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Ruling
Subject: Fuel tax credits - electricity generation
Are you entitled to a fuel tax credit at the rate of 38.143 cents per litre for the proportion of diesel you acquired and used to generate electricity onboard a dredging vessel?
Answer
Yes.
This ruling applies for the following periods:
Year ending 30 June 2010
Year ending 30 June 2011
The scheme commences on:
1 July 2009
Relevant facts and circumstances
You have been engaged to provide dredging services in Australia.
You own a dredging vessel (the dredge) which will be used on the dredging works.
The dredge is a self-propelled trailing suction hopper dredger.
The dredge is powered by the following machinery:
§ A number of main diesel engines each linked to an electrical generator
§ One auxiliary diesel electrical generator
§ One emergency diesel electrical generator.
The main engines also provide the dredge's propulsion through drive to variable pitch propellers via a reduction gearbox.
The auxiliary and emergency generators play no role in the propulsion of the dredge.
The electricity generated by all generators is fed into the dredge's main electricity grid via a main switchboard. The electricity grid provides power to all equipment operating on board the dredge including:
§ Dredge pumps
§ Jet pump motors
§ Bow thrusters
§ Dilution water pumps
§ Various winches, gantry operations and cranes
§ All dredge control and navigation equipment
§ All air conditioning units and exhaust fans; and
§ All lighting and residential power required to generate electricity for domestic requirements of the crew
You acknowledge that the portion of diesel fuel you acquire and use in the main engines to directly propel the dredge is not fuel used in the generation of electricity and you intend to claim fuel tax credit at the half rate in respect of this fuel. You only ask that the Commissioner consider the eligibility of fuel used in electricity generation.
Given the different rates of fuel tax credit accruing to taxable fuel you acquire and use on the dredge, you also advise that an apportionment exercise will be necessary.
You only want the ATO to consider whether the use of fuel in electricity generation is an eligible activity for the purposes of fuel tax credits. You do not seek an opinion on acquisition of taxable fuel or any other element needed to be satisfied for a claimant to be entitled to a fuel tax credit.
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 subitem 11(1) 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 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 the period 1 July 2008 to 30 June 2012.
Subparagraph 11(1)(b)(iii) of Schedule 3 of the Fuel Tax (Consequential and Transitional Provisions) Act 2006 (FTCTPA) provides that an entitlement to a fuel tax credit arises under section 41-5 of the Fuel Tax Act 2006 (FTA) if you acquire taxable fuel for 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 power generated by the machine is for use by that machine is for the purpose of operating the machine.
Main engines
A portion of the fuel used in the main engines is used to drive electrical generators and a portion is used to directly propel the dredge.
As electricity generation, is an eligible activity under subparagraph 11(1)(b)(iii) of Schedule 3 to the FTCTPA, the portion of fuel used for that purpose is an eligible use of fuel and thus you are entitled to a fuel tax credit at the rate of 38.143 cents per litre for the proportion of diesel you acquired and used to generate electricity in the dredging vessel.
However, at times, a portion of the fuel used in the dredge's main engines is used to directly propel the dredge.
As the propulsion of a dredge is not a specific activity listed in subitem 11(1) of Schedule 3 to the FTCTPA, it is not an activity for which a fuel tax credit entitlement ordinarily exists.
Auxiliary and emergency generators
Unlike the main engines, the auxiliary and emergency generators do not provide any direct drive propulsion to the dredge.
All power generated by these generators is fed directly into the main electrical grid of the dredge 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 and emergency generators do not contribute in any way to the propulsion of the dredge, it is accepted that all fuel consumed by them is used solely for the purpose of electricity generation which is an eligible use of fuel within subparagraph 11(1)(b)(iii) of Schedule 3 to the FTCTPA.
Accordingly, you are entitled to a fuel tax credit at the rate of 38.143 cents per litre for the proportion of diesel you acquired and used to generate electricity in the dredging vessel.