Edited version of private ruling

Authorisation Number: 1011619601890

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Ruling

Subject: Fuel tax credits - electricity generation and dredging vessel

Question 1:

Is the use of taxable fuel in powering three main engines each linked to an electrical generator to generate electricity onboard a vessel, an eligible activity for fuel tax credits?

Answer:

Yes.

Question 2:

Is the use of taxable fuel in powering harbour and emergency generators onboard a vessel, an eligible activity for fuel tax credits?

Answer:

Yes.

Period the ruling applies to:

2009-10 income year

2010-11 income year

Commencement date of scheme:

1 July 2009

Relevant facts and circumstances

You engaged a company to operate a dredging vessel for a project

The vessel has the following equipment specifications:

· Powered by three diesel engines, each linked to a electrical generator.

· The electricity generated from all three generators is fed into the vessel's main electricity grid via a main switchboard.

· This electricity grid then provides power to (amongst may other pieces of equipment) two electric propulsion engines which drive the rear main propellers to provide forward and backwards motion for the vessel under sailing conditions.

· The electricity grid also powers the entire vessel's electrical components, including:

o power to bridge (vessel control and navigation);

o submerged rock cutters;

o submerged dredge pump;

o ladder winches;

o hydraulic spud carrier;

o crew accommodation; and

o amenity facilities (living quarters, galley, dining areas, etc)

· The vessel also has one diesel electric harbour generator and one diesel electric emergency generator. These both provide power to various components as required, generally when the main generators are not in operation (e.g. whilst the vessel is in port refuelling, emergencies). These are separate generator sets and are not linked to the diesel engines like the three electrical generators. Similarly, these generators do provide power to the electrical grid on the vessel.

· The vessel also has additional in-board mechanical dredge pumps (not to be confused with the submerged dredge pump which is electrically driven). It is your understanding that fuel consumed in these mechanical dredge pumps are not claimable under the electricity generation category but are currently eligible for fuel tax credits at the half rate.

· The fuel consumed in the mechanical dredge pumps is not an issue for consideration in this ruling request.

You have stated that you only want the ATO to consider whether the use of taxable fuel can be described as an eligible activity. You are not seeking an opinion on the acquisition of taxable fuel or any other element which would need to be satisfied for a claimant to be entitled to a fuel tax credit.

You are registered for goods and services tax (GST).

Relevant legislative provisions

Fuel Tax Act 2006 section 41-5

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

Fuel Tax (Consequential and Transitional) Provisions Act 2006 subparagraph 11(1)(b)(iii) of Schedule 3

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 of Part 3 in 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 Grants (Credits) Scheme Act 2003 (EGCSA).

Subparagraph 11(1)(b)(iii) of Schedule 3 to the FTCTPA provides that an entitlement to a fuel tax credit arises under section 41-5 of the FTA if you acquire taxable fuel for a use by you in generating electricity.

Fuel is used for the purpose of generating electricity where the electricity is an end in itself and can in turn be used for any purpose for which electricity is required.

This includes fuel used in generating electricity when it is used in a generator to provide power to a business premises [or vessel] and/or a range of equipment.

The vessel is powered by three diesel engines, each linked to a electrical generator. It is also powered by one diesel electric harbour generator and one diesel electric emergency generator.

The electricity generated by the three main generators is fed into the vessel's main electricity grid via a main switchboard. This electricity grid then provides power to (amongst many other pieces of equipment) two electric propulsion engines which drive the rear main propellers to provide forward and backwards motion for the vessel under sailing conditions.

The electricity grid also powers the entire vessel's electrical components, including:

· power to bridge (vessel control and navigation);

· submerged rock cutters;

· submerged dredge pump;

· ladder winches;

· hydraulic spud carrier;

· crew accommodation; and

· amenity facilities (living quarters, galley, dining areas, etc)

Main generators

All power generated by the three main generators is fed into the vessel's electricity grid via a main switchboard. This electricity grid powers the entire vessel's electrical components.

You use taxable fuel to power three diesel engines, which are each linked to electrical generators for the generation of electricity on board the dredging vessel. This meets the requirement that the fuel is for the purposes of electricity generation within subparagraph 11(1)(b)(iii) of Schedule 3 to the FTCTPA.

Accordingly, the use of taxable fuel in powering the three main engines each linked to an electrical generator to generate electricity onboard a vessel, is an eligible activity for fuel tax credits.

Harbour and emergency generator

The vessel also has one diesel electric generator and one diesel electric emergency generator. These both provide power to various components as required, generally when the main generators are not in operation. This includes whilst the vessel is in port refuelling and during emergencies.

Both these generators provide power to the electrical grid on the vessel. Taxable fuel is used in these generators for the purposes of electricity generation within subparagraph 11(1)(b)(iii) of Schedule 3 to the FTCTPA.

Accordingly, the use of taxable fuel in powering the harbour and emergency generators onboard a vessel is an eligible activity for fuel tax credits.