Edited version of private ruling

Authorisation Number: 1011670150245

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Ruling

Subject: Fuel tax credits - vehicle manufacture

Question 1

Are you entitled to fuel tax credits at the full rate less the road user charge (RUC) for that portion of the fuel that you acquire for use in your trucks greater than 4.5 tonnes gross vehicle mass (GVM) travelling on public roads?

Answer:

Yes.

Question 2

Are you entitled to fuel tax credits at the full rate less the RUC for the fuel you acquire and use in unregistered vehicles not operating on public roads?

Answer:

No.

Question 3

Are you entitled to fuel tax credits at the half rate for the diesel and petrol you acquire and use in various pieces of equipment in your vehicle manufacturing business?

Answer:

Yes.

Question 4

Are you entitled to claim fuel tax credits for the portion of diesel/petrol you leave in fuel tanks for use by the customer?

Answer:

No.

Question 5

Is the method of apportionment you propose to use to determine your fuel tax credit entitlements, reasonable?

Answer:

No.

This ruling applies for the following periods:

2008-09 income year

2009-10 income year

2010-11 income year

2011-12 income year

The scheme commences on:

1 July 2008

Relevant facts and circumstances

You are registered for goods and services tax (GST) in the motor vehicle manufacturing industry.

You are a manufacturer and importer of vehicles in Australia.

You use a facility to undertake testing of the vehicles you manufacture. You also have a centre for tuning and testing of imported vehicles. Testing is also conducted on public roads.

All vehicles which are the subject of this ruling have been manufactured after 1 January 1996.

All fuel is used in the course of carrying out your business. Any private use of fuel by employees is prohibited.

You purchase diesel and petrol each year for maintenance equipment.

When a vehicle is ready to be shipped to a customer, a small amount of fuel will be left in the fuel tanks to enable the customer to drive the vehicle safely to a petrol station or similar facility where the tanks can be refuelled.

All vehicles are shipped via a transportation vehicle provided by an external transportation company.

Within the manufacturing facility, there are a number of diesel fuel tanks that store the fuel. These tanks directly supply a bowser along the production line. As a vehicle chassis is assembled, an operator fills up the particular vehicle's fuel tank with a certain quantity of fuel. The amount of fuel is dependent on the type of vehicle. The larger the vehicle, the more fuel is used.

Fuel is also consumed in the manufacturing plant. Fuel is pumped into the fuel tanks of newly manufactured vehicles for the purposes of testing the vehicles' engines. Following the production process, a vehicle will be driven to an area for tuning and testing purposes. The engines would be running for between two to five minutes, on average.

During the testing process, most of the diesel fuel is consumed as the vehicles' engines are tested at various speeds. On average, a vehicle may be tested for up to half an hour. Following the testing process, the vehicles are driven into onsite storage areas, awaiting sale.

You state vehicles are, from time to time, subject to major on-road testing as well as testing on a private road. The private road is situated off-site. These vehicles are unregistered and are legally able to be driven under the use of "Trade Plates".You control and have use of a fuel tank which contains diesel fuel. The diesel fuel used in the fuel tank has been purchased from an independent fuel supplier. This fuel is purchased in bulk. Tax Invoices are obtained and retained from this supplier that set out all the relevant details including that the fuel complies with the relevant fuel standards prescribed under the Fuel Standards Act 2000.

Some of the vehicles you test have a GVM of more than 4.5 tonnes and some have a GVM of 4.5 tonnes or less.

Further, but to a minor extent, fuel is used by factory vehicles, being lawn mowers, whipper snipper's, a tractor and a heavy lifting device. These vehicles are unregistered and are only used on the premises for the purposes of assisting with the production processes and maintaining the lawns of the property. Any private use of these vehicles is strictly prohibited.

You advise that you have insufficient resources to arrange for individual log books to be kept for each vehicle. Also, relying on average consumption formulae is difficult due to the variations in testing that impact on the number of litres consumed. However, over the course of the year, given such a high ratio of vehicles manufactured compared to distances travelled by vehicles subject to testing, it is submitted that your fuel usage profile would not significantly fluctuate from year to year.

You wish to adopt a combination of the 'deductive method' and the 'alternative percentage use method' whereby you subtract an estimate of all fuel ineligible for the fuel tax credit, and if necessary, apportion the remaining fuel between the different fuel tax rates.

Therefore, you propose to work out your fuel tax credit entitlement for the year ended 30 June 2009 and the following years by using either of the following methodologies:

Fuel consumed in plant + Fuel consumed in testing = Fuel used

A. Determine fuel consumed with reference to an average rate of fuel consumed for each vehicle type

B. Determine number of vehicle types manufactured/imported in the period

C. Determine fuel purchased at proving ground in the period

D. Multiply A x B and add C.

Purchased fuel - Fuel On hand = Fuel used

A. Determine litres of fuel acquired from purchase invoices

B. Determine the average litres of fuel that remain in the vehicle's tanks at the time the vehicles have been released for sale. You will record the estimated fuel remaining in the tank of each type of vehicle released from your gate for sale

C. Determine the average number of vehicles that have been released for sale for the GST period.

D. Subtract an estimate of any fuel used by vehicles with a GMV not above 4.5 tonnes

E. Itemise any fuel used while an eligible vehicle travels on a public road, where this usage results in an alternative fuel tax credit rate.

You have provided a worked example of your proposed worksheet.

Relevant legislative provisions

Fuel Tax Act 2006 41-5

Fuel Tax (Consequential and Transitional Provisions) Act 2006 Subdivision 41-B

Fuel Tax Act 2006 subsection 43-10(3)

Fuel Tax Act 2006 60-5

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

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

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

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

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

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

Energy Grants (Credits) Scheme Act 2003 section 4

Energy Grants (Credits) Scheme Act 2003 section 42

Energy Grants (Credits) Scheme Act 2003 section 43

Energy Grants (Credits) Scheme Act 2003 subsection 43-10(3)

Energy Grants (Credits) Scheme Act 2003 section 53

Reasons for decision

Section 41-5 of the Fuel Tax Act 2006 (FTA) states that you are entitled to a fuel tax credit for taxable fuel that you acquire or manufacture in, or import into, Australia to the extent that you do so for use in carrying on your enterprise.

Eligible activities

For fuel acquired between 1 July 2008 and 30 June 2012, Division 2 of Schedule 3 to the Fuel Tax (Consequential and Transitional Provisions) Act 2006 (FTCTPA) operates to restrict fuel tax credit entitlements to specific activities.

For the period 1 July 2008 to 30 June 2012, the specific activities for which an entitlement exists are relevantly listed within subitems 11(1), 11(3), 11(5) and 11(6) of Schedule 3 of the FTCTPA.

The items listed within subitem 11(1) of Schedule 3 of the FTCTPA are:

(i) for use in a vehicle travelling on a public road

(ii) for incidental use in relation to a vehicle travelling on a public road

(iii) for use in generating electricity

(iv) for use other than as a fuel

(v) for use other than as a fuel in an internal combustion engine

(vi) for use as heating oil.

The FTA provides that vehicles travelling on public roads must have a GVM greater than 4.5 tonnes and comply with certain environmental criteria.

As your vehicles are all manufactured after 1 January 1996, the environmental criteria are satisfied.

You have stated that occasionally there may be a vehicle that has a GVM of less 4.5 tonnes and your proposed calculation method allows for any fuel used in such a vehicle to be excluded from your claim.

Fuel tax credit at the full rate less road user charge (RUC)

Subparagraph 11(1)(b)(i) of Schedule 3 to the FTCTPA provides an entitlement to a fuel tax credit for taxable fuel acquired for use in a vehicle travelling on a public road. The amount of the fuel tax credit for taxable fuel is the amount of effective fuel tax that is payable on the fuel.

If you acquire and use taxable fuel in a vehicle travelling on a public road, subsection 43-10(3) of the FTA provides that the amount of fuel tax credit is reduced by the amount of the RUC. The amount of the RUC is determined by the Minister for Transport and Regional Services and is subject to change.

You road test vehicles on public roads and travel to a testing facility on public roads.

Therefore, you are eligible for fuel tax credit at the full rate less RUC for that portion of the fuel that you acquire for use in your trucks greater than 4.5 tonnes GVM travelling on public roads.

Unregistered vehicles which are not operating on public roads

The use of fuel in a vehicle operating on a road which is not a public road is not an eligible use under subitem 11(1) of Schedule 3 of the FTCTPA.

However, subitem 11(6) of Schedule 3 of the FTCTPA provides that from 1 July 2008, an entitlement to a fuel tax credit arises under the FTA, if you would not have been entitled to an on-road or an off-road credit under the Energy Grants (Credits) Scheme Act 2003 (EGCSA). The amount of the fuel tax credit is half of the amount of the full rate.

This provision is subject to the disentitlement rules of subdivision 41-B of the FTA, which disallows a fuel tax credit:

· if another entity was previously entitled to a credit,

· for fuel used in light vehicles travelling on public roads,

· for fuel used in motor vehicles that do not meet environmental criteria, or

· for fuel used in aircraft.

On-road

Sections 42 and 43 of the EGCSA provide that you are entitled to an on-road credit if you purchase diesel fuel for use in a registered vehicle operating on a road in Australia.

Section 4 of the EGCSA defines a registered vehicle as a vehicle that is registered for use on public roads. It is therefore not sufficient for the vehicle to merely have permission to drive on public roads.

Registered vehicles have completed the necessary preconditions to be registered for use on public roads, including:

· Being assessed as roadworthy

· Payment of a fee to register the vehicle; and

· Entry of the details of that vehicle on a register.

· Registration contrasts with the use of trade plates, where:

· The plate can be used before the vehicle is certified as roadworthy

· The fee is charged for the plates rather than for a particular vehicle ; and

· The plates can be placed on various vehicles, the details of which are not kept on a register.

Options such as trade plates and unregistered vehicle permits are recognition that it is sometimes impractical to register a vehicle before it must travel on road. These options provide a means (other than meeting all the preconditions of registration) to allow the lawful operation of the vehicle on a public road, under limited circumstances. Accordingly, although it is lawful to drive a vehicle on a public road under the authority of trade plates, that vehicle has not been registered for use on public roads as it has not met all of the preconditions of registration.

As a vehicle operating under trade plates in not 'registered for use on public roads', it is not considered to be a 'registered vehicle' for the purposes of the EGCSA.

You operate unregistered vehicles on private roads. As these are unregistered vehicles you are not entitled to an on-road credit for operating these vehicles on private roads.

Note: there is no requirement under the FTA for vehicles to be registered and therefore vehicles with a GVM of greater than 4.5 tonnes travelling on public roads under trade plates are eligible for fuel tax credits at the full rate less RUC.

Off-road

Section 53 of the EGCSA provides that you are entitled to an off-road credit if you purchase fuel for a use by you that qualifies. Uses that qualify include use of fuel in mining operations, primary production (including agriculture, forestry, fishing), marine transport, rail transport, electricity generation, use at certain premises and various other uses.

As your use of fuel in vehicle manufacture does not fall within any of the qualifying uses under section 53 of the EGCSA, you would not have been entitled to an off-road credit for that fuel.

As you are not entitled to an energy grant under the EGCSA, for the fuel you acquire and use in your unregistered vehicles not operating on public roads, you are therefore not entitled to fuel tax credits under subitems 11(3) and 11(5) of Schedule 3 to the FTCTPA for that fuel.

Half rate

It has been determined above that you were not entitled to an on-road or an off-road credit for the use of taxable fuel you acquired in operating unregistered vehicles on private roads. However, as you have acquired and used this fuel in your business, you are entitled to a fuel tax credit at the half rate under subitem 11(6) of Schedule 3 of the FTCTPA.

Other plant and equipment which are not operating on public roads.

You are entitled to a fuel tax credit at the half rate for fuel used in your other plant and equipment which are not operating on public roads.

The fuel you acquire and use in your other plant and equipment in your vehicle manufacturing business would not be eligible for either an on-road or an off road grant under the EGCSA as it is not used in a vehicle on a public road, nor is it used in one of the eligible activities such as mining, primary production or marine transport.

Moreover, as the fuel is not being used in a vehicle greater than 4.5 tonnes GVM it would not be eligible for fuel tax credits under the provisions of subitem 11(1) of Schedule 3 of the FTCTPA.

Therefore, as you are not entitled to an on-road credit or an off-road credit under the EGCSA, for the fuel you acquire and use in your other plant and equipment in your vehicle manufacturing business, you are entitled to a fuel tax credit at the half rate under subitem 11(6) of Schedule 3 of the FTCTPA.

Fuel you leave in your vehicles when they are sold to your customers

Section 41-5 of the 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.

As the term 'acquire' is not defined in the FTA, it therefore takes its ordinary meaning.

The Macquarie Dictionary defines 'acquire' as:

1 . to come into possession of; get as one's own:* You must acquire property at once

2 . to gain for oneself through one's actions or efforts...

In Fuel Taxation Ruling FTR 2007/1, Fuel tax: the meaning of 'acquire', 'manufacture' and 'import' in the expression 'taxable fuel that you acquire or manufacture in, or import into, Australia to the extent that you do so for use in carrying on your enterprise' in the Fuel Tax Act 2006 the Commissioner discusses the meaning of 'acquire', 'manufacture', and 'import'.

For the purposes of the FTA, the relevant meaning of acquire is to 'get as one's own' from someone else or through one's actions or efforts. 'Acquire' does not mean merely 'to come into possession of'.

The Commissioner considers that to 'get as one's own', implies getting ownership or proprietary rights in respect of the taxable fuel. This will mean either that property in the taxable fuel passes from one entity to another or that proprietary rights or ownership is conferred by the act of obtaining the taxable fuel by other means.

Therefore, the Commissioner takes the view that an entity typically 'acquires' taxable fuel upon a change in ownership of, or a transfer of proprietary rights in, the fuel from one entity to another.

To 'get as one's own' requires property in or ownership of the relevant taxable fuel to pass from one entity to another entity, or alternatively, that ownership is conferred because the fuel has been obtained by an entity as its own.

You acquire taxable fuel if:

· you purchase the fuel;

· the fuel is gifted to you; or

· you get the fuel as your own by any other means (other than manufacture or import). This necessarily means that you get ownership of, or proprietary rights in respect of, the fuel.

Whether you get ownership of, or proprietary interest in, fuel will depend on all the facts and circumstances of each case. It will be necessary to examine the surrounding circumstances, together with any relevant documentation, including any written agreement.

In your case, you leave some fuel in the tanks of your trucks when they are handed over to the customer. This is so the customer is able to drive the truck away for refuelling. It is considered that the cost of fuel is not a specific charge to your customer.

Although there is no discrete sale of the fuel by you to the customer, when the ownership of the vehicle passes to your customer, the customer simultaneously obtains a proprietary interest in the vehicle's fuel at that time.

While you do initially acquire the fuel that you use in the trucks when they are in your possession, once the trucks pass into the customers' ownership, you no longer have property in that fuel and therefore, you have not acquired that fuel for use in your enterprise.

Consequently, you are not entitled to a fuel tax credit for the portion of fuel that remains in the trucks when they pass into your customers' possession.

Method of apportionment

We have determined, the fuel you acquire and:

· dispose of in the tanks of the trucks that you sell is not used in your business and you are therefore not entitled to fuel tax credits in respect of that fuel,

· use in your vehicles operating on public roads, attracts fuel tax credits at the partial rate,

· use in your unregistered vehicles operating on private roads attracts fuel tax credits at the half rate, and

· use in stationary testing and other uses at your manufacturing plant, attracts fuel tax credit at the half-rate.

In Fuel Tax Determination FTD 2010/1 Fuel tax: is apportionment used when determining total fuel tax credits in calculating the net fuel amount under section 60-5 of the Fuel Tax Act 2006? the Commissioner sets out his views on the methods claimants can use when calculating their fuel tax credit entitlements in circumstances such as yours.

In paragraph five of FTD 2010/1 the Commissioner states that the use of the phrase 'to the extent that' in the FTA contemplates the apportionment of fuel between multiple uses as well as allocation of the fuel to a specific use to ensure that fuel tax credits are only claimed for fuel that is acquired for use or actually used in carrying on your enterprise.

As explained in FTD 2010/1, the Commissioner's view is that the 'fair and reasonable' principle applies in determining the extent of an entitlement to a fuel tax credit and/or the amount of a fuel tax credit.

A claimant can use any apportionment method that is fair and reasonable in their circumstances to determine the fuel tax credit that is available for the taxable fuel that they acquire.

Where there is more than one fair and reasonable way of apportioning, claimants may choose any method as long as it is fair and reasonable in their circumstances.

Whichever apportionment method is used by an entity in a tax period must be applied consistently. Inconsistent methods used by an entity in the same tax period are likely to make the quantities of fuel worked out under them unreliable in calculating the fuel tax credit entitlement of the entity for the period.

Need for separate calculations

Section 60-5 of the FTA states that in working out your net fuel amount, regard must be had to the sum of all fuel tax credits to which you are entitled in each tax period.

Claimants are generally required to perform separate calculations to ensure a fair and reasonable basis of apportionment is relevantly applied.

The following methods are examples of commonly used methods that the Commissioner considers a fair and reasonable basis for apportionment:

· the constructive methods (actual use or planned use)

· the deductive methods (actual use or planned use)

· the percentage use method, and

· the estimate use method.

You wish to adopt a combination of the deductive method and the percentage use method whereby you subtract an estimate of all fuel ineligible for the fuel tax credit, and if necessary, apportion the remaining fuel between the different fuel tax rates.

You propose to calculate your fuel tax credit entitlements by using either of the following methodologies:

Fuel consumed in plant + Fuel consumed in testing = Fuel used

A. Determine fuel consumed with reference to an average rate of fuel consumed for each vehicle type

B. Determine number of vehicle types manufactured/imported in the period

C. Determine fuel purchased at proving ground in the period

D. Multiply A x B and add C.

Purchased fuel - Fuel On hand = Fuel used

A. Determine litres of fuel acquired from purchase invoices

B. Determine the average litres of fuel that remain in the vehicle's tanks at the time the vehicles have been released for sale. You will record the estimated fuel remaining in the tank of each type of truck/bus released from its gate for sale

C. Determine the average number of vehicles that have been released for sale for the GST period.

D. Subtract an estimate of any fuel used by vehicles with a GVM not above 4.5 tonnes

E. Itemise any fuel used while an eligible vehicle travels on a public road, where this usage results in an alternative fuel tax credit rate.

As determined above, you are entitled to fuel tax credits at the half rate and the partial rate and you have acquired and used fuel for which you do not have entitlement. Therefore any method of calculation you use must apportion the fuel between these rates.

Neither of the methods you have proposed allow for this apportionment. Therefore neither of them can be considered as a fair and reasonable method of calculating your fuel claims.