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Ruling

Subject: Fuel tax credits

Question 1

Are you entitled to fuel tax credits at the full rate, under forestry, for the use of diesel fuel in your fuel delivery tanker travelling on private, forestry or plantation roads and coupe tracks, to deliver fuel to machinery?

Answer

No.

Question 2

Are you entitled to fuel tax credits at the partial rate, under road transport, for the use of diesel fuel in your fuel delivery tanker travelling on private, forestry or plantation roads and coupe tracks, to deliver fuel to machinery?

Answer

Yes.

This ruling applies for the following periods:

2007-08 income year

2008-09 income year

2009-10 income year

2010-2011 income year

The scheme commences on:

1 July 2007

Relevant facts and circumstances

You conduct contracting activities from forest, plantation and private block locations.

Diesel fuel is transported by your own dedicated fuel truck direct to machinery at bush locations.

The truck has a gross vehicle mass of 15 tonnes. It is a registered vehicle.

A proportion of this transport is conducted on public roads and you are aware that diesel fuel used by the truck is eligible for fuel tax credits at the road transport rate.

The reminder of the transport is conducted on private, forestry or plantation roads and coupe tracks (non-public).

This off-road proportion can vary depending on the location and remoteness of the work site.

Self delivery of fuel is conducted to allow a convenient, timely and reliable supply to machines in remote locations, avoiding the need for large in-coupe storage tanks with their inherent safety and security concerns. Difficulties of access and timely provision can also arise with fuel supplier/distributor deliveries.

You refer to ATO ID 2006/47 and FTR 2006/3.

You contend that the provision of fuel to machinery is a process or service not just assisting in, but absolutely necessary in obtaining timber as primary produce as part of a commercial enterprise and therefore an eligible activity in 'forest' - without this service there would be no obtaining of timber. You also believe that this process could also be seen in a similar way and no less important as the actual transporting of felled timber in a forest or plantation which has always qualified as an eligible 'forestry' activity.

You also contend that the causal, spatial and temporal links exist and can be demonstrated.

You therefore believe that the provision of fuel by delivery tanker on a private, forestry or plantation road for the purposes of supplying fuel to machinery used in an eligible forestry activity is, in itself, an eligible forestry activity and therefore eligible for fuel tax credits at the applicable forestry rate.

Relevant legislative provisions

Fuel Tax Act 2006 section 41-5

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

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)

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

Energy Grants (Credits) Scheme Act 2003 section 53

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

Energy Grants (Credits) Scheme Act 2003 section 35

Energy Grants (Credits) Scheme Act 2003 paragraph 35(a)

Energy Grants (Credits) Scheme Act 2003 paragraph 35(b)

Energy Grants (Credits) Scheme Act 2003 paragraph 35(c)

Energy Grants (Credits) Scheme Act 2003 paragraph 35(d)

Energy Grants (Credits) Scheme Act 2003 paragraph 35(e)

Energy Grants (Credits) Scheme Act 2003 paragraph 35(f)

Energy Grants (Credits) Scheme Act 2003 section 21

Energy Grants (Credits) Scheme Act 2003 section 45

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 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 operate 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 entitlement to a fuel tax credit 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 use by you that qualifies. Use in primary production (otherwise than for the purpose of propelling a road vehicle on a public road), is a use that qualifies. Primary production is defined in section 21 and includes forestry.

'Forestry' is defined in section 35 of the EGCSA as:

(a)  the planting or tending, in a forest or plantation, of trees intended for felling; or

(b)  the thinning or felling, in a forest or plantation, of standing timber;

and includes:

(c)  the transporting, milling or processing, in a forest or plantation, of timber felled in the forest or plantation; or

(d)  the milling of timber at a sawmill or chipmill that is not situated in the forest or plantation in which the timber was felled; or

(e)  where timber is milled at a sawmill or chipmill that is not situated in the forest or plantation in which the timber was felled - the transporting of the timber from the forest or plantation in which it was felled to the sawmill or chipmill; or

(f)   the making and maintaining in a forest or plantation referred to in paragraph (a) or (b) of a road that is integral to the activities referred to in paragraph (a), (b) or (c).

For an activity to be forestry for the purposes of the EGCSA, it must satisfy one of the above.

The use of the expressions 'means' and 'includes' in the definition of forestry means that the definition is an exhaustive one. An activity that is not within any one of paragraphs 35(a) to 35(f) of the EGCSA is not a forestry activity.

Paragraphs 35(c) to 35(f) of the EGCSA do not provide an exhaustive list of eligible activities. Rather, they add to the list of eligible activities in paragraphs 35(a) and 35(b) of the EGCSA.

To qualify as forestry, each of the activities mentioned in section 35 must be carried out for the purposes of a commercial undertaking to obtain timber as primary produce.

You transport and deliver fuel for use in machinery in forestry activities, to forests and plantations, on private roads, forestry roads, plantation roads and coupe tracks.

Paragraphs 35(c) and 35(e) of the EGCSA refer to transport of timber, rather than transport of goods, people or equipment. Therefore, these paragraphs are not applicable in this instance.

There are no specific paragraphs which allow your transport activities under forestry. However, it is also necessary to consider whether your transport activities may be undertaken 'in the course of' forestry.

In the context of the phrase 'in primary production' in subsection 53(2) of the EGCSA, the preposition 'in' means in the course of or in the process or act of. Therefore, if an activity can be said to have taken place in the course of primary production, whether that primary production is agriculture, fishing operations or forestry, it takes place in primary production.

The following three criteria are relevant in determining if an activity takes place in the course of forestry. These are:

§ a causal link exists in other words, a certain activity is functionally integrated with forestry, thereby forming an essential part of it;

§ a spatial link exists meaning that an activity takes place in an area set aside or occupied for forestry; and

§ a temporal link exists the activity takes place in a timely fashion, not prior to, or after the completion of, the forestry activity.

The relevance or weighting afforded to these criteria will vary depending on the facts in each case.

Transporting and delivering fuel for use in forestry machinery is not functionally integrated with the forestry activities. Although some of the machinery needs fuel to operate, the transport and delivery of the fuel is more of an incidental part of operating some machinery rather than it forming an essential part of the forestry activities themselves. Transport and delivery of fuel is more functionally integrated with a transport activity rather than a forestry activity. Therefore, a causal link does not exist.

The activity of delivery of fuel does not of itself result in obtaining timber. Rather, it is the use of that fuel in other items of equipment that results in obtaining timber.

The private roads, forestry roads, plantation roads and coupe tracks are generally located within a forest or plantation and/or lead to a part of the forest or plantation where forestry activities are to be undertaken. Accordingly, these roads are areas set aside or occupied for forestry activities. Therefore, a spatial link exists.

Transport and delivery of fuel takes place prior to any forestry activity. Therefore, a temporal link does not exist.

Since not all links are satisfied, the transport and delivery of fuel is not an activity that occurs in the course of forestry.

Note that the definition of primary production also includes agriculture and fishing, and delivery of fuel to farms or to fishing vessels is not considered to be primary production.

Accordingly, the transport and delivery of fuel on private roads, forestry roads, plantation roads and coupe tracks is not forestry for the purposes of the EGCSA and as such, you would not have been entitled to an off-road credit. As you would not have been entitled to an off-road credit, you are not entitled to a fuel tax credit at the full rate.

However, subitem 11(3) of Schedule 3 of the FTCTPA provides entitlement to a fuel tax credit if you would have been entitled to an on-road credit under the EGCSA.

Section 45 of the EGCSA provides that you are entitled to an on-road credit if purchase fuel for use in a registered vehicle that has a gross vehicle mass (GVM) of 4.5 tonnes or more but less than 20 tonnes, where the vehicle is a vehicle for transporting passengers or goods and you carry passengers or goods on behalf of a person who carries on a primary production business.

However, you are only entitled to the on-road credit to the extent that the use of the fuel is in carrying on your enterprise, in operating a vehicle on a road in Australia where the only passengers or goods being carried are on behalf of one or more persons who carries on a primary production business.

You use fuel in your registered vehicle that has a GVM of 15 tonnes, in travelling on roads in Australia. The roads that you travel on include public roads, private roads, forestry roads, plantation roads, coupe tracks). For the purposes of section 45 of the EGCSA, 'a road' includes all roads, it is not restricted to public roads.

You are using your truck solely for the purpose of transporting fuel (i.e. goods) on behalf of a person/persons who carry on forestry activities (i.e. a primary production business).

Therefore, you satisfy section 45 of the EGCSA and as such, you would have been entitled to an on-road credit. Accordingly, you are entitled to a fuel tax credit, at the partial rate, under road transport, for the use of fuel in your truck in travelling on roads in Australia (i.e. public roads, private roads, forestry roads, plantation roads, coupe tracks).