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Ruling

Subject: Fuel tax credits

Question 1

Is the dewatering of a slurry product considered to be the final point of beneficiation for the purposes of claiming fuel tax credits under a mining activity?

Answer

Yes.

Question 2

If so, is the construction of a dewatering facility therefore considered to be a mining construction activity for which fuel tax credits may be claimed at the full rate?

Answer

Yes.

This ruling applies for the following periods:

2008-09 income year

2009-10 income year

2010-11 income year

2011-12 income year

The scheme commences on:

1 July 2008

Relevant facts and circumstances

You have been engaged as the Engineering, Procurement, Construction and Management (EPCM) service provider for a mining company in relation to their iron ore project (the Project).

The Project consists of a mine site, power station and port infrastructure.

A concentrator is located at the mine site and produces a slurry product which is transferred for dewatering and stockpiling at the port via a slurry pipeline.

As EPCM provider, you are responsible for the construction of a number of the assets, including the pipeline and dewatering facility.

You purchase all the fuel and currently have storage tanks located on site.

The mining company holds a lease for mining activities across the entire Project site including the proposed port area, which is connected to the mine site by a private access road.

A dewatering facility is to be constructed adjacent to the wharf in the port area and is the final stage of mineral processing prior to the product being stockpiled ready for export. A slurry pipeline delivers the product to the dewatering facility from the concentrator located at the mine site.

At the mining operation, run-of-mine ore will be crushed, screened, subject to cyclonic and separation, before being fed from concentrate thickeners into a slurry pipe. The slurry pipe delivers the concentrate to the dewatering facility where moisture is removed thereby improving the ore concentration. Previously, it was intended to include a pelletising plant alongside the dewatering facility. A decision has been made not to proceed with the pelletising plant.

Mining operations have not started yet.

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(5) of Schedule 3

Energy Grants (Credits) Scheme Act 2003 section 53

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 paragraph 11(1)(f)

Energy Grants (Credits) Scheme Act 2003 subsection 11(3)

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

Energy Grants (Credits) Scheme Act 2003 section 15

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

Energy Grants (Credits) Scheme Act 2003 subparagraph 15(d)(i)

Energy Grants (Credits) Scheme Act 2003 subparagraph 15(d)(ii)

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 or manufacture in, or import into Australia to the extent that you do so for use in carrying on your enterprise if you are registered for GST. 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 continue the previous entitlement provisions of the Energy Grants (Credits) Scheme Act 2003 (EGCSA).

Subitem 11(5) of Schedule 3 of the FTCTPA provides that an entitlement to a fuel tax credit arises under section 41-5 of the FTA if you would have been entitled to an off-road credit under the EGCSA.

Section 53 of the EGCSA provides that you are entitled to an off-road credit if you purchase fuel for a qualifying use. 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 and includes:

(a) exploration or prospecting for minerals, or 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;

and includes:

(f) a mining construction activity.

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

(d) the construction or maintenance of private airstrips, buildings, plant or equipment for use in a mining operation referred to in paragraph (a) or (b) of the definition of that expression in subsection 11(1) if the construction or maintenance:

(i) occurs at the place where the mining operation is carried on; and

(ii) is carried out by the person who carries on the mining operation or by a person contracted by that person to carry out the construction or maintenance; or

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 activities that are within the provision.

For an activity to be a mining construction activity under paragraph 15(d) of the EGCSA three conditions must be met:

· the plant must be for use in a mining operation,

· the plant is at the place where mining operation is carried on, and

· you are contracted by the person carrying out the mining operation.

Each will be discussed below.

Use in a mining operation

Mining operations includes the beneficiation of minerals, or of ores bearing those minerals.

Beneficiation is not a term in ordinary English usage. It is a technical term applicable to a range of processes undertaken in the mining or metallurgical industries. It is used to describe a treatment to improve, upgrade or concentrate the quality of mineral bearing ore up to, but not including, the refining or final pyrometallurgical or hydrometallurgical process whereby metal is produced.

Beneficiation is a technical concept rather than an economic concept. Subsection 11(5) of the EGCSA states that, in determining whether a particular process constitutes beneficiation, regard is to be had to the nature of the technical process involved but no regard is to be had to any market considerations. That is, if market forces dictate that a mineral must undergo a certain process to result in a saleable product, this does not necessarily mean that the process will be considered beneficiation.

Whether or not a mineral or an ore is beneficiated is a question of fact, and will need to be determined on a case-by-case basis in light of technical evidence in the relevant mining industry. However, it is clear that 'beneficiation' is distinct from refining to produce metal, or the process of manufacturing, or a process, which results in the destruction of a recovered mineral.

The point at which beneficiation is deemed to have been completed differs depending upon the mineral in question and the precise process utilised. Factors affecting beneficiation, including mining, metallurgical and environmental factors, mean that beneficiation processes can vary both between and within minerals.

The Commissioner considers that the beneficiation of iron ore for the recovery of minerals includes the crushing, screening, flotation, water reduction and sintering processes, until the point at which the ore is put in the top of a blast furnace or an electric arc furnace.

Subsection 11(3) of the EGCSA provides that operations for the recovery of a mineral cease when the process of beneficiation ceases. That is, you would be entitled to an off-road credit until the first point of stockpile or storage after beneficiation.

At the mining operation, run-of-mine ore will be crushed, screened, subject to cyclonic separation, before being fed from concentrate thickeners into a slurry pipe. The slurry pipe delivers the concentrate to the dewatering facility where moisture is removed. It will then be stockpiled awaiting export.

These activities are considered beneficiation of the ore and occur prior to the point at which beneficiation ceases.

The first point of stockpile after beneficiation therefore occurs at the port when the product is stockpiled awaiting export.

Accordingly, the dewatering plant you are constructing is for use in the beneficiation of iron ore.

As the mining operation of extracting ore is yet to commence, your activities relate to an 11(1)(a) mining operation. That is, preparation of a site to enable mining for minerals to commence.

Therefore, the activities of constructing the dewatering plant relate to the preparation of a site to enable mining for minerals to commence and, subsequent beneficiation of the ore. The first requirement has been satisfied.

At the place

Whether the construction activities are restricted to 'the place' where a paragraph 11(1)(a) or 11(1)(b) mining operation is carried on is a question of fact to be determined on a case by case basis.

The legal entitlement to conduct mining operations in a specified area may flow from a variety of agreements or licenses. The entitlement to legally occupy that area for the purposes of a mining operation under the EGCSA is usually in the form of an exploration or prospecting licence, lease, or permit, a mining licence, lease or permit, or a miscellaneous licence, lease or permit that is issued for a purpose directly associated with the mining operations.

The 'place' at which those operations are carried on is taken to include the whole of the land legally occupied for the exploration or prospecting, site preparation, mining for minerals and the beneficiation of those minerals.

You stated that the mining company holds a lease for mining activities across the entire project site including the port area. The construction of the plant is on land legally occupied for the purpose of the mining operation. And the mine site is connected to the port area via the pipeline and associated access road. Therefore the plant is 'at the place' where the mining operation is being carried on. The second requirement is met.

Carried out by the person who carries on the mining operation or a person contracted by that person

You are contracted by the company conducting the mining operation, therefore the third requirement is met.

As you meet all the requirements of paragraph 15(d) of the EGCSA, the construction of the dewatering plant is a mining construction activity.

Therefore, you are undertaking 'mining operations' as defined in subsection 11(1) of the EGCSA and would be entitled to an off-road credit under the EGCSA.

As you would have been entitled to an off-road credit under the EGCSA, you are entitled to fuel tax credits under the FTA for fuel used in the construction of the dewatering plant for which fuel tax credits may be claimed at the full rate.

Note that any activities undertaken after stockpiling are not mining operations for the purposes of the EGCSA since they are activities that occur after the recovery of minerals has ceased. Therefore, the loading, reclaiming and conveying of the ore from the stockpile to the ships for export are not mining operations. As such, you would not have been entitled to an off-road credit for the use of fuel in the loading, reclaiming and conveying of the ore after stockpiling.