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Ruling

Subject: Fuel tax credits - use of fuel in business activities

Question 1:

Are you entitled to claim a fuel tax credit at the full rate for the use of taxable fuel in undertaking the erection of fences on agricultural properties, where you are contracted by a person undertaking a core agricultural activity?

Answer: Yes.

Question 2:

Are you entitled to claim a fuel tax credit at the full rate for the use of taxable fuel in undertaking the control of weeds on agricultural properties where you are contracted by a person undertaking a core agricultural activity?

Answer: Yes.

Question 3:

Are you entitled to claim a fuel tax credit at the full rate for the use of taxable fuel in removing timber and timber waste from agricultural properties?

Answer: No.

Question 4:

Are you entitled to claim a fuel tax credit for the use of taxable fuel in vehicles with a gross vehicle mass (GVM) of less than 4.5 tonnes for travel on public roads?

Answer: No.

Question 5:

Are you entitled to claim a fuel tax credit at the half rate for the use of taxable fuel in mowers and whipper snippers and erecting fences on residential properties?

Answer: Yes.

Question 6:

Are you entitled to claim a fuel tax credit at the half rate for the use of taxable fuel in removing timber and timber waste from agricultural and other properties?

Answer: Yes.

This ruling applies for the following periods:

2009-10 income year

2010-11 income year

2011-12 income year

The scheme commences on:

1 July 2009

Relevant facts and circumstances

You state that your business services are made up of several activities, and that you are finding difficulty in self-assessing, especially to determine what activities are eligible for fuel tax credits.

Your activities include the following:

1. Firewood Sales

1.1 You sell firewood which is split by a processor and run by a tractor that operates using fuel;

1.2 You use a chainsaw that is operated by fuel to cut up the wood;

1.3 You purchase timber from different sources for the purpose of selling firewood, this includes from farmers, hobby farmers, residential properties and land for development.

1.4 You drive a tractor on public roads from one job site to another;

1.5 You drive a utility vehicle on public roads with a trailer to obtain the firewood and to deliver firewood

2. Slashing/Gardening Fees

2.1 You use the tractor to slash grass on residential and rural properties.

2.2 You use a mower and a whipper snipper to cut grass on residential and rural properties.

2.3 The tractor is driven on public roads from one job site to another.

2.4 You also undertake the control of weeds.

2.5 You remove waste (leftover timber) using a utility vehicle and/or truck and trailer from residential and rural properties.

3. Fencing Services

3.1 You erect fences for both agricultural properties and residential properties. You utilise a utility vehicle to obtain the timber, and/or a truck and also use a bobcat to undertake these activities.

In the erection of fences for agricultural properties, fuel is used to:

Utility vehicle and truck - transportation of timber for the erection of fences

Bobcat - grading/clearing of fence line

Tractor - drilling of holes for fence posts

You use diesel fuel in your tractor which has a GVM of less than 4.5 tonnes.

You are using unleaded petrol and oil in the chainsaw, unleaded petrol in the mower and unleaded petrol and oil in your whipper snipper.

You acquire all fuel used in your business activities.

You are contracted by many people who are your customers and you are paid to carry out some core agricultural activities. At other times, you work alongside the land holders on their property to maintain, keep clear and harvest the timber on their property and this is one of the ways you obtain firewood for your business.

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

Relevant legislative provisions

Fuel Tax Act 2006 section 41-5

Fuel Tax Act 2006 section 41-20

Fuel Tax Act 2006 Subdivision 41-B

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

Fuel Tax (Consequential and Transitional Provisions) Act 2006 subparagraph 11(1)(b)(i) 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 section 21

Energy Grants (Credits) Scheme Act 2003 subsection 22(1)

Energy Grants (Credits) Scheme Act 2003 paragraph 22(1)(a)

Energy Grants (Credits) Scheme Act 2003 paragraph 22(1)(b)

Energy Grants (Credits) Scheme Act 2003 paragraph 22(1)(c)

Energy Grants (Credits) Scheme Act 2003 paragraph 22(1)(d)

Energy Grants (Credits) Scheme Act 2003 paragraph 22(1)(g)

Energy Grants (Credits) Scheme Act 2003 paragraph 22(1)(h)

Energy Grants (Credits) Scheme Act 2003 paragraph 22(1)(i)

Energy Grants (Credits) Scheme Act 2003 paragraph 25(a)

Energy Grants (Credits) Scheme Act 2003 subparagraph 25(a)(i)

Energy Grants (Credits) Scheme Act 2003 subparagraph 25(a)(ii)

Energy Grants (Credits) Scheme Act 2003 section 26

Energy Grants (Credits) Scheme Act 2003 paragraph 27(h)

Energy Grants (Credits) Scheme Act 2003 section 53

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

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 that 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 Schedule 3 to the Fuel Tax (Consequential and Transitional Provisions) Act 2006 (FTCTPA) which operates to restrict this entitlement to specific activities for fuel purchased between 1 July 2008 and 30 June 2012, whilst retaining entitlement under the Energy Grants (Credits) Scheme Act 2003 (EGCSA).

Subitem 11(5) of Schedule 3 to the FTCTPA states that you are not entitled to a fuel tax credit under section 41-5 of the FTA unless 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 or import into Australia fuel for a use by you that qualifies.

Subsection 53(2) provides that use in primary production (otherwise than for the purpose of propelling a road vehicle on a public road) is a use that qualifies:

Section 21 of the EGCSA provides that the expression primary production includes agriculture.

Subsection 22(1) of the EGCSA provides that the expression agriculture means:

(a) the cultivation of the soil;

(b) the cultivation or gathering in of crops; or

(c) the rearing of live-stock; or

(d) viticulture, horticulture, pasturage or apiculture;

and includes:

…

(g) an agricultural construction activity; or

(h) an agricultural waste activity; or

(i) a sundry agricultural activity

…

Agricultural construction

Paragraph 25(a) of the EGCSA provides that the expression agricultural construction activity means:

(a) the construction or maintenance of fences undertaken:

(i) by a person who carries on a core agricultural activity; or

(ii) by a person contracted by that person to carry out the construction or maintenance;

on the agricultural property where the core agricultural activity is carried on;

The construction or maintenance of the fences is an agricultural construction activity under paragraph 25(a) if:

· the construction or maintenance takes place on a farm; and

· it is undertaken by the farmer, a contractor of that farmer or a subcontractor.

The construction or maintenance of fences includes the sinking of fence posts, the running of wire between the posts and the replacement and repairs of parts of a fence.

The transportation of fencing materials to an agricultural property for use in the construction of a fence is not an eligible activity under paragraph 25(a).

You state that you use fuel in a bobcat for the grading/clearing of a fence line and in a tractor to drill holes for fence posts. These activities would be considered agricultural construction activities, provided all other requirements are satisfied.

As you are carrying out an agricultural activity you are entitled to an off-road credit under section 53 of the EGCSA and meet the requirement of subitem 11(5) of the FTCTPA.

Therefore, provided you are contracted by a person undertaking a core agricultural activity, you are entitled to claim a fuel tax credit at the full rate for the use of taxable fuel in undertaking the erection of fences on agricultural properties.

The rate you can claim is 38.143 cents per litre.

Agricultural waste

Section 26 of the EGCSA provides that an agricultural waste activity means the removal of waste products of an agricultural activity from the agricultural property where the activity is carried on.

For the purposes of section 26 of the EGCSA, a waste product of an agricultural activity is a by-product of an agricultural activity that is useless, rejected, not wanted or economically unusable and which is to be discarded.

A waste product can be described as something that is an excess material, or is unproductive and superfluous. The concept of waste embraces all unwanted and economically unusable or rejected by-products at any given place and time, and any other matter which may be discharged, accidentally or otherwise, to the environment.

Examples of waste products of an agricultural activity include animal manures, wheat stubble, grape or plant prunings e.g. from an orchard.

You have stated that you source timber from farmers and remove waste material from rural properties. The waste material is leftover timber, and therefore this is not considered to be waste material from an agricultural activity.

As you are not carrying out an agricultural activity you are not entitled to an off-road credit under section 53 of the EGCSA and do not meet the requirement of subitem 11(5) of the FTCTPA.

Accordingly you are not entitled to fuel tax credit at the full rate for fuel used in removing timber and timber waste from agricultural properties.

Sundry agricultural activity

Paragraph 27(h) of the EGCSA provides that the expression sundry agricultural activity means:

(h) weed, pest or disease control undertaken:

(i) by a person who carries on a core agricultural activity; or

(ii) by a person contracted by that person to carry out the weed, pest or disease control;

on the agricultural property where the core agricultural activity is carried on.

Weed, pest or disease control is a sundry agricultural activity under paragraph 27(h) if it is carried out on a farm by a farmer, or by a contractor of that farmer, or a subcontractor.

A weed is 'a wild plant growing where it is not wanted'. Weed control involves activities undertaken to inhibit and eradicate weed growth, such as spraying, scarifying, ploughing or scraping of agricultural land.

You have stated you are undertaking weed control and that some of this work is undertaken on agricultural properties.

As you are carrying out an agricultural activity you are entitled to an off-road credit under section 53 of the EGCSA and meet the requirement of subitem 11(5) of the FTCTPA.

Therefore, provided you are contracted by a person undertaking a core agricultural activity, you are entitled to claim a fuel tax credit at the full rate for the use of taxable fuel in undertaking the control of weeds on agricultural properties.

The rate you can claim is 38.143 cents per litre.

Travel on a public road

Under subparagraph 11(1)(b)(i) of the FTCTPA you are entitled to claim a fuel tax credit for taxable fuel acquired between 1 July 2008 and 30 June 2012 for use in carrying on your enterprise where that fuel is for use in a vehicle travelling on a public road.

However, section 41-20 of the FTA provides that you are not entitled to a fuel tax credit if the fuel is for use in a vehicle with a GVM of 4.5 tonnes or less travelling on a public road.

Paragraph 2.48 of the Explanatory Memorandum to the Fuel Tax Bill 2006 states:

The break point of 4.5 tonnes or less gross vehicle mass aligns the eligibility for fuel tax credits with the additional licensing conditions that must be met in all Australian jurisdictions to drive a vehicle of this mass or greater and the Australian Design Rules for heavy vehicles. In addition, the Heavy Vehicle Charges Determination that establishes the road-user charges for heavy vehicles applies to vehicles over 4.5 tonnes.

The term 'gross vehicle mass' is not defined in the FTA and takes its ordinary meaning as the gross vehicle mass specified by the authority that registered the vehicle. All your vehicles have a weight of less than 4.5 tonnes.

Accordingly, you are not entitled to claim a fuel tax credit for the use of taxable fuel in vehicles with GVM of less than 4.5 tonnes for travel on public roads.

Fuel tax credits half rate

You use unleaded petrol in your mower and unleaded petrol and oil in your whipper snipper for the purpose of cutting grass on both residential and rural properties. You would not have been previously entitled to an off-road credit for these activities.

However, subitem 11(6) of Schedule 3 to the FTCTPA provides that from 1 July 2008, an entitlement to a fuel tax credit arises under section 41-5 of the FTA, if you would not have been entitled to an on-road or an off-road credit previously. The amount of the credit is half of the amount of the full rate.

This provision is subject to 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 the environmental criteria; or

· for fuel used in aircraft.

Therefore, you are entitled to claim a fuel tax credit at the half rate for the use of taxable fuel in mowers and whipper snippers on residential and rural properties. The rate you can claim is 19.0715 cents per litre.

Similarly, it has been determined above that you are not entitled to an off-road credit for fuel used in removing timber and timber waste from agricultural properties.

Accordingly you are entitled to fuel tax credit at the half rate for fuel used in removing timber and timber waste from agricultural properties. The rate you can claim is 19.0715 cents per litre.

There is no discretion in the legislation to permit the use of a single rate to calculate your fuel tax credit entitlement, rather you need to determine your entitlement for each eligible activity and then apportion this amount based on the relevant rate.