Edited version of private ruling

Authorisation Number: 1011659828335

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Ruling

Subject: fuel tax credits - electricity generation

Question 1:

Is the use of taxable fuel in powering two main engines directly coupled to a generator used to generate electricity on board a vessel, an eligible activity for fuel tax credits?

Answer:

Yes.

Question 2:

Is the use of taxable fuel in powering two auxiliary generators and an emergency generator that generate electricity on board a vessel, an eligible activity for fuel tax credits?

Answer:

Yes.

This ruling applies for the following period:

2007-08 income year

2008-09 income year

2010-11 income year

2011-12 income year

The scheme commences on:

1 July 2007

Relevant facts and circumstances

You were engaged to provide dredging services.

The vessel used was a dredging vessel.

During the ruling period, the vessel consumed taxable fuel to drive various generators and other processes.

The vessel has the following equipment specifications:

· Two main engines each directly coupled with a main generator. The electricity generated by this generator is fed into the vessel's main electricity grid via a main switchboard.

· Two engines used to directly power the vessel's mechanical dredge pumps and consequently are not concerned with electricity generation.

· Two auxiliary generators, each powered by a diesel engine.

· One emergency generator, powered by a diesel engine.

You state all electricity generated by the main, auxiliary and emergency generators is fed into the vessel's main electricity grid. The electricity grid powers various electrical components on board the vessel, including:

· cutters

· submerged pump

· lighting

· grease pumps

· operator's desk and controls

· fire alarm system

· navigation lights

· communications

· separators

· fans

· winches, and

· other residential requirements.

The only function of the auxiliary and emergency generators is to produce electricity.

You state that the two main engines are also involved in the mechanical propulsion of the vessel and that this particular use does not involve electricity generation.

You have requested that you only want us 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 state that you recognise the need for apportionment as discussed in Fuel Tax Determination FTD 2010/1.

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 1 of Part 3 of Schedule 3

Fuel Tax (Consequential and Transitional) Provisions Act 2006 subparagraph 10(1)(b)(iii) of Schedule 3

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 Divisions 1 and 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 2006 and 30 June 2012.

Subparagraph's 10(1)(b)(iii) and 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.

Main generator

The vessel is a cutter section dredge with two main engines directly coupled with a main generator. The electricity generated by this generator is then fed into the vessel's main electricity grid via a main switchboard.

The electricity grid powers various electrical components, including:

· cutters

· submerged pump

· lighting

· grease pumps

· operator's desk and controls

· fire alarm system

· navigation lights

· communications

· separators

· fans

· winches, and

· other residential requirements.

You use taxable fuel to power the two diesel engines that are directly coupled to a generator that generates electricity on board the dredging vessel. The coupling of the generator to the main engines means that when the main engines operate, so does the generator.

The two main engines are also involved in the mechanical propulsion of the vessel and you acknowledge that this particular use does not involve electricity generation.

Therefore, a portion of the taxable fuel is used for the purpose of generating electricity within subparagraphs 10(1)(b)(iii) and 11(1)(b)(iii) of Schedule 3 to the FTCTPA.

Accordingly, the use of taxable fuel in powering two main engines directly coupled to a generator used to generate electricity on board a vessel, is an eligible activity for fuel tax credits.

Auxiliary and emergency generators

You also use taxable fuel to power two auxiliary and one emergency generator.

The electricity generated by these generators is also fed into the vessel's main electricity grid, which in turn powers various electrical components as outlined above.

This meets the requirement that the fuel is for the purposes of electricity generation within subparagraph's 10(1)(b)(iii) and 11(1)(b)(iii) of Schedule 3 to the FTCTPA.

Accordingly, the use of taxable fuel in powering two auxiliary generators and an emergency generator that generate electricity on board a vessel, is an eligible activity for fuel tax credits.