Edited version of private ruling

Authorisation Number: 1011726517910

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Subject: Fuel tax credits - dredge and electricity generation

Question:

Is taxable fuel used in generating electricity onboard a dredging vessel an eligible activity for fuel tax credits?

Answer:

Yes.

Period the ruling applies to:

2006-07 income year

The scheme commenced on

1 July 2006

Relevant facts

You conducted various operations during the 2006-07 income year. You utilised a vessel on the works.

The vessel's main propellers are driven by electric motors and are not directly operated by a diesel engine. You contend that this constitutes electricity generation rather than marine transport.

During the claim period, the vessel consumed taxable fuel to drive diesel engines which were directly coupled to a number of electrical generators and mechanical dredge pumps. The vessel had a number of main diesel engines directly coupled to the generators and also auxiliary diesel generators.

The electricity generated from the main AC and auxiliary AC generators is fed into the vessel's main electricity grid via a main switchboard. The generators driven from the main engines provide electrical power for the vessel's main operational services, namely the electric motor, electric propulsion motors and electric underwater pump motor.

The electricity grid and DC generators power various electrical components, including propellers, motors, lighting, control systems and other residential requirements.

In summary, you state that the vessel uses a large portion of fuel in driving the main diesel generators and auxiliary generators to provide sufficient electrical power to meet the needs of the main electricity consumers, namely the electric propulsion motors, underwater pump, cutter and winches.

You also state that any fuel used to drive the mechanical pumps is not considered to be for the purpose of generating electricity and for the period of this ruling, you will not be able to claim fuel tax credits for the portion of fuel used to operate these pumps.

You only want the ATO to consider whether the use of fuel itself can be described as an eligible activity and you do not seek an opinion on acquisition of taxable fuel or any other element which would need to be satisfied for you to be entitled to a fuel tax credit.

Further, you do not seek to categorise the use of fuel onboard the vessel as marine transport under the provisions of the Energy Grants (Credits) Scheme Act 2003 and the Fuel Tax (Consequential and Transitional Provisions) Act 2006.

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

Relevant legislative provisions

Fuel Tax Act 2006 section 41-5

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 subitem 10(1) of Schedule 3

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

Taxation Administration Act 1953 section 105-55

Taxation Administration Act 1953 subsection 105-55(1)

Taxation Administration Act 1953 subsection 105-55(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 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 1 of 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 2006 and 30 June 2008, whilst retaining entitlements under the Energy Grants (Credits) Scheme Act 2003 (EGCSA).

Subparagraph 10(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 to provide power to a business premises [or vessel] and/or a range of equipment.

Main and auxiliary generators

The vessel has a number of main alternating current (AC) generators, and auxiliary diesel AC generators.

The electricity generated from the main AC and auxiliary AC generators is fed into the vessel's main electricity grid via a main switchboard. The generators driven from the main engines also provide electrical power for the vessel's main operational services, namely electric cutter motor, electric propulsion motors, and electric underwater motor pump.

The electricity grid and DC generators power various electrical components including propellers, motors, lighting, control systems and other residential requirements.

You use taxable fuel to power the main, sub and auxiliary generators for the generation of electricity on board the vessel. This meets the requirement that the fuel is for the purpose of electricity generation within subparagraph 10(1)(b)(iii) of Schedule 3 to the FTCTPA.

Therefore, taxable fuel used in generating electricity onboard a vessel is an eligible activity for fuel tax credits.

Application of the four year rule

You have requested that your ruling apply from the start of the 2006-07 income year. While a private ruling sets out the Commissioner's opinion about the way a tax law applies, or would apply in relation to a specified scheme or circumstance, it is important to note that the four year rule time limit for claiming fuel tax credits still applies.

Subsection 47-5 of the FTA states that you cease to be entitled to a fuel tax credit to the extent that you have not taken it into account in working out your net fuel amount for:

…

(a) the tax period of fuel tax return period to which the fuel tax credit would be attributable under subsection 65-5(1), (2) or (3); or

(b) any other tax period or fuel tax return period, for which you give to the Commissioner a return under section 61-15 during the period of 4 years after the day on which you were required to give to the Commissioner such a return for the tax period or fuel tax return period referred to in paragraph (a).

Section 105-55 of Schedule 1 to the Taxation Administration Act 1953 (TAA) places a time limit to refunds and credits to which subsections 105-55(1) and 105-55(3) apply.

Subsection 105-55(1) of Schedule 1 to the TAA provides that if you are registered for GST you are not entitled to a refund or fuel tax credit in respect of a tax period unless, within four years after the end of the tax period, or importation;

§ you notify the Commissioner of their entitlement to the refund or credit; or

§ the Commissioner notifies that you are entitled to the refund or credit.

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.

Please be aware that due to the application of the four year rule you will be unable to claim fuel tax credits for certain tax periods.