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Authorisation Number: 1011999627152

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Ruling

Subject: Fuel tax credits - resource operations

Question 1:

Is diesel consumed by heavy machinery in bulk earthworks for the construction of resource plant, an eligible activity for fuel tax credits at the rate of 38.143 cents per litre?

Answer:

No.

Question 2:

Is diesel consumed by heavy machinery in bulk earthworks in an area adjacent to resource plant which will be used as a beneficiation area an eligible activity for fuel tax credits at the rate of 38.143 cents per litre?

Answer:

No.

Question 3:

Is diesel consumed by vehicles less than 3.5 tonnes gross vehicle mass (GVM), where those vehicles are being driven on a property that is restricted with no public access an eligible activity for fuel tax credits at the rate of 19.0715 cents per litre?

Answer:

Yes.

This ruling applies for the following periods:

2008-09 income year

2009-10 income year

2010-11 income year

The scheme commences on:

1 July 2008

Relevant facts and circumstances

You operate as an unincorporated joint venture with another entity.

The Joint Venture (JV) have been contracted by a resource company to undertake bulk earthworks for a particular project and had a contract detailing the scope of works for which the JV was responsible. You state that both parties were jointly and severally liable for all the works.

You have provided the joint venture agreement in relation to the bulk earthworks for the project. This agreement provides for how each of the parties will work together as a joint venture in performing their obligations to the Contract.

You have agreed the questions in this private ruling will address whether particular activities are eligible activities for the purposes of fuel tax credits and determining the rate that applies. As such, this ruling does not provide an opinion on acquisition of fuel or any other element which would need to be satisfied for a claimant to be entitled to a fuel tax credit. Nor does it provide an opinion as to who may have an entitlement.

To date, you have claimed fuel tax credits at the rate of 19.0715 cents per litre.

You granted permission for us to refer to a number of websites in obtaining background on the project and your involvement.

You used heavy machinery for bulk earthworks on land set aside for a resource operation but were not directly involved in the construction of the infrastructure. Your activities involved the excavation of pipeline trenches, clearing, grubbing, removal of trees, shrubs, obstructions and similar.

You state the whole site was a bulk earthworks site and that all things subsequently built at the site were built on land the JV developed during the bulk earthworks contract.

You state that adjacent to and forming part of the same contract is an area which will form part of the beneficiation process where the magnetite ore is dried, blended then stockpiled awaiting shipment overseas.

At the same site you use vehicles that are less than 3.5 tonnes gross vehicle mass (GVM) that consume diesel. You state all roads and areas you access are private in nature and considered a mine site.

You contend the construction of the mine infrastructure cannot take place without the bulk earthworks being performed. You state as the only specific exclusion for bulk earthworks is in regards to the beneficiation area if it is a beneficiation area 'only'.

In your view it must be concluded that the earthworks for the construction of plant is considered resource as these are jointly conducted and are not separate issues.

Relevant legislative provisions

Fuel Tax Act 2006 section 41-5

Fuel Tax Act 2006 section 41-B

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(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 paragraph 11(1)(a)

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

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

Energy Grants (Credits) Scheme Act 2003 paragraph 11(2)(b)

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

Energy Grants (Credits) Scheme Act 2003 section 15

Energy Grants (Credits) Scheme Act 2003 paragraph 15(d)

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 and continues the previous entitlement provisions of the Energy Grants (Credits) Scheme Act 2003 (EGCSA) for fuel acquired between 1 July 2008 and 30 June 2012.

Note: this ruling does not provide an opinion on acquisition of fuel or any other element which would need to be satisfied for a claimant to be entitled to a fuel tax credit. It provides opinion on whether the said activities are eligible activities for the purposes of fuel tax credits.

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 EGCSA.

Subsection 53(2) of the EGCSA provides that use in resource 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 resource for minerals to commence; or

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

(i) resource 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 resource construction activity; or

In determining whether your activities are 'resource operations', and therefore, eligible for an off road credit it is appropriate to consider:

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).

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).

Resource construction

A resource construction activity is defined in paragraph 15(d) of the EGCSA to include the construction or maintenance of buildings, plant or equipment for use in an 11(1)(a) or 11(1)(b) resource operation, subject to certain requirements being met.

You performed bulk earthworks where your activities consisted of land clearing, topsoil removal and respreading, embankment foundation compaction, earthworks and excavation (including rock), embankment construction and excavation of pipe trenches within a site where mine infrastructure is being constructed.

Although your bulk earthworks may have enabled the construction of the mine infrastructure, you were not directly involved in the actual construction of the infrastructure and your activities are not construction activities. Furthermore, your activities occur prior to any paragraph 15(d) construction or maintenance activities.

Further, paragraph 15(d) of the EGCSA does not include the extraction, processing or transportation of materials for use in the construction of buildings, plant or equipment as these are activities that occur before the construction and maintenance.

Therefore, your activities are not considered a resource construction activity within paragraph 11(1)(f) of the EGCSA.

Use in resource operations

As explained previously, if the provisions of paragraphs 11(1)(c) to 11(1)(i) of the EGCSA are not met, we consider whether the activities otherwise fall within paragraphs 11(1)(a) or 11(1)(b) of the EGCSA and whether they are excluded by any of the activities contained in subsection 11(2).

Paragraph 11(1)(a) of the EGCSA provides that resource operations includes other activities undertaken in the preparation of a site to enable resource for minerals to commence.

The phrase 'other activities undertaken in the preparation of a site to enable resource for minerals to commence' is not restricted in meaning to activities similar in nature to the removal of overburden. It is taken to mean any activity that is undertaken in preparing a site to enable resource for minerals to commence.

Whether activities take place in the course of preparation of a site to enable resource for minerals to take place is a question of fact, determined having regard to the facts and circumstances of each case.

The carrying out of bulk earthworks to facilitate the construction of mine infrastructure are not activities undertaken in the preparation of a site to enable resource for minerals to commence. Rather they are preparatory acts undertaken to enable the future construction to be undertaken by the other parties responsible for the construction.

Whilst it is your view that the construction of the mine infrastructure cannot take place without the bulk earthworks being performed, the carrying out of bulk earthworks establishes construction work areas to facilitate the construction of mine site infrastructure.

Therefore, your bulk earthworks are not considered to be 'other activities undertaken in the preparation of a site to enable resource for minerals to commence for the purposes of paragraph 11(1)(a) of the EGCSA.

Furthermore, the carrying out of earthworks do not fall within paragraph 11(1)(b) of the EGCSA as they are not resource for minerals or beneficiation of those minerals. Rather, they are activities that occur well before the recovery of minerals.

In the context of the phrase 'in resource operations' in subsection 53(2) of the EGCSA, the preposition 'in' means 'in the course of' or 'in the process or act of'. Therefore to be entitled to a fuel tax credit under resource operations (amongst other requirements), your activities must take place 'in' resource operations.

In Chief Executive Officer of Customs v. WMC Resources Ltd (as agent for East Spar Alliance) (1998) 158 ALR 241 at 259; Nicholson, J stated:

The word 'in; as it appears in para (a) of the definition of 'resource operations' is to be understood in this context as 'inclusion within, or occurrence during the course of…'

The Commissioner following three criteria may be relevant in determining if an activity takes place 'in the course of resource operations'. These are:

A causal link exists - in other words, a certain activity is functionally integrated with a resource operation, thereby forming an essential part of it;

A spatial link exists - meaning that an activity takes place in an area set aside or utilised for a resource operation; and

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

Therefore, it is necessary to consider whether the activities take place in the course of a resource operation and whether it satisfies the relevant tests mentioned above. That is, whether the causal, spatial and temporal links exist.

For a causal link to exist, your bulk earthworks at the site must be functionally integrated, that is they must be activities so closely related to the resource operation that it is impossible to distinguish between the activity undertaken and the resource operation. Activities including clearing, grubbing, topsoil removal and respreading, excavation and embankment foundation compaction to facilitate the construction of the mine infrastructure are activities for use in preparation of the construction site, rather than preparation of a site to enable resource for minerals to commence. As such, a causal link does not exist.

You undertake bulk earthworks to facilitate the construction of the desalination plant. The earthworks are to enable other activities (such as construction of infrastructure) to be undertaken.

The temporal link does not exist because the bulk earthworks you undertake do not occur during any resource operations. That is, they occur prior to resource for minerals and/or beneficiation of those minerals.

As you do not satisfy the temporal link it is not necessary to consider whether a spatial link exists.

Since you do not satisfy all of the three links, the use of heavy machinery in undertaking bulk earthwork activities are not for use 'in' resource operations under paragraphs 11(a) or (b) of the EGCSA. Therefore it follows that your bulk earthworks are not resource operations. As such, you will not be entitled to an off-road credit under subsection 53(2) of the EGCSA.

Accordingly, diesel consumed by heavy machinery in the operation of bulk earthworks in the construction of a desalination plant, is not an eligible activity for fuel tax credits at the rate of 38.143 cents per litre.

Bulk earthworks undertaken in area adjacent to desalination plant

Adjacent to and forming part of the same contract is an area where the magnetite ore is dried, blended then stockpiled awaiting shipment overseas. You undertake the bulk earthworks for this area.

It has already been discussed above that bulk earthworks are not resource construction activities and as such do not fall under any of the specific paragraphs of 11(1)(c) to (i) of the EGCSA.

Therefore, as discussed above, it needs to be considered whether the activities fall within paragraphs 11(1)(a) or (b) and hence considered 'resource operations'.

For your activities to fall within paragraph 11(1)(a), they must be activities undertaken in the removal of overburden and other activities in the preparation of a site, to enable resource for minerals to commence.

You have stated that beneficiation of the ore and stockpiling of the ore occurs at this site. Whether or not beneficiation occurs at this site, your earthworks are not the removal of overburden or preparation of a site, to enable resource for minerals to commence. Rather, the earthworks are to enable other activities (such as construction of infrastructure) to be undertaken.

For your activities to fall within paragraph 11(1)(b), they must be operations for the recovery of minerals, being resource for minerals or the beneficiation of minerals. Your earthworks are not undertaken to mine for minerals or to beneficiate the minerals. Rather, they are undertaken for the purpose of preparing an area for future construction of infrastructure.

As such, you will not be entitled to an off-road credit under subsection 53(2) of the EGCSA.

Accordingly, diesel consumed by heavy machinery in the operation of bulk earthworks in an area adjacent to the mine infrastructure which will be used as a beneficiation area is not an eligible activity for fuel tax credits at the rate of 38.143 cents per litre.

Vehicles less than 3.5 tonnes

You enquired about the use of light vehicles used off road on a mine site where there is no public access.

Paragraph 11(2)(b) of the EGCSA excludes from the definition of resource operations:

the use of a vehicle (other than a fork-lift, front-end loader, tractor or other similar vehicle that is specified in the regulations) not exceeding 3.5 tonnes gross vehicle mass, other than such a vehicle that is extensively modified for use underground while it is so used;

Fuel used in vehicles that have a gross vehicle mass (GVM) of less than 3.5 tonnes is excluded from resource operations under paragraph 11(2)(b) of the EGCSA, meaning no entitlement arises to an off-road credit under the EGCSA. As such, subitem 11(5) of the FTCTPA is not satisfied.

However, subitem 11(6) of Schedule 3 of the FTCTPA provides that entitlement to a fuel tax credit arises if you would not have been entitled to an on or off-road credit previously under the EGCSA. The amount is half the full rate of fuel tax credits.

This provision is subject to a number of requirements being met, including the disentitlement rules of subdivision 41-B of the FTA, which disallows a fuel tax credit:

· if another entity was previously entitled to a credit,

· for fuel used in light vehicles travelling on public roads,

· for fuel used in motor vehicles that do not meet environmental criteria, or

· for fuel used in aircraft.

Accordingly, diesel consumed by vehicles less than 3.5 tonnes GVM, where those vehicles are being driven on a property that is restricted with no public access is an eligible activity for fuel tax credits at the rate of 19.0715 cents per litre.