Edited version of private ruling

Authorisation Number: 1011733137893

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Ruling

Subject: Fuel tax credits

Question 1:

Are you entitled to fuel tax credits at the full rate for the use of diesel fuel in your bulldozer to clear trees for a proposed gasline for the period 1 July 2008 to 30 June 2011?

Answer:

No.

Question 2:

Are you entitled to fuel tax credits at the half rate for the use of diesel fuel in your bulldozer to clear trees for a proposed gasline for the period 1 July 2008 to 30 June 2011?

Answer:

Yes.

This ruling applies for the following period/s:

2008 -09 income year

2009 -10 income year

2010 -11 income year

The scheme commences on:

1 July 2008

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You own a bulldozer.

You acquire diesel fuel for use in your bulldozer.

You will be contracted by a gas company to clear trees on a proposed gasline, using your bulldozer.

You will be working on farmers' properties and also beside roads, but not on roads.

You are unsure if the gasline is classed as mining or agriculture because you will be clearing trees on the proposed line.

You may have to make road accesses which will be on farmers' properties also.

You believe that 90% of the work will be on farmers' properties.

The pipeline will transport gas from the gas fields to the plant for processing into LNG.

Relevant legislative provisions

Fuel Tax Act 2006 section 41-5

Fuel Tax (Consequential and Transitional Provisions) Act 2006 Division 2 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 subsection 11(1)

Energy Grants (Credits) Scheme Act 2003 subsection 11(2)

Energy Grants (Credits) Scheme Act 2003 paragraph 11(1)(a)

Energy Grants (Credits) Scheme Act 2003 paragraph 11(1)(b)

Energy Grants (Credits) Scheme Act 2003 subparagraph 11(1)(b)(i)

Energy Grants (Credits) Scheme Act 2003 subparagraph 11(1)(b)(ii)

Energy Grants (Credits) Scheme Act 2003 paragraph 11(1)(f)

Energy Grants (Credits) Scheme Act 2003 paragraph 11(1)(g)

Energy Grants (Credits) Scheme Act 2003 paragraph 11(1)(i)

Energy Grants (Credits) Scheme Act 2003 section 15

Energy Grants (Credits) Scheme Act 2003 section 16

Energy Grants (Credits) Scheme Act 2003 paragraph 16(a)

Energy Grants (Credits) Scheme Act 2003 paragraph 16(b)

Energy Grants (Credits) Scheme Act 2003 section 18

Energy Grants (Credits) Scheme Act 2003 section 22

Energy Grants (Credits) Scheme Act 2003 subsection 22(1)

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)(g)

Energy Grants (Credits) Scheme Act 2003 section 25

Energy Grants (Credits) Scheme Act 2003 paragraph 25(e)

Energy Grants (Credits) Scheme Act 2003 section 31

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 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 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 2008 and 30 June 2012, whilst retaining entitlements under the Energy Grants (Credits) Scheme Act 2003 (EGCSA).

Full rate of fuel tax credit

Subitem 11(5) of the FTCTPA provides that you are entitled to a fuel tax credit if you would have been entitled to an off-road credit under the 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 mining operations (otherwise than for the purpose of propelling any vehicle on a public road) and use in agriculture (otherwise than for the purpose of propelling a road vehicle on a public road) are uses that qualify.

Mining operations

The term mining operations is defined in subsection 11(1) of the EGCSA as:

(a) exploration or prospecting for minerals, or the removal of overburden and other activities undertaken in the preparation of a site to enable mining for minerals to commence; or

(b) operations for the recovery of minerals, being:

(i) mining for those minerals including the recovery of salts by evaporation; or

(ii) the beneficiation of those minerals, or of ores bearing those minerals;

and includes:

…

(f) a mining construction activity; or

(g)a mining waste activity; or

…

(i) a sundry mining activity.

In considering whether your activities of clearing land to make way for the pipeline fall within mining operations, it is appropriate to consider the following:

§ firstly, whether the activity falls within one of the paragraphs 11(1)(c) to 11(1)(i) of the EGCSA and is not excluded by any of the activities contained in subsection 11(2) of the EGCSA.

§ secondly, if the provisions of paragraphs 11(1)(c) to 11(1)(i) of the EGCSA are not met, whether the activity otherwise comes within paragraphs 11(1)(a) or 11(1)(b) of the EGCSA and is not excluded by any of the activities contained in subsection 11(2) of the EGCSA.

Mining construction activity

Section 15 of the EGCSA defines the activities that fall within a mining construction activity, such as construction or maintenance of private access roads, dams, private airstrips, buildings, plant, equipment and power stations.

However, the infrastructure being constructed or maintained must:

§ be for use in a mining operation referred to in paragraph 11(1)(a) or 11(1)(b) of the EGCSA, and

§ occur at the place where the mining operation is carried on, and

§ be carried out by the person who carries on the mining operation or by a person contracted by that person.

You are clearing land to make way for the pipeline. The pipeline will transport gas from the gas fields to the plant for processing into LNG.

Whilst the pipeline itself may be plant or equipment for use in an 11(1)(a) or (b) mining operation, the clearing of land to make way for the pipeline is not construction of plant or equipment for use in a mining operation. That is, the clearing of land itself is not construction, but rather relates to earthworks.

Furthermore, the clearing of land will not necessarily occur at the place where the mining operation is carried on, rather, the clearing of land occurs at varying places, such as agricultural properties, public land and some mining leases.

Accordingly, the clearing of land to make way for the pipeline is not a mining construction activity.

Sundry mining activity

The expression sundry mining activity is defined in section 18 of the EGCSA as including the liquefying of natural gas. 

Clearly, your activities of clearing land do not relate to the liquefying of natural gas or any other sundry mining activity.

Removal of waste material

Mining waste activity is defined in section 16 to mean:

(a)     the removal of waste products of a mining operation referred to in paragraph (a) or (b) of the definition of that expression in subsection 11(1) from the place where the mining operation is carried on; or

(b)     the disposal of waste products of a mining operation referred to in paragraph (a) or (b) of the definition of that expression in subsection 11(1) at the place where the mining operation is carried on.

The waste products must be a product of a paragraph 11(1)(a) or 11(1)(b) of the EGCSA mining operation.

The clearing of land to make way for the pipeline does not fall under the removal or disposal of waste products of a mining operation.

Preparation of a site or Recovery of minerals

As explained previously, if the provisions of paragraphs 11(1)(c) to (i) of the EGCSA are not met, then it is necessary to consider whether the activity otherwise comes within paragraphs 11(1)(a) or 11(1)(b) of the EGCSA.

You are clearing land to make way for the pipeline. The pipeline is being constructed to enable the transport of gas from the gas fields to the plant for processing into LNG.

The recovery of gas includes the mining of the gas and beneficiation of the gas. Beneficiation of natural gas includes the removal of carbon dioxide, water, mercury, hydrogen sulphide and other sulphide compounds. However, the separation of heavier hydrocarbon gases (pentanes and heavier) in an LNG processing train is not beneficiation but rather part of the liquefaction of natural gas under sundry mining activities.

The pipeline will be for use in transporting the gas for beneficiation and further processing. It is not considered to be for use in mining for gas. Therefore, whilst it could be said that the pipeline will be for use in the recovery of minerals under subparagraph 11(1)(b)(ii) of the EGCSA, it will not for use in mining for minerals nor is its construction for use in preparing the site to enable mining for minerals to commence under paragraph 11(1)(a) of the EGCSA, rather its construction is for use in preparing the site to enable transport of the gas for beneficiation and further processing of the gas, after it is mined.

Accordingly, clearing of land to make way for the pipeline will not fall under paragraph 11(1)(a) of the EGCSA as it is considered to be preparation of a site to enable construction to commence, rather than preparation of a site to enable mining for minerals to commence. That is, the clearing of land occurs at a point too soon, before construction commences. Furthermore, the clearing of land is not considered to be part of the recovery of minerals under 11(1)(b) of the EGCSA as it occurs before any recovery commences.

When considering whether an activity takes place in the course of a mining operation, the courts have applied the following three tests (see Federal Commissioner of Taxation v. Payne (2001) 202 CLR 93, (2001) 46 ATR 228, 2001 ATC 4027; Chief Executive Officer of Customs v. WMC Resources Ltd (as agent for East Spar Alliance) (1998) 87 FCR 482; Wandoo Alliance Pty Ltd v. CEO of Customs [2001] AATA 801):

§ a causal link exists - in other words, a certain activity is functionally integrated with a mining operation, thereby forming an essential part of it.

§ a spatial link exists - meaning that an activity takes place in an area set aside or occupied for a mining operation.

§ a temporal link exists - the activity takes place in a timely fashion, not prior to, or after the completion of, the mining operation.

A causal link exists because the clearing of land forms an essential part of the site work for the laying of the pipeline, which in turn, forms an essential part of the mining operation in order to transport the gas from the gas fields.

The spatial link does not necessarily exist as you undertake land clearing on various properties, including agricultural properties, public land and some mining leases.

The temporal link does not exist. Even though it is necessary to undertake the land clearing to make way for the pipeline, it relates to the expansion of the mining operations by providing additional facilities. Therefore, these activities have occurred prior to any extraction of the gas and transport along the pipeline.

Since not all the links are satisfied, the use of diesel fuel in your bulldozer to undertake land clearing is not a mining operation under subsection 11(1) of the EGCSA. As such you are not entitled to an off-road credit under 'mining operations' for the use of diesel fuel in your bulldozer.

Agriculture

Subsection 22(1) of the EGCSA defines agriculture as:

(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:

…

(g) an agricultural construction activity; or

…

Section 25 of the EGCSA further defines the activities that fall within an agricultural construction activity.

Paragraph 25(e) of the EGCSA provides that the carrying out of earthworks for use in a core agricultural activity is an agricultural construction activity. Earthworks includes land levelling or land grading. However, the earthworks must be carried out on the agricultural property where the core agricultural activity is carried on and by the person who carries on the core agricultural activity or by a person contracted by that person.

A 'core agricultural activity' is defined in section 31 of the EGCSA and is essentially the activities of cultivating the soil, cultivating or gathering in of crops, rearing of live-stock, viticulture, horticulture, pasturage or apiculture, when undertaken for the purposes of, or for purposes that will directly benefit, a business undertaken to obtain produce for sale.

Therefore, any activities that are undertaken must occur on the agricultural property and you must be contracted by the person who undertakes a core agricultural activity.

As such, any activities that you undertake not on agricultural properties (that is, on public land, mining leases, etc) will not satisfy these provisions.

Furthermore, the company who contracts you do not undertake core agricultural activities as defined above and nor are you contracted by a person undertaking a core agricultural activity.

Therefore, you do not satisfy the agricultural provisions under section 22 of the EGCSA. As such you are not entitled to an off-road credit under 'agriculture' for the use of diesel fuel in your bulldozer.

Since your activities are neither mining nor agriculture, you are not entitled to an off-road credit under the EGCSA and as such you do not satisfy subitem 11(5) of the FTCTPA and are not entitled to a fuel tax credit at the full rate of $0.38143 per litre.

Half rate of fuel tax credit

However, subitem 11(6) of Schedule 3 to the FTCTPA provides entitlement to a half credit if you would not have been entitled previously.

It states that from 1 July 2008 you will be entitled to a fuel tax credit under section 41-5 of the FTA even if you do not meet a condition in subitem 11(5) of the FTCTPA.

You acquire taxable fuel for use in carrying on your enterprise and were not previously entitled to a fuel tax credit under subitem 11(5) of the FTCTPA. As such, you are entitled to a fuel tax credit at the half rate for the use of diesel fuel in your bulldozer to clear trees for a proposed gasline for the period 1 July 2008 to 30 June 2011. The half rate is currently $0.190715 per litre.