Edited version of private ruling

Authorisation Number: 1011772634128

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Subject: Fuel tax credits - electricity generation

Question 1:

Is the use of diesel fuel in powering the main generators on board a vessel a fully eligible activity when claiming fuel tax credits?

Answer 1:

Yes.

Question 2:

Is the use of diesel fuel in powering the auxiliary generator-set on board the vessel, a fully eligible activity when claiming fuel tax credits?

Answer 2:

Yes.

Question 3:

Is the use of diesel fuel to power the emergency generator-set on board the vessel, a fully eligible activity when claiming fuel tax credits?

Answer 3:

Yes.

This ruling applies for the following period:

2010 -11 income year

The scheme commences on:

1 July 2010

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 have been engaged to provide marine construction services to a company.

You will use diesel fuel in a vessel to undertake these works.

Equipment on board the vessel

The vessel is powered by the following machinery:

· a number of main engines, directly coupled to generators. Each of these engines also provides the vessel's propulsion through drive to the propellers via a reduction gearbox under sailing conditions;

· an auxiliary generator set; and

· one emergency generator set.

The electricity generated from all the generators is fed into the vessel's main electricity grid via a main switchboard.

The electricity grid then provides power to all equipment operating on-board the vessel (other than the variable pitch propellers which operate via a reduction gearbox) including the following electrically driven equipment:

· pumps;

· motors;

· various winches;

· all vessel control and navigation equipment (i.e. on vessel's bridge);

· all air-conditioning units and exhaust fans; and

· all lighting and residential power.

Operational processes

The mechanical processes utilised during the operation of the vessel are clearly designed to enable the vessel operators to directly manipulate and direct the quantum of electrical power produced by the generators.

Fuel is used for the purposes of generating electricity to power electrical equipment on board the vessel and for use in an internal combustion engine for the purpose of propelling the vessel.

Electrical power is required to operate the vessel at all times, even when stationary, as demonstrated by the following examples:

· The auxiliary generator operates to provide power to the grid to meet the demands of various electrical equipment on board the vessel whilst it is stationary.

· The main engines do not operate at this time, therefore no vessel propulsion occurs.

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 2 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 Division 2 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).

Electricity Generation

Subparagraph 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. For example, fuel is used in generating electricity when it is used in a generator so as to make power available to business premises (vessel).

Similarly, the use of fuel in a generator to provide power to a range of external equipment (such as electrically powered machinery in a factory) would constitute use in generating electricity.

The above uses of fuel can be contrasted with the use of fuel within the actual equipment that is to be powered by the fuel. For example, fuel acquired for use in the internal combustion engine of a vehicle/vessel is for the purpose of driving or propelling the vehicle/vessel.

Similarly the use of fuel in the internal combustion engine of a machine where the electrical power generated by the machine is for use by that machine is for the purpose of operating the machine. For example, the generator attached to a cars' engine is for generating electricity to operate the engine.

The vessel is powered by a number of main diesel engines, directly coupled to generators. It is also powered by an auxiliary generator and an emergency generator set.

The electricity generated from all generators is fed into the vessel's main electricity grid via a main switchboard. This electricity grid then provides power to all equipment operating on-board the vessel including pumps, motors, various winches, all vessel control and navigation equipment, etc.

Main generators

All power generated by the main generators is fed directly into the main electrical grid of the vessel via the main switchboard. This electricity is then distributed as needed to power all of the electrically driven equipment on board the vessel.

All equipment on board the vessel, other than the propellers which are driven by the engine, is powered by the main generators.

The variable pitch propellers operate via reduction gearboxes whilst the engines are running to power the generators.

You use diesel fuel to power the main engines, which are each directly coupled to generators for the generation of electricity on board the vessel. This meets the requirement that the fuel is for the purposes of electricity generation within subparagraph 11(1)(b)(iii) of Schedule 3 to the FTCTPA.

Accordingly, the use of diesel fuel in powering the main generators to generate electricity on board the vessel is a fully eligible activity for fuel tax credits for the period 1 July 2010 to 30 June 2011.

Auxiliary generator

Unlike the main generator, the auxiliary generator does not provide any direct drive propulsion to the vessel.

All power generated by the auxiliary generator is fed directly into the main electrical grid of the vessel via the main switchboard. This electricity is then distributed as needed to power all of the electrically driven equipment on board the vessel.

As the auxiliary generator does not contribute in any way to the propulsion of the vessel, all fuel consumed is used solely for the purpose of powering the auxiliary generator. As such, all fuel consumed by the auxiliary generator is used in the activity of electricity generation within subparagraph 11(1)(b)(iii) of Schedule 3 to the FTCTPA.

Accordingly, the use of diesel fuel in powering the auxiliary generator-set to generate electricity on board the vessel is a fully eligible activity for fuel tax credits for the period 1 July 2010 to

30 June 2011.

Emergency generator

When required, the vessel is also powered by an emergency generator set. This generator-set does not provide any direct drive propulsion to the vessel.

The emergency generator is only operated on occasions where there is a failure in the main and/or auxiliary generators. It is used solely for the purpose of providing electricity to the vessel and does not provide any direct drive propulsion to the vessel.

As the emergency generator does not contribute to the propulsion of the vessel, all fuel consumed by the engine is used solely for the purpose of powering the emergency generator. All fuel consumed by the emergency generator is used in the activity of electricity generation within subparagraph 11(1)(b)(iii) of Schedule 3 to the FTCTPA.

Accordingly, the use of diesel fuel to power the emergency generator-set to generate electricity on board the vessel is a fully eligible activity for fuel tax credits for the period 1 July 2010 to 30 June 2011.