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Ruling

Subject: Fuel tax credits - acquisition of fuel

Question:

Have you acquired fuel, for the purposes of claiming a fuel tax credit under section 41-5 of the Fuel Tax Credit Act 2006 (FTA) for use in carrying on your enterprise on board your marine vessel for the period 1 July 2006 to 31 December 2010?

Answer:

No.

This ruling applies for the following periods:

2006-07 income year

2007-08 income year

2008-09 income year

2009-10 income year

2010-11 income year

The scheme commences on:

1 July 2006

Relevant facts and circumstances

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

In order to undertake your business, you required:

· a suitable vessel and

· crew to operate the vessel,

· a steaming party and

· other suitable infrastructure.

You contracted with another entity (the contractor) to provide these services to you.

A copy of the contract for the provision of the services has been provided by you.

The primary tasking for the vessel and its crew was to conduct marine patrols. The vessel and its crew were also required to assist you in conducting other operations.

Aboard the vessel on each patrol were, in addition to its crew, authorised personnel (including your staff) and a steaming party provided by the contractor.

When not required for marine patrols, on 'stand-by' in harbour, or undergoing maintenance, the contract made provision for the vessel to be tasked with activities elsewhere on behalf of other entities.

At all relevant times, both you and the contractor were registered for GST as required by section 41-5 of the FTA.

Your contract with the contractor provides that they would be responsible for 'providing the resources to fulfil the contractual requirements.'

The contract also contained the following clauses so far as is relevant:

…

3.7 Subject to this Contract, the Contractor will arrange for each voyage to be undertaken in accordance with an official order issued by [you] to the Contractor.

3.8 Each official order will be subject to the terms and conditions of this Contract.

3.9 As far as reasonably possible, the Contractor will meet the priorities for the Services notified to it by you in an official order or a notice given by you to the Contractor…

…

4.1 As at the Voyage Start Date the Vessel will be:

…

d. ready to be employed in the activities as you may direct as described in the Official Order.

…

4.4 You will furnish the Master in writing with all necessary operational instructions, sailing directions and charts relevant to the Services.

…

4.21 The Contractor will provide the whole resources of the Vessel for the purposes of providing the Services to the exclusion of any other cargo or task.

4.22 Other than in respect of bunkers, fuel and lube oils that are to be provided by [you] pursuant to Clause 16, pay for all oils, paints and stores and maintain the Vessel in a thoroughly efficient state in hull and machinery.

…

16.1 Subject to this clause 16, [you] will pay the Contractor the Charges in accordance with Attachment 1

…

Attachment 1 [entitled 'Charges'].

16.2 Subject to this clause 16, the Charges include the cost of all services required for the performance of the Contractor's obligations.

16.3 [You] will provide or pay for:

a. port charges (including but not limited to berth hire and associated charges and any required pilots, tugs or lineboats);

b. communication costs onboard for messages originated by [you] or primarily addressed to you;

c. all other Charges appertaining to the working or efficacy of the Vessel as listed in the Official Order, including costs relating to your Equipment in accordance with Clause 5; and

d. bunkers, fuel and lube oils (see clause 4.22)

…

16.5 [You] will:

a. pay for at the current market price at the port where the Vessel commences the performance of the Services the fuel and lube oil onboard; and

b. provide and pay for fuel and lube oil for the use of the Vessel during the period while the Vessel is engaged in providing the services.

16.6 The Contractor agrees to pay for all lube oil and fuel left in the tanks at the current market price at the port at which the Vessel ceases to perform the Services when the Vessel is released from the obligations under this Contract.

…

18.4 If applicable, the Contractor agrees to reduce the Original Amount Payable to ensure that the benefit of any reduction in or removal of taxes, duties or charges which impacts upon the costs to the contractor in performing this Contract is passed on to [you]. If a reduction in the original amount payable is made under this clause the reduced amount will become the Original Amount Payable for the purposes of this Contract.

…

43.1 Each party agrees that it will not represent itself, and will ensure that its employees do not represent themselves, as being employees, partners or agents of the other Party.

43.2 The Contractor will not by virtue of this Contract be, or for any purpose be deemed to be an employee, partner or agent of [you].

You also made the following statements:

When required, the contractor ordered the fuel for the vessel. The vessel would bunker and receive a bunker receipt or goods received note. These bunkers would then be invoiced by the fuel supplier to the contractor within one week of bunkering. The invoices were made out in the name of the contractor. You provided an example of such a fuel invoice.

Within the following week, the contractor would then raise a separate invoice for the fuel cost to you. An example of such an invoice was also provided by you.

The contractor would subsequently claim a fuel tax credit and an input tax credit in relation to the fuel through its own BAS.

Up to two months later, upon receipt of the fuel tax credit, the contractor would provide you with a Credit Adjustment Note to offset the fuel tax credit claimed against the price paid for the fuel cost. An example Adjustment Note was provided by you.

It is your assertion that you were not a party to the fuel transactions and that the contractor was solely responsible for fuel ordering and payment to enable it to provide its services to you.

You contend that while the contract does mention fuel in several places, no provision was made in the contract for a transfer of ownership of the fuel.

You also contend that neither did you have an interest in the fuel procurement procedures or the contractors BAS. Your sole interest was the patrol and response capability of the Vessel and ensuring that the contractor met their contractual obligations in providing the services to you.

You assert that the invoicing process described above was simply a mechanism to price the overall services being supplied to you.

You also contend that the fuel used in the provision of marine services is of significant quantity and that there is no accurate method by which likely total fuel consumption can be accurately forecast as variables impact on the vessels fuel usage, thereby mitigating against including this cost into an all-inclusive hire price.

You acknowledge the inherent ambiguity of the Contract between yourselves and P&OMS and state that it is necessary to look at the surrounding circumstances to determine the intention of the parties when determining the acquisition of fuel.

Relevant legislative provisions

Fuel Tax Act 2006 41-5

Fuel Tax (Consequential and Transitional Provisions) Act 2006 Division 1 of Schedule 3

Fuel Tax (Consequential and Transitional Provisions) Act 2006 Division 2 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 subitem 11(1) of Schedule 3

Fuel Tax (Consequential and Transitional Provisions) Act 2006 subitem 10(5) of Schedule 3

Fuel Tax (Consequential and Transitional Provisions) Act 2006 subitem 11(5) of Schedule 3

Energy Grants (Credits) Scheme Act 2003 section 36

Energy Grants (Credits) Scheme Act 2003 subsection 36(2)

Energy Grants (Credits) Scheme Act 2003 subsection 53(1)

Energy Grants (Credits) Scheme Act 2003 subsection 53(3)

The Macquarie Dictionary (rev. 3rd. ed.) 2001, Macquarie, Sydney, NSW

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 Divisions 1 and 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 the period 1 July 2006 to 30 June 2012.

For the period 1 July 2006 to 30 June 2012 the specific activities for which an entitlement exists are relevantly listed within subitems 10(1) and 11(1) of Schedule 3 of the FTCTPA.

The items listed within subitems 10(1) and 11(1) of Schedule 3 of the FTCTPA are:

(i) for use in a vehicle travelling on a public road; or

(ii) for incidental use in relation to a vehicle travelling on a public road …;or

(iii) for use by you in generating electricity; or

(iv) for use other than as a fuel; or

(v) for use other than as a fuel in an internal combustion engine; or

(vi) for use as heating oil.

…

In this case, fuel was acquired and used in a vessel transporting various personnel. As this is not an eligible use of fuel under any of the items in subitems 10(1) or 11(1) of Schedule 3 of the FTCTPA it is necessary to consider whether these activities qualify under any other provisions.

Subitems 10(5) and 11(5) of the FTCTPA provide that you are entitled to a fuel tax credit if you would have been entitled to an off-road credit under EGCSA.

Marine transport

Subsection 53(1) of the EGCSA states that you are entitled to an off-road credit if you purchase or import into Australia off-road diesel fuel for a use by you that qualifies.

Subsection 53(3) of the EGCSA provides that use in marine transport, in the course of carrying on an enterprise is a use that qualifies. The phrase 'use in marine transport' is defined in section 36 of the EGCSA to mean a number of activities including (per subsection 36(2)) 'use in a vessel in marine transport'.

A first step in determining whether diesel fuel has been used in a vessel in marine transport is to determine the meaning of the term 'marine transport'.

The meaning of 'marine transport' was considered by the Federal Court in Port of Brisbane Corporation v Deputy Commissioner of Taxation [2004] FCA 1232 (Port of Brisbane). In Port of Brisbane, the AAT reasoned at paragraph 31 that:

the phrase use in marine transport should be accorded its ordinary and natural meaning.

And further at paragraph 32 that:

In the Tribunals opinion, the key to the meaning of marine transport lies in the meaning of the word transport. The Concise Macquarie Dictionary (3^rd edition 1988) lists as the sixth meaning of transport:

6. a means of transporting, as a ship, truck or plane used for transporting soldiers or military stores, or convicts.

The first meaning of transport in the Oxford English Dictionary is:

1. the action of carrying or conveying a thing or person from one place to another, conveyance.

The use of the word transport in the phrase marine transport suggests a conveyance - something which does the conveying a vehicle or vessel or aircraft which moves through its particular medium (land, water, air) carrying a thing or person. The medium in this case is, of course, water. Thus, marine transport should in this instance be interpreted as meaning the act of conveying a thing

The Tribunal then applied this definition of marine transport to conclude at paragraph 35 that:

diesel used by the Corporation in powering the self-propelled trailer suction dredges in travelling to and from dredging operations or dump sites or used in towing cutter suction or grab dredges to and from the dredging operations or dump sites should be considered as being used in marine transport because the diesel is being used to power a vessel conveying dredging machinery or the spoil generated by the dredging activities from one place to another.

In your case, as in Port of Brisbane, the vessel in question is conveying equipment and personnel, therefore, these activities are marine transport. As such, any diesel fuel used for this purpose would be entitled to an off-road credit.

Consequently, an entitlement to an off-road credit under the EGCSA applies to that fuel and in accordance with subitems 10(5) and 11(5) of the FTCTPA, a fuel tax credit may be claimable in respect of that fuel.

Fuel Acquired

While fuel tax credits may be claimable for fuel used in marine transport activities, any such entitlement is contingent on the acquisition of that fuel.

As the term 'acquire' is not defined in the FTA, it must also take its ordinary meaning.

The Macquarie Dictionary defines 'acquire' as:

1 . to come into possession of; get as one's own:* You must acquire property at once

2 . to gain for oneself through one's actions or efforts...

In Fuel Taxation Ruling FTR 2007/1, Fuel tax: the meaning of 'acquire', 'manufacture' and 'import' in the expression 'taxable fuel that you acquire or manufacture in, or import into, Australia to the extent that you do so for use in carrying on your enterprise' in the Fuel Tax Act 2006, the Commissioner discusses the meaning of 'acquire', 'manufacture', and 'import'.

In Fuel Tax Ruling FTR 2009/1, Fuel tax: entitlement to a fuel tax credit under section 41-5 of the Fuel Tax Act 2006 in a vehicle or equipment hire arrangement the Commissioner explains which entity is entitled to a fuel tax credit under section 41-5 of the FTA in a vehicle or equipment hire arrangement. FTR 2009/1 also sets out the principles which can be used in determining whether fuel has been disposed of by the hire company to the hirer, and consequently acquired by the hirer, and which entity has fuel tax credit entitlements under section 41-5 of the FTA.

At paragraphs 14 and 15 of FTR 2009/1 the Commissioner states that when determining which entity in a hire arrangement acquires and uses the fuel, it is necessary to take into account the facts and circumstances in each case.

This is because ownership and use are not always readily apparent. For example where a hire company acquires fuel and does not dispose of the fuel to the hirer, the hire company will be entitled to a fuel tax credit for fuel used in the hire vehicle or equipment in carrying on their enterprise (subject to the disentitling provisions).

However, where the hire company acquires a quantity of fuel but disposes of the fuel to the hirer, the hire company will not be entitled to a fuel tax credit.

Conversely, where a hirer acquires a quantity of fuel and does not dispose of the fuel, the hirer will retain entitlement to a fuel tax credit for fuel used in the hire vehicle or equipment in carrying on their enterprise.

Therefore, an entity must establish whether it has first acquired fuel prior to determining if it has used the fuel in carrying on its enterprise. The meaning of 'acquire' and 'use' is discussed in both FTR 2007/1 and FTR 2009/1.

Acquire

At paragraph 143 of FTR 2007/1 the Commissioner states that, for the purposes of the FTA, the relevant meaning of acquire is to 'get as one's own' from someone else or through one's actions or efforts. 'Acquire' does not mean merely 'to come into possession of'.

The Commissioner considers that to 'get as one's own', implies getting ownership or proprietary rights in respect of the taxable fuel. This will mean either that property in the taxable fuel passes from one entity to another or that proprietary rights or ownership is conferred by the act of obtaining the taxable fuel by other means.

Therefore, the Commissioner takes the view that an entity typically 'acquires' taxable fuel upon a change in ownership of, or a transfer of proprietary rights in, the fuel from one entity to another.

To 'get as one's own' requires property in or ownership of the relevant taxable fuel to pass from one entity to another entity, or alternatively, that ownership is conferred because the fuel has been obtained by an entity as its own.

You acquire taxable fuel if:

· you purchase the fuel;

· the fuel is gifted to you; or

· you get the fuel as your own by any other means (other than manufacture or import). This necessarily means that you get ownership of, or proprietary rights in respect of, the fuel.

Conversely, if an entity simply acquires a right or a licence to use another entity's fuel in their plant or equipment in performing work for that entity, the second entity has not acquired that fuel for the purposes of the FTA as the mere grant of a right or licence to use the fuel does not result in you obtaining a proprietary interest in, or ownership of, the fuel.

Use

In the context of section 41-5 of the FTA, the term 'use' means 'expend or consume in use', which in turn requires that the fuel be expended or consumed, such that it no longer exists as fuel, by putting it into service in carrying on your enterprise.

The Revised Explanatory Memorandum to the Fuel Tax Bill 2006 (Revised EM) provides guidance regarding the meaning of 'use' for the purposes of section 41-5 of the FTA, as follows:

2.33 The term 'use' is intended to take on its ordinary meaning and apply it in a broad sense, as long as the use of fuel is within the confines of the conduct of carrying on an enterprise. For example, 'use' will include use of fuel that is acquired or manufactured in, or imported into Australia by a taxpayer, but actually used by a contractor in carrying on the taxpayer's enterprise as long as the taxpayer is not taken to have sold the fuel to the contractor as part of their contract.

2.34 Fuel is 'used' if it ceases to exist after an action to use it, either as a fuel or in the production of another thing. As such, a sale of fuel is not a use of fuel and a taxpayer will not be considered to have used fuel is they sell the fuel to another entity…

Therefore, taxable fuel will not be used by you in your enterprise under section 41-5 of the FTA where it is sold by you to another entity.

In your case, you hire a vessel from a contractor who purchases the fuel and subsequently invoices you for the cost of that fuel. After claiming fuel tax credits in respect of that fuel, the contractor subsequently issues a credit adjustment note to you equal to the amount of fuel tax credits previously invoiced.

The language used in the contract between parties is often ambiguous - a fact you have acknowledged. The wording is inconsistent throughout the contract, which makes it difficult to interpret the clauses with certainty. For example, clause 4.22 states that [you]are, pursuant to clause 16, to provide bunkers and fuel. Clause 16.3 states that [you] will provide or pay for the fuel, whereas clause 16.5.b states that [you] will provide and pay for the fuel.

On a reading of the contract as a whole, a possible interpretation is that [you] had the choice to either provide or pay for the fuel. In practice, the evidence you have presented to us indicates that you did not provide the fuel itself, however you did ultimately pay for the fuel at the market price. Clauses 43.1 and 43.2 of the contract indicate that the contractor did not purchase the fuel as agent for you. Also, none of the clauses in the contract reveal a clear intention that title in the fuel was to be transferred from the contractor to you.

We therefore accept that while you ultimately paid the contractor a sum of money equal to the cost of fuel used in providing the contracted service for you, you have not acquired the fuel by purchasing it. These service charges can be considered to be reimbursements that did not result in a transfer in ownership of the fuel to you.

As you have not acquired the fuel used in the marine transport services provided by the contractor you are not entitled to a fuel tax credit in respect of that fuel.

Accordingly you have not acquired fuel, for the purposes of claiming a fuel tax credit under section 41-5 of the FTA for use in carrying on your enterprise on board your marine vessel during the period 1 July 2006 to 31 December 2010.