Edited version of private ruling

Authorisation Number: 1011599775297

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Ruling

Subject: Fuel tax credits

Question 1:

Are you entitled to claim a fuel tax credit at the full rate less road user charge (RUC) for diesel fuel you acquire and use in prime movers to transport iron ore from a stockpile to a railway point, when travelling on a private road?

Answer:

Yes.

Question 2:

Are you entitled to claim a fuel tax credit at the full rate for diesel fuel you acquire and use in prime movers to transport iron ore from a stockpile to a railway point, when travelling on a private road?

Answer:

No.

Question 3:

Are you entitled to claim a fuel tax credit at the half rate for diesel fuel you acquire and use in prime movers to transport iron ore from a stockpile to a railway point, when travelling on a private road?

Answer:

No.

This ruling applies for the following period:

2010 - 11 income year

The scheme commences on:

1 July 2010

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.

You are registered for goods and services tax (GST), and are the representative member for a GST group.

A member of your GST group obtained a contract with a mining company to cart iron ore.

The member will haul the iron ore from a stockpile to a railway point via a private road.

You advised that the iron ore will be hauled by prime movers that will have a gross vehicle mass (GVM) of greater than 4.5 tonnes.

You state the prime movers will be road registered vehicles.

You approved the use of information located on your website which indicated your prime movers will have a gross mass when loaded of over 20 tonnes.

Diesel fuel will be used in the prime movers.

You have stated that you will acquire the fuel and that you will not be reimbursed for the fuel costs.

You advised that the iron ore is not subject to any processing at the railway point. However, the iron ore will be subject to blending at a port after it has been transported to the railway point.

At the port, multiple grades of ore are blended to produce a product to a higher specification and thus to produce a saleable product.

You have informed that the blending of the iron ore is undertaken to meet contractual obligations. Without the blending of the various ore grades, the product is not saleable as it will not meet customer's specification.

You are seeking confirmation if you are entitled to a fuel tax credit at the full rate for the diesel you acquire and use in the transport of iron ore as you contend that the blending of the ore falls within the concept of beneficiation, that is, without further treatment, the ore is not a saleable product.

Relevant legislative provisions

Fuel Tax Act 2006 section 41-5

Fuel Tax Act 2006 section 43-10

Fuel Tax Act 2006 subsection 43-10(3)

Fuel Tax Act 2006 section 70-5

Fuel Tax Act 2006 section 70-5 item 1 of column 1

Fuel Tax Act 2006 section 70-5 item 1 of column 2

Fuel Tax (Consequential and Transitional Provisions) Act 2006 Division 2 in Part 3 of Schedule 3

Fuel Tax (Consequential and Transitional Provisions) Act 2006 subitem 11(1) in Part 3 of
Schedule 3

Fuel Tax (Consequential and Transitional Provisions) Act 2006 subitem 11(3) in Part 3 of
Schedule 3

Fuel Tax (Consequential and Transitional Provisions) Act 2006 subitem 11(4) in Part 3 of
Schedule 3

Fuel Tax (Consequential and Transitional Provisions) Act 2006 subitem 11(5) in Part 3 of
Schedule 3

Fuel Tax (Consequential and Transitional Provisions) Act 2006 subitem 11(6) in Part 3 of
Schedule 3

Energy Grants (Credits) Scheme Act 2003 section 8

Energy Grants (Credits) Scheme Act 2003 subparagraph 8(a)(i)

Energy Grants (Credits) Scheme Act 2003 subparagraph 8(a)(ii)

Energy Grants (Credits) Scheme Act 2003 subparagraph 8(a)(iii)

Energy Grants (Credits) Scheme Act 2003 subsection 11(1)

Energy Grants (Credits) Scheme Act 2003 paragraph 11(1)(a)

Energy Grants (Credits) Scheme Act 2003 paragraph 11(1)(b)

Energy Grants (Credits) Scheme Act 2003 subparagraph 11(1)(b)(i)

Energy Grants (Credits) Scheme Act 2003 subparagraph 11(1)(b)(ii)

Energy Grants (Credits) Scheme Act 2003 paragraph 11(1)(c)

Energy Grants (Credits) Scheme Act 2003 subsection 11(3)

Energy Grants (Credits) Scheme Act 2003 paragraph 11(3)(a)

Energy Grants (Credits) Scheme Act 2003 subparagraph 11(3)(b)(i)

Energy Grants (Credits) Scheme Act 2003 subparagraph 11(3)(b)(ii)

Energy Grants (Credits) Scheme Act 2003 subsection 11(5)

Energy Grants (Credits) Scheme Act 2003 paragraph 12(a)

Energy Grants (Credits) Scheme Act 2003 subparagraph 12(a)(i)

Energy Grants (Credits) Scheme Act 2003 subparagraph 12(a)(ii)

Energy Grants (Credits) Scheme Act 2003 subsection 42(1)

Energy Grants (Credits) Scheme Act 2003 paragraph 42(1)(a)

Energy Grants (Credits) Scheme Act 2003 paragraph 42(1)(b)

Energy Grants (Credits) Scheme Act 2003 subsection 42(2)

Energy Grants (Credits) Scheme Act 2003 paragraph 42(2)(a)

Energy Grants (Credits) Scheme Act 2003 paragraph 42(2)(c)

Energy Grants (Credits) Scheme Act 2003 section 53

Energy Grants (Credits) Scheme Act 2003 subsection 53(2)

Reasons for decision

Section 41-5 of the Fuel Tax Act 2006 (FTA) provides that you are entitled to a fuel tax credit for taxable fuel that you acquire in Australia to the extent that you do so for use in carrying on your enterprise if you are registered for GST. However, this entitlement is affected by Division 2 in Part 3 of Schedule 3 to the Fuel Tax (Consequential and Transitional Provisions) Act 2006 (FTCTPA) which operates to restrict this entitlement to specific activities for fuel purchased between 1 July 2008 and 30 June 2012, whilst retaining entitlements under the Energy Grant (Credits) Scheme Act 2003 (EGCSA).

The specific activities are listed in subitem 11(1) in Part 3 of Schedule 3 to the FTCTPA. They are:

§ travel on a public road

§ incidental use in relation to travel on a public road

§ generation of electricity

§ use other than as a fuel

§ burner fuel

§ for use as heating oil.

You will acquire diesel fuel to use in prime movers that will haul iron ore from a stockpile to a railway point travelling on a private road.

Your activity is not considered as one of the specified activities under subitem 11(1) of Part 3 in Schedule 3 to the FTCTPA.

As you do not satisfy subitem 11(1) in Part 3 of Schedule 3 to the FTCTPA, you are not entitled to a fuel tax credit under 41-5 of the FTA unless you meet a condition in subitems 11(3), 11(5) or 11(6) in Part 3 of Schedule 3 to the FTCTPA.

Full rate less road user charge (RUC)

Subitem 11(3) in Part 3 of Schedule 3 to the FTCTPA provides that you are entitled to a fuel tax credit under section 41-5 of the FTA if you would have been entitled to an on-road credit under the EGCSA.

Subsection 42(1) of the EGCSA provides that you are entitled to an on-road credit if you purchase on-road diesel for:

a) use in a registered vehicle that has a gross vehicle mass of 20 tonnes or more; or

b) incidental use in relation to such a vehicle.

Your prime movers will have a gross mass when loaded of over 20 tonnes and are registered vehicles. As such you satisfy these two requirements.

The extent of your entitlement is limited by subsection 42(2) of the EGCSA which requires that the fuel is for use in the carrying on your enterprise, amongst other requirements. As you will be transporting the iron ore as part of carrying on your enterprise, this requirement is satisfied.

Your prime movers will operate on roads in Australia transporting iron ore. You are transporting goods, therefore you satisfy the requirements of paragraph 42(2)(a) of the EGCSA for the use of the on-road diesel you acquire for the operation of the vehicle.

Further, paragraph 42(2)(c) of the EGCSA extends the use of fuel to include incidental use, or any other use of the vehicle that is integral to operating the vehicle on a road in Australia, as mentioned in paragraph 42(2)(a) of the EGCSA (above).

Incidental use is defined in section 8 of the EGCSA as:

a) powering the vehicle, or auxiliary equipment in or on the vehicle, while:

I. goods to be transported in or on the vehicle are loaded or goods that have been so transported are unloaded; or

II. …

III. the vehicle is moved to a place where anything in subparagraph (i) or (ii) is to happen or from a place where any such thing has happened;

…

Your prime movers will haul iron ore from a stockpile to a railway point on a private road. Therefore, the use of diesel in your prime movers for this purpose is an eligible use of fuel under subsection 42(1) of the EGCSA. As such, you are entitled to a fuel tax credit as you have satisfied the requirements of subitem 11(3) in Part 3 of Schedule 3 to the FTCTPA.

However, subitem 11(4) in Part 3 of Schedule 3 to the FTCTPA states that if subitem 11(3) applies to you, you are taken for the purposes of section 43-10 of the FTA to have acquired, manufactured or imported fuel to use, in a vehicle, for travelling on a public road.

Subsection 43-10(3) of the FTA states that to the extent that you acquire taxable fuel to use, in a vehicle, for travelling on a public road, the amount of your fuel tax credit for the fuel is reduced by the amount of the road user charge.

As such, you are entitled to a full tax credit at the full rate less RUC for the diesel fuel you acquire and use in prime movers to transport iron ore from a stockpile to a railway point, when travelling on a private road.

The RUC is subject to change. For fuel tax credit rates, refer to www.ato.gov.au

Full rate

You seek confirmation of an entitlement to a fuel tax credit at the full rate for the diesel you acquire and use in the transport of iron ore as you contend that the blending of the ore falls within the concept of beneficiation, that is, without further treatment, the ore is not a saleable product. Therefore this will be considered.

Subitem 11(5) in Part 3 of Schedule 3 to the FTCTPA provides that you are entitled to a fuel tax credit under section 41-5 of the FTA if you would have been entitled to an off-road credit under the EGCSA.

Section 53 of the EGCSA provides that you are entitled to an off-road credit if you purchase diesel fuel for a use by you that qualifies. Use in mining operations (otherwise than for the purpose of propelling any vehicle on a public road), is a use that qualifies under subsection 53(2) of the EGCSA.

'Mining operations' is defined in subsection 11(1) of the EGCSA as:

(a) exploration or prospecting for minerals, or the removal of overburden and other activities undertaken in the preparation of a site to enable mining for minerals to commence; or

(b) operations for the recovery of minerals, being:

(i) mining for those minerals including the recovery of salts by evaporation; or

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

and includes:

(c) a mining transport activity

…

The term 'mining transport activity' is defined in paragraph 12(a) of the EGCSA as:

(a) if minerals, or ores bearing minerals, are beneficiated at a place other than the mining site as an integral part of operations for their recovery:

(i) the journey undertaken for the purpose of transporting the minerals or ores from the mining site to that place; and

(ii) the return journey of a vehicle, a locomotive or other equipment from that place to the mining site or any part of that journey if it is undertaken for the purpose of repeating a journey referred to in subparagraph (i)

…

Therefore, if the beneficiation of minerals or ores bearing minerals occurs at a place other than the mining site, the off-road transportation of the minerals or ores bearing minerals from the mine site to the place of beneficiation is a mining transport activity under subparagraph 12(a)(i) of the EGCSA.

As such, it needs to be considered whether the transportation of the iron ore in your prime movers is to a place for the beneficiation of minerals, or ores bearing those minerals under subparagraph 11(1)(b)(ii) of the EGCSA.

To determine whether the transportation of the iron ore is to a place where the beneficiation of minerals occurs, it is necessary to consider when the mining operation ceases.

Subsection 11(3) of the EGCSA provides that a mining operation is considered to have ceased when:

…

a. the process of beneficiation ceases; or,

b. in the absence of a beneficiation process-when the mineral, or ores bearing the mineral:

(i) are first stockpiled or otherwise stored at the place at where the mining operation is carried on; or

(ii) if subparagraph (i) does not apply-are removed from the ore body or deposit.

You will cart iron ore from a stockpile to a railway point. You have advised that the iron ore will be subject to blending at a port after it has been transported to the railway point. You stated that the blending is undertaken to meet contractual obligations. Therefore it is necessary to consider whether the blending at the port is beneficiation.

Beneficiation is a technical term applicable to a range of processes undertaken in the mining or metallurgical industries. It is used to describe a treatment to improve, upgrade or concentrate the quality of mineral bearing ore up to, but not including the refining or final pyrometallurgical or hydrometallurgical process whereby metal is produced.

Subsection 11(5) of the EGCSA provides that:

In determining whether a particular process to which a mineral, or ores bearing a mineral, are subjected constitutes beneficiation of that mineral or those ores, regard is to be had to the nature of the technical process involved but no regard is to be had to any market considerations that might affect the decision to subject that mineral or those ores to that process.

Beneficiation of iron ore for the recovery of minerals includes the crushing, screening, flotation, water reduction and sintering process, until the point at which the ore is put in the top of a blast furnace or an electric arc furnace.

The blending of the iron ore at the port is undertaken to meet contractual obligations. Subsection 11(5) of the EGCSA states that in determining what constitutes beneficiation, no regard is to be had to any market considerations. That is, if market forces dictate that a mineral must undergo a certain process to result in a saleable product, this does not necessarily mean that the process will be considered beneficiation. The blending of iron ore at the port does not amount to operations for the recovery of the iron ore from material in which it is embedded, or material adhering to it or intermixed with it. As the blending of the iron ore at the port is to meet contractual requirements, then, those activities, in this instance, do not constitute beneficiation. Consequently, beneficiation is not being undertaken at the port.

Subsection 11(3) of the EGCSA provides that operations for the recovery of a mineral cease when the process of beneficiation ceases.

You have advised that you will cart iron ore from a stockpile to a railway point. You stated that the iron ore will not be subject to processing at the railway point, but will be subject to blending at a port.

As determined above, the blending activities undertaken at the port are not considered to be beneficiation.

Therefore, the recovery of minerals ceases when the beneficiation processes are completed at the mine site, as such, for the purposes of paragraph 11(1)(b) of the EGCSA, the mining operation ceases before you commence carting the iron ore.

Accordingly, any activities occurring after the stockpile are not mining operations for the purposes of the EGCSA.

As your activities are not considered 'mining operations', you are not entitled to an off-road credit under section 53 of the EGCSA.

As such, you do not satisfy subitem 11(5) in Part 3 of Schedule 3 to the FTCTPA and therefore are not entitled to a fuel tax credit at the full rate for diesel fuel you acquire and use in prime movers to transport iron ore from a stockpile to a railway point, when travelling on a private road.

Half credit

Subitem 11(6) in Part 3 of Schedule 3 to the FTCTPA provides that from 1 July 2008, an entitlement to a fuel tax credit will arise under section 41-5 of the FTA if you would not have been entitled to a fuel tax credit under subitems 11(3) or 11(5) in Part 3 of Schedule 3 to the FTCTPA. The amount of the credit, is half the amount of the full rate.

As determined above, you satisfied subitem 11(3) in Part 3 of Schedule 3 to the FTCTPA and are entitled to claim a fuel tax credit at the full rate less RUC under section 41-5 of the FTA.

Accordingly, you are not entitled to claim a fuel tax credit at the half rate, for diesel fuel you acquire and use in prime movers to transport iron ore from a stockpile to a railway point when travelling on a private road.

Application of fuel tax law to GST Groups

Section 70-5 of the FTA provides for the application of fuel tax law to GST Groups and joint ventures. Item 1 of column 1 to the table under section 70-5 of the FTA states that the members of a GST Group are treated as a single entity for the purposes of fuel tax law.

Further, item 1 of column 2 to the table under section 70-5 of the FTA provides that the representative member of the group is that entity which has all the rights, powers and obligations of the single entity under the fuel tax law.

Therefore, as you and the member entity are members of a GST Group, you are considered a single entity for the purposes of the fuel tax law. Further, as the representative member of the group, you are the entity which has all the rights, powers and obligations of the single entity under the fuel tax law.