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Ruling

Subject: Fuel tax credits - mining

Question 1

Are you entitled to a fuel tax credit at the full rate for diesel fuel you acquired for use in vehicles and equipment in a contract for railway works?

Answer

No.

This ruling applies for the following periods:

1 July 2008 to 30 June 2012

The scheme commences on:

1 July 2008

Relevant facts and circumstances

You are a private Australian company registered for goods and services tax (GST) in the construction industry.

You have been contracted by a mining company to undertake the construction of their railway infrastructure.

The railway infrastructure is used to transport minerals to the port.

You have advised that the minerals mined at various mines have different grades. Some are very rich and some not so rich. The overseas smelters in some instances can not handle the extremely rich minerals and subsequently the rich and not so rich is blended to make it into minerals that can be handled by the different smelters.

You have supplied a scope of works from the contract between you and the mining company.

A paragraph of the contract describes your works as part of the mining company's plan to expand its minerals export capacity.

Another paragraph of the contract describes the works you will be performing as:

· Loading ballast wagons

· Watering the ballast wagons during loading; and

· Stockpile management as the ballast is delivered to site.

All work conducted is on a special lease/mining lease held by the mining company for their rail infrastructure and not on areas open to the public.

You were unable to explain what ballast is nor the role it plays in mining.

You acquire and use diesel fuel in a range of vehicles and equipment in undertaking the contracted works.

Relevant legislative provisions

Fuel Tax Act 2006 section 41-5

Fuel Tax Act 2006 section 41-20

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

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

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

Energy Grants (Credits) Scheme Act 2003 subsection 11(1)

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 subsection 11(3)

Energy Grants (Credits) Scheme Act 2003 subsection 11(5)

Energy Grants (Credits) Scheme Act 2003 subsection 53(2)

Energy Grants (Credits) Scheme Act 2003 section 15)

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 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.

Subitem 11(5) of the FTCTPA relevantly provides that you are entitled to a fuel tax credit under the FTA if you would have been entitled to an off-road credit under the Energy Grants (Credits) Scheme Act 2003 (EGCSA).

Subsection 53(2) of the EGCSA provides that use in mining operations (otherwise than for the purpose of propelling any vehicle on a public road) is a use that qualifies.

'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;

…

(f) a mining construction activity; or

…

A 'mining construction activity' is relevantly defined in section 15 of the EGCSA to include:

· the construction or maintenance of private access roads, plant or equipment, provided they are for use in a mining operation referred to in paragraph 11(1)(a) or 11(1)(b) of the EGCSA, and

· the construction or maintenance occurs at the place where the mining operation is carried, and

· the construction or maintenance is carried out by the person who carries on the mining operation or by a person contracted by that person.

Each of these requirements has to be satisfied in order for an activity to qualify as a 'mining construction activity' in section 15 of the EGCSA.

The first requirement is that the construction of the rail line is for use in a mining operation referred to in paragraph 11(1)(a) or 11(1)(b) of the EGCSA.

You are working on a rail line for the transport of minerals from the mine site to the port.

Paragraph 11(1)(a) of the EGCSA is not relevant as this activity is not the preparation of a site to enable mining for minerals to commence or any of the other activities listed under paragraph 11(1)(a) of the EGCSA.

Subparagraph 11(1)(b)(i) of the EGCSA is also not relevant as the minerals have been extracted before the minerals is loaded onto rail cars for transport to the port.

Therefore it needs to be considered whether the rail line is for use in the beneficiation of minerals, or ores bearing those minerals under subparagraph 11(1)(b)(ii) of the EGCSA and thus considered mining operations for the purposes of the EGCSA.

To determine whether the rail line is for use in the beneficiation of minerals, it is necessary to consider when the mining operation ceases.

Subsection 11(3) of the EGCSA provides that operations for the recovery of a mineral cease when the process of beneficiation ceases.

In Fuel Tax Ruling FTR 2006/2 Fuel tax: fuel tax credits for taxable fuel acquired or manufactured in, or imported into Australia for use in carrying on an enterprise involving 'mining operations' as defined in section 11 of the Energy Grants (Credit) Scheme Act 2003 the Commissioner explains an entity's entitlement to a fuel tax credit under the FTA for taxable fuel it acquires or manufactures in, or imports into, Australia to the extent that it does so for use in carrying on an enterprise, involving activities that are within the meaning of 'mining operations' in Subdivision B of Division 3 of Part 2 (Subdivision 3B) of the EGCSA.

At paragraph 254 of FTR 2006/2 the Commissioner states that the term beneficiation is used to describe treatments to improve, upgrade or concentrate the quality of mineral bearing minerals.

At paragraph 281 of FTR 2006/2 the Commissioner explains that in relation to iron ore, beneficiation will include crushing, screening, flotation, water reduction and sintering processes.

The meaning of beneficiation was also discussed in Abbott Point Bulk Coal Pty Ltd & Anor v. Collector of Customs (Abbott Point ). In Abbott Point , the court dealt with a claim for rebate under the diesel fuel rebate scheme for diesel fuel used in transporting coal by rail and in vehicles at the export facility.

In dismissing the claim, Ryan and Cooper JJ said:

It is clear, in our view, that 'beneficiation' is not a term in ordinary English usage. It is a technical term applicable to a range of processes in the mining and metallurgical industries. Accordingly, its meaning is to be determined as a question of fact. ... Here the Tribunal found, ... 'beneficiation' denotes the processing of minerals or ore-bearing minerals to improve their physical and chemical properties.

Ryan and Cooper JJ went on to find that:

The process of recovery includes, in our view, those steps which are taken by a miner before sale, by whatever process, to remove the mineral from that in which it is embedded or with which it is intermixed. Such a process comprehends the refining of minerals or ore to remove impurities naturally occurring in the material as it has been mined. Once the process of separation or refining has been completed, to subject the mineral product to a process or procedure designed purely to facilitate its better use as so separated or refined or to render it more readily or advantageously marketable is not in our view part of the recovery process.

You advise that the minerals are transported by the rail infrastructure to the port where it is blended. This blending occurs not to separate the minerals from any waste or improve its physical or chemical properties but rather to make it more usable by your customers.

Specifically, the minerals are blended to ready it for overseas smelters which you state in some instances cannot handle extremely rich minerals.

In this case, any processes to improve the physical and chemical properties of the iron minerals (beneficiation) would have occurred prior to its loading onto rail cars and its transport to port. Therefore, for the purposes of paragraph 11(1)(b) of the EGCSA, the mining operations ceased prior the minerals' transport by the rail infrastructure to the port and, any activities occurring after this processing are not mining operations for the purposes of the EGCSA.

Accordingly, you do not satisfy the first requirement of section 15 of the EGCSA.

Since you have not satisfied the first requirement, it is not necessary to consider the other requirements. Your work on the rail line and the associated infrastructure are not mining construction activities and therefore, not mining operations under subsection 11(1) of the EGCSA.

As such, you are not entitled to an off-road credit under subsection 53(2) of the EGCSA for the use of diesel fuel in vehicles, plant or equipment in constructing the rail line and associated infrastructure.

Accordingly, you are not entitled to a fuel tax credit at the full rate for diesel fuel you acquired for use in machinery and equipment in a contract for railway works.