Edited version of private ruling

Authorisation Number: 1011716598883

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Subject: Fuel tax credits - agriculture

Question 1:

Are you entitled to fuel tax credits for taxable fuel you acquire and use in your utility with a gross vehicle mass of less than 4.5 tonnes travelling on a public road?

Answer:

No.

Question 2:

Are you entitled to fuel tax credits at the full rate for diesel you acquire and use in your equipment operating off-road on an agricultural property?

Answer :

Yes.

Question 3:

Are you entitled to fuel tax credits at the full rate for petrol you acquire before 1 July 2008 and use in your utility and equipment operating on an agricultural property?

Answer:

No.

Question 4:

Are you entitled to fuel tax credits at the full rate for petrol you acquire after 1 July 2008 and use in your utility and equipment operating on an agricultural property?

Answer:

Yes.

Question 5:

Is there a time limit for attributing fuel tax credit entitlements?

Answer:

Yes.

Relevant facts and circumstances

You are registered for goods and services tax (GST) in the nursery production industry.

You acquire and use diesel in your equipment. Further you use petrol in your utility and in your equipment.

You understand that you are entitled to fuel tax credits for diesel used in your equipment and for petrol used in your equipment.

Your utility has a gross vehicle mass (GVM) of less than 4.5 tonnes and you use it in your production, harvesting, packing and delivery processes. The utility is used during your growing season to move irrigation supplies, other equipment, stakes, fertilizer, petrol, sprayers and nursery waste. The utility is also used during the harvest season to collect trees, move fruit bins for packing and deliver the crop to your grading and grafting areas.

In carrying out these activities, the utility is operating on both public roads and your agricultural property.

This ruling applies for the following period/s:

2006-07 income year

2007-08 income year

2008-09 income year

2009-10 income year

The scheme commences on:

1 July 2006

Relevant legislative provisions

Fuel Tax Act 2006 section 41-5

Fuel Tax Act 2006 section 41-20

Fuel Tax Act 2006 section 47-5

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

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

Fuel Tax (Consequential and Transitional Provisions) Act 2006 subitem 10(1) of Schedule 3

Fuel Tax (Consequential and Transitional Provisions) Act 2006 subitem 10(5) 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 subitem 11(5) of Schedule 3

Energy Grants (Credits) Scheme Act 2003 section 22

Energy Grants (Credits) Scheme Act 2003 paragraph 22(1)(a)

Energy Grants (Credits) Scheme Act 2003 paragraph 22(1)(b)

Energy Grants (Credits) Scheme Act 2003 paragraph 22(1)(c)

Energy Grants (Credits) Scheme Act 2003 paragraph 22(1)(d)

Energy Grants (Credits) Scheme Act 2003 paragraph 22(1)(e)

Energy Grants (Credits) Scheme Act 2003 paragraph 22(1)(f)

Energy Grants (Credits) Scheme Act 2003 paragraph 22(1)(g)

Energy Grants (Credits) Scheme Act 2003 paragraph 22(1)(h)

Energy Grants (Credits) Scheme Act 2003 paragraph 22(1)(i)

Energy Grants (Credits) Scheme Act 2003 section 24

Energy Grants (Credits) Scheme Act 2003 section 26

Energy Grants (Credits) Scheme Act 2003 section 27

Energy Grants (Credits) Scheme Act 2003 paragraph 27(f)

Energy Grants (Credits) Scheme Act 2003 section 31

Energy Grants (Credits) Scheme Act 2003 section 33

Energy Grants (Credits) Scheme Act 2003 section 53

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 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 of Schedule 3 to the Fuel Tax (Consequential and Transitional Provisions) Act 2006 (FTCTPA) which operate to restrict this entitlement to specific activities for fuel purchased between 1 July 2006 and 30 June 2012.

For the period 1 July 2006 to 30 June 2012 the specific activities for which an entitlement exists are relevantly listed within subitems 10(1) and 11(1) of Schedule 3 to the FTCTPA.

The items listed within subitems 10(1) and 11(1) of Schedule 3 to 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.

Travel on public roads

Fuel acquired for use in a vehicle with a GVM of 4.5 tonnes or less travelling on a public road is explicitly disentitled to fuel tax credits under section 41-20 of the FTA.

You acquire petrol for use in your utility that has a GVM of less than 4.5 tonnes.

Accordingly, you are not entitled to fuel tax credits for taxable fuel you acquire and use in your utility travelling on a public road.

Agriculture

You also use taxable fuel (diesel) in your tractor and petrol for use in your utility and irrigation equipment in undertaking a range of agricultural activities off-road on your agricultural property.

As this is not an eligible use of fuel under any of the items in subitems 10(1) and 11(1) of Schedule 3 to the FTCTPA it is necessary to consider whether these activities qualify under any other provisions.

Subitems 10(5) and 11(5) of the FTCTPA provide that you are entitled to a fuel tax credit if you would have been entitled to an off-road credit under the Energy Grants (Credits) Scheme Act 2003 (EGCSA). This is known as the full fuel tax credit and is currently $0.38143 per litre.

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. Use in agriculture (otherwise than for the purpose of propelling any vehicle on a public road) is a use that qualifies.

Petrol acquired before 1 July 2008

You acquired petrol for use in your utility and other equipment on your agricultural property. Up to 30 June 2008, the use of petrol in previously eligible activities under the EGCSA, such as agriculture was excluded because reference to fuel was under the EGCSA definitions and the EGCS Regulations of 'off-road diesel fuel.' Therefore, you would not have had an entitlement to claim fuel tax credits if your activities were considered a use in agriculture for the period up to 30 June 2008 because of the fuel type. There are no other provisions within the legislation that would have provided an entitlement to fuel tax credits for this period in your specific activities on the agricultural property. As such, you would not have been entitled to a fuel tax credit for petrol acquired for use in your utility and other equipment to 30 June 2008.

From 1 July 2008, petrol was an eligible fuel in the specific activities such as agriculture due to the operation of subitem 11(5) of the FTCTPA which provided that references to 'off-road diesel fuel' under the EGCSA was a reference to 'fuel.' It is necessary to consider whether your activities would be 'agriculture' to determine if you would have had an entitlement to the full rate from 1 July 2008.

Fuel acquired for use in vehicles and equipment from 1 July 2008

Section 22 of the EGCSA states that agriculture means:

…

(a) the cultivation of the soil; or

(b) the cultivation or gathering in of crops; or

(c) the rearing of live-stock; or

(d) viticulture, horticulture, pasturage or apiculture;

and includes:

(e) a live-stock activity; or

(f) an agricultural soil/water activity; or

(g) an agricultural construction activity; or

(h) an agricultural waste activity; or

(i) a sundry agricultural activity.

You state that you operate in the nursery production industry undertaking a range of activities with your utility vehicle and other equipment. Your activities include production, harvesting, packing and delivery processes, to move irrigation supplies and other equipment during growing season and for moving nursery waste. The utility is also used during the harvest season to collect trees, move fruit bins for packing and deliver the crop to your grading and grafting areas.

Section 33 of the FTA provide the definition of horticulture and it includes:

…

(a) the cultivation or gathering in of fruit, vegetables, herbs … flowers, trees, shrubs or plants; or

(b) the propagation of trees, shrubs or plants; or

(c ) the production of seeds, bulbs, corms, tubers or rhizomes.

The definition of horticulture in section 33 of the EGCSA takes the ordinary meaning of the term and expands that ordinary meaning by including activities in 'gathering in' or horticultural produce.

The cultivation of horticultural produce means to bestow labour on the land in raising the produce as part of a business and includes the activities of:

§ sowing of seeds or planting;

§ fertilising;

§ spraying against pests and diseases;

§ weeding;

§ watering the crop; and

§ thinning and pruning.

It is important to note that the gathering in of horticultural produce means to pick or harvest from the place of growth and physically collect in one place for the first time. Gathering in of horticultural produce includes the process of plucking plants from the ground, or fruit or other produce from the plant, some initial processing in the vicinity of the place where the plant was, or is, in the ground and physically bringing together the crop.

However, the gathering in of horticultural produce does not include:

§ any further processing necessary for the recovery of the produce after it has been gathered in;

§ further processing undertaken on the produce for the extraction of another product or in refining the produce; or

§ transport of the produce after it has been gathered in.

When a horticultural produce is gathered in and not immediately transported or processed, but is stored on the property, the Commissioner considers that the 'gathering in' ceases when the crop is brought together for the first time. However, subsequent storage may be covered by paragraph 27(f) of the EGCSA which deals with the storage of produce of a core agricultural activity on a farm.

Further, it is important to note that an horticultural activity that does not constitute a business undertaken to produce for sale is not 'agriculture'.

Sections 24, 26 and 27 of the EGCSA relevantly provide that the following are activities included as agriculture:

§ the pumping of water for use in an agricultural activity

§ the removal of agricultural waste; and

§ the storing and packing of produce.

However, the underlying requirements for these activities are that they be carried out:

1. on an agricultural property where a core agricultural activity is carried on, or (in some instances) at a place adjacent to that property; and

2. by the person who carries on the core agricultural activity or by a person contracted by that person.

Section 31 of the EGCSA defines the expression 'core agricultural activity' as

... an activity referred to in paragraph (a), (b), (c) or (d) of the definition of agriculture in subsection 22(1) if that activity is carried out for the purposes of, or for purposes that will directly benefit, a business undertaken to obtain produce for sale.

As part of your nursery production business, you use your utility to collect trees, move bins for packing and deliver the crop to your grading and grafting areas. It is also used to supplies, other equipment and nursery waste. You also use fuel in your equipment on your property to undertake these and other similar activities.

Pumping of water solely for use in an agricultural activity which is carried out on the agricultural property where a core agricultural activity occurs is considered 'agriculture.' Furthermore, fuel used in your equipment and utility to collect trees, move bins, other equipment and nursery waste is considered 'agriculture' under the relevant provisions of the EGCSA.

You have advised that you have acquired petrol and diesel for use by you in your agricultural activities on your agricultural property.

Accordingly you would be entitled to an off-road credit under section 53 of the EGCSA, and hence fuel tax credits at the full rate, for taxable fuel you acquire and use in your utility and equipment on your agricultural property.

Apportionment

As discussed, a portion of the fuel you use in your business is to operate your tractor, equipment and utility on your agricultural property, thereby attracting fuel tax credits at the full rate.

However, some of the fuel you use in your business is to operate your utility on public roads. As discussed previously, you are not entitled to claim fuel tax credits for the fuel used in your utility whilst it is travelling on public roads. In this regard an apportionment will be necessary to ensure that a claim for fuel tax credit is made only in respect of the amount of eligible fuel that is purchased or acquired for a use that qualifies.

Four year rule

Please note that section 47-5 of the FTA provides that basically your fuel tax credit entitlements cease four years from the due date of the relevant business activity statement or fuel tax return. The four year time limit is designed to provide certainty and finality in the tax affairs of taxpayers and the administration of the tax system. The period of the ruling relates to a period in excess of 4 years. You were not entitled to claim fuel tax credits for petrol used in your equipment and utility before 1 July 2008. However, you did have an entitlement to claim diesel acquired and used in other equipment prior to 1 July 2008. As such, your fuel tax credits entitlements for this fuel cease unless you had included them in your net fuel amounts within a 4 year period.