of the Schedule to the Excise Tariff Act the recycler pays excise duty at the rate of $0.38143 per litre.

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Example 13G An oil recycler filters and de-waters waste oil consisting mainly of used engine lubricant oil. They produce a liquid hydrocarbon product suitable for use as an industrial burner fuel. The product does not meet industry product standards for heating oil and is not 'fuel oil' as defined in the Excise Tariff Act. As their product is classified to subitem 10.28 of the Schedule to the Excise Tariff Act the oil recycler pays excise duty at the rate of $0.38143 per litre.

How do I measure the volume of recycled oil?

If you deliver excisable goods into the Australian domestic market you must accurately measure volumes of recycled oil. This ordinarily means using calibrated tanks or flow meters. If you recycle oil for your own use, you can measure the volume of the recycled oil by using:
  • a properly calibrated flow meter;
  • a formula that determines the volume of output by using historical data from similar oil, or
  • any other similarly accurate method that has been approved at the time your licence was issued. [256]

When do I have to pay excise duty?

  For more information about payment of duty refer to Chapter 6 - Payment of Duty.
Two examples specific to the recycling industry are as follows.
Example 13H Mario's Waste Oil Recycling produces 1,000 litres of diesel fuel from waste oil and sells the product for electricity generation. This product is classified to subitem 10.10 of the Schedule to the Excise Tariff Act and duty is payable on the diesel at the rate of $0.38143 per litre. Mario's Waste Oil Recycling has a periodic settlement permission. Mario's Waste Oil Recycling declares the 1,000 litres on their weekly excise return and pays excise duty of $381.43.

 

Example 13I Pauline's Brickworks holds an excise manufacturer licence to recycle waste oil. It collects 1,500 litres of waste oil and recycles it for use as a burner fuel in their brick kilns. The product is a petroleum based recycled waste oil that cannot be classified to a specific subitem of the Schedule to the Excise Tariff Act. This product is classified to subitem 10.28 of the Schedule to the Excise Tariff Act and excise duty is payable on the recycled waste oil at the rate of $0.38143 per litre. Pauline's Brickworks has a periodic settlement permission. It declares the 1,500 litres on the weekly excise return that is lodged after the product is used in the brick kilns, and pays excise duty of $572.14.

13.3.4 WHEN CAN I GET AN EXCISE DUTY REMISSION OR REFUND?

In certain situations you may be entitled to a refund or remission of the excise duty paid or payable on recycled oils. [257] These circumstances were introduced at the same time as the introduction of the PSO scheme to ensure that oil products that are recycled using relatively simple processes such that no entitlement to a PSO benefit arises are not subjected to the 5.449 cents per litre duty on oils. A remission of duty is available for recycled oil products if:
  • the recycled product is hydraulic oil, brake fluid, transmission oil, transformer oil or heat transfer oil classified to subitem 15.2 of the Schedule to the Excise Tariff Act
  • no PSO benefit is payable
  • the recycled product will be used for the same purpose for which it was used before being recycled (i.e. recycled transmission oil will be used as transmission oil etc), and
  • the recycled product is delivered into the Australian domestic market under a periodic settlement permission.
  A refund of duty is available on recycled oil products if:
  • the recycled product is hydraulic oil, brake fluid, transmission oil, transformer oil or heat transfer oil classified to subitem 15.2 of the Schedule to the Excise Tariff Act
  • no PSO benefit is payable
  • the product has been used for the same purpose for which it was used before being recycled.

  For more information about excise remissions and refunds refer to Chapter 7 - Remissions, refunds, drawbacks and exemptions .

13.3.5 CAN I CLAIM A CREDIT OR BENEFIT FOR THE EXCISE DUTY I HAVE PAID?

If the product of your recycling activities is a taxable fuel [258] (for fuel tax credits purposes) you may be able to claim a fuel tax credit if you use this fuel in your business. You may also be entitled to a benefit under the PSO program for the oil you recycle.

  For more information on:
  • fuel tax credits visit Fuel schemes essentials on our website at www.ato.gov.au
  • PSO benefits, refer to Product stewardship for oil program (NAT 3793) on our website at www.ato.gov.au

13.4 PROCEDURES

13.4.1 WHAT DO I DO IF I NEED MORE INFORMATION?

If you need more information on oil recycling contact us as follows:
  • phone 1300 137 292
  • fax (03) 9285 1168 , or
  • write to us at

    Australian Taxation Office

    PO Box 3001

    PENRITH NSW 2740
We will ordinarily respond to written information requests within 28 days. If we cannot respond within 28 days, we will contact you within 14 days to obtain more information or negotiate an extended response date.

13.5 WHAT PENALTIES CAN APPLY TO OFFENCES IN RELATION TO OIL RECYCLING?

The following are the penalties that may apply after conviction for an offence. Manufacture If you manufacture excisable fuel products without a manufacturer licence, the penalty is a maximum of two years in prison or the greater of 500 penalty units and 5 times the amount of duty on the excisable fuel products. [259] If you manufacture excisable fuel products contrary to the Excise Act or any conditions specified in your licence, the penalty is a maximum of two years in prison or 500 penalty units. [260] If you manufacture excisable fuel products at premises that are not specified in your licence, the penalty is a maximum of two years in prison or the greater of 500 penalty units and 5 times the amount of duty on the excisable fuel products. [261] Move, alter or interfere If you move underbond excisable fuel products without approval, the penalty is a maximum of two years in prison or the greater of 500 penalty units and 5 times the amount of duty on the excisable fuel products. [262] Note: This includes moving underbond excisable fuel products from your premises to any other location or for export. If your movement of underbond excisable fuel products does not comply with the permission to move the underbond excisable fuel products, the penalty is a maximum of two years in prison or the greater of 500 penalty units and 5 times the amount of duty on the excisable fuel products. [263] If you move, alter or interfere with excisable fuel products that are subject to excise control , without permission, the penalty is a maximum of two years in prison or the greater of 500 penalty units and 5 times the amount of duty on the excisable fuel products. [264] Deliver If you deliver excisable fuel products into the Australian domestic market contrary to your permission, the penalty is a maximum of two years in prison or the greater of 500 penalty units and 5 times the amount of duty on the excisable fuel products. [265] Records If you do not keep, retain and produce records in accordance with a direction under section 50 of the Excise Act, the penalty is a maximum of 30 penalty units. Directions If you do not comply with a direction in regard to what parts of the factory can be used for various matters, the penalty is a maximum of 10 penalty units. [266] False or misleading statements If you make a false or misleading statement, or an omission from a statement in respect of duty payable on particular goods, to us, a penalty not exceeding the sum of 50 penalty units and twice the amount of duty payable on those goods. [267] Evade If you evade payment of any duty which is payable, the maximum penalty is 5 times the amount of duty on the excisable fuel products, or where a court cannot determine the amount of that duty the penalty is a maximum of 500 penalty units. [268] Facilities etc. If you do not provide all reasonable facilities for enabling us to exercise our powers under the Excise Act, the penalty is a maximum of 10 penalty units. [269] If you do not provide sufficient lights, correct weights and scales, and all labour necessary for weighing material received into, and all excisable fuel products manufactured in, your factory and for taking stock of all material and excisable fuel products contained in your factory, the maximum penalty is 10 penalty units. [270] If we mark or seal excisable fuel products or fasten, lock or seal any plant in your factory and you alter, open, break or erase the mark, seal, fastening or lock, the maximum penalty is 50 penalty units. [271]

13.6 TERMS USED

Deliver into the Australian domestic market [272]

' Deliver into the Australian domestic market ' is the term we use in this manual for when excisable fuel products are released into domestic consumption. The term used in the legislation is 'deliver for home consumption'.

Normally this will be by delivering the goods away from licensed premises but includes using those goods yourself (for example using the fuel in your own operations). The term 'home consumption' is not defined in the Excise Act and there is no definitive case law that looks at the issue in question. However there are several cases where issues closely related to it are considered. [273] The conclusion drawn from those cases is that 'home consumption' refers to the destination of goods as being within Australia as opposed to exporting them. Excisable fuel products Excisable goods are goods on which excise duty is imposed. Excise duty is imposed on goods that are manufactured or produced in Australia and listed in the Schedule to the Excise Tariff Act. As these guidelines deal with fuel products, we have used the term excisable fuel products. Excisable fuel products include:
  • petrol
  • diesel
  • crude petroleum oil
  • heating oil
  • kerosene
  • fuel ethanol, and
  • biodiesel.
Excise control Goods are subject to excise control from the point of manufacture until they have been delivered into the Australian domestic market or for export. Goods subject to excise control cannot be moved, altered or interfered with except as authorised by the Excise Act. Excise return An excise return [274] is the document that you use to advise us:
  • the volume of excisable fuel products that you have delivered into the Australian domestic market during the period designated on your PSP, or
  • the volume of excisable fuel products that you wish to deliver into the Australian domestic market following approval.
Penalty units A penalty unit is specified in section 4AA of the Crimes Act 1914 and, at the time of writing, is $110. Refund A refund is the repayment of duty that has already been paid. Remission A remission of excise duty extinguishes the liability for duty that was created at the point of manufacture. Section 50 direction This is a written instruction issued under section 50 of the Excise Act to a licensed manufacturer, or proprietor of licensed premises, to keep specified records, furnish specified returns, retain records for a specified period and produce those records on demand by us. Underbond This is an expression not found in excise legislation but it is widely used to describe goods that are subject to excise control. Excisable goods that are subject to excise control are commonly referred to as 'underbond goods' or as being 'underbond'. This includes goods that have not yet been delivered into the Australian domestic market and goods moving between premises under a movement permission.

13.7 LEGISLATION (quick reference guide)

In this chapter we have referred to the following legislation:

13.7.1 Excise Act 1901

Section 24 - Excisable goods and goods liable to duties of Customs may be used in manufacturing excisable goods Section 25 - Only licensed manufacturers to manufacture excisable goods Section 26 - Licensed manufacturers to manufacture in accordance with Act and licence Section 27 - Licensed manufacturers to manufacture only at licensed premises Section 49 - Facilities to officers Section 50 - Record keeping Section 51 - Collector may give directions Section 52 - Weights and scales Section 58 - Entry for home consumption etc. Section 61 - Control of excisable goods Section 61A - Permission to remove goods that are subject to CEO's control Section 61C - Permission to deliver certain goods for home consumption without entry Section 77H - Blending exemptions Section 77J - Goods that are not covered by subitem 10.25, 10.26, 10.27, 10.28 or 10.30 Section 78 - Remissions, rebates and refunds Section 92 - Seals etc. not to be broken Section 117A - Unlawfully moving excisable goods Section 117B - Unlawfully selling excisable goods Section 120 - Offences

13.7.2 Excise Regulations 1925

Regulation 50 - Circumstances under which refunds, rebates and remissions are made

13.7.3 Excise Tariff Act 1921

Section 3 - Definitions The Schedule

13.7.4 Product Grants and Benefits Administration Act 2000

Section 9 - Registration for entitlement to grants or benefits

13.7.5 Product Stewardship (Oil) Act 2000

Section 6 - Definitions

13.7.6 Product Stewardship (Oil) Regulations 2000

Regulation 4 - Amount of product stewardship benefit

13.7.7 Crimes Act 1914

Section 4AA - Penalty units
Excise guidelines for the fuel industry
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