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Ruling

Subject: Fuel tax credit entitlement

Issue 1:

Are you entitled to fuel tax credits (FTCs) at the full rate for fuel acquired for use to relocate equipment on-site at a mine?

Answer:

Yes.

Issue 2:

Can you apportion your fuel usage between off-road and on-road activities by calculating the percentage of time spent for each of these activities?

Answer:

Yes, provided there is no fluctuation in fuel consumption of the vehicles when used during both types of activity.

This ruling applies for the following period:

No set period applies.

Relevant facts and circumstances

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

You do the majority of your work for coal mines in the same area.

You transport mining equipment to and from mines sites on public roads in Australia. You claim a FTC for fuel acquired for this purpose.

You also relocate mining equipment on mine sites.

You work as a contractor for the mines and they require you to perform these duties.

You have a contract with Entity A and are the majority transport supplier to Entity B and Entity C.

You provide your own fuel with each of your trucks being supplied with a fuel card from the fuel supplier.

You relocate the following equipment on-site:

· mining drills

· mining dozers, and

· excavators and components, including buckets, boom and so on.

On the sites in which mining operations are being carried out (on-site), there are no public roads, but there are private roads.

You only purchase diesel fuel to relocate the mining equipment on the mine sites.

You intend to apportion your fuel usage between on-road and off-road activities by using the following method:

· on your delivery dockets/consignment notes for each job, your drivers will record details such as their start and completion time and their mine site entry and exit time

· these hours will be multiplied by each truck's individual fuel consumption rate to calculate the litres used

· this amount will then be multiplied by the off-road FTC rate, and

· the remaining hours will be multiplied by the on-road rate for public roads.

The following are the vehicles, equipment and machinery you use to transport mining equipment to and from mines sites and also to relocate equipment on mine sites:

Relevant legislative provisions

Energy Grants (Credits) Scheme Act 2003 Subsection 11(1)

Energy Grants (Credits) Scheme Act 2003 Subsection 11(2)

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

Fuel Tax Act 2006 Section 41-5

Fuel Tax (Consequential and Transitional Provisions) Act 2006 Division 2, Part 3, Schedule 3.

Reasons for decision

Issue 1

Summary

You are entitled to a full FTC for the fuel used in relocating mining equipment on-site.

Detailed reasoning

Section 41-5 of the Fuel Tax Act 2006 (FTA) provides that, if you are registered for GST, you are entitled to a FTC for taxable fuel that, among other things, you acquire for use in carrying on your enterprise. This entitlement is however affected by Division 2 of Part 3 of Schedule 3 to the Fuel Tax (Consequential and Transitional Provisions) Act 2006 (Transitional Act), which operates to restrict this entitlement to specific activities and continues the previous entitlement provisions of the Energy Grants (Credits) Scheme Act 2003 (EGCSA).

Subsection 11(5) of Schedule 3 of the Transitional Act provides an entitlement arises under section 41-5 of the FTA for taxable fuel acquired between 1 July 2008 and 30 June 2012 if you would have been entitled to an off-road credit under the EGCSA.

Subsection 53(1) of the EGCSA provides that you are entitled to an off-road credit if you purchase off-road diesel fuel for a use by you that qualifies. Subsection 53(2) provides that 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 relevantly defined in subsection 11(1) of the EGCSA as:

(a) exploration or prospecting for minerals, or the 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:

(c) a mining transport activity; or

(h) a mining vehicle activity; or

…

Subsection 11(2) of the EGCSA however states that 'mining operations' does not include:

…

(b) …; or

the transport, by any means, of people, equipment or goods to or from a place where a mining operation referred to in any of the paragraphs in subsection (1) is, or is to be, carried on, or to or from a place adjacent to that place…

In Fuel Tax Ruling FTR 2006/2 the Commissioner of Taxation (the Commissioner) considers if an entity:

· carries on an enterprise and acquires taxable fuel for use in an activity within the meaning of 'mining operations' in paragraphs 11(1)(a) to 11(1)(i) of the EGCSA, and

· the activity is not excluded from being a qualifying use by paragraphs 11(2)(a) to 11(2)(c) of the EGCSA,

· the entity will be entitled to a FTC under section 41-5 of the FTA for the taxable fuel acquired.

Paragraph 11(2)(c) of the EGCSA (above) refers to the 'place' where a mining operation is carried on, which according to the Commissioner includes the whole of the area, site or land that is legally occupied for the purposes of activities that are mentioned in subsection 11(1) of the EGCSA.

The words 'to or from' that immediately precede 'a place' in paragraph 11(2)(c) of the EGCSA restrict the scope of the legislative provision to the transport to the place where a mining operation is carried on and from the place where a mining operation is carried on. It would not include transport within a place where a mining operation is carried on. Paragraph 509 of FTR 2006/2 says '…the paragraph [11(2)(c)] does not exclude operating eligible vehicles, vessels or other transport infrastructure for the transport of people, equipment or goods 'within' a place where a mining operation…is carried on.

The eligibility provision of subsection 53(2) of the EGCSA for the purchase of fuel for use in mining operations is acknowledged by the Commissioner to also include activities that are 'in the course of' or 'in the process or act of' mining operations. Whether an activity occurs 'in the course of' mining operations is dependent upon a causal link, a spatial link and/or a temporal link existing based on the facts in each case.

The Commissioner considers:

· a causal link exists where a certain activity is functionally integrated with a mining operation, thereby forming an essential part of it

· a spatial link exists where an activity occurs in an area set aside or utilised for a mining operation, and

· a temporal link exists where an activity occurs in a timely fashion, not prior to, or after the completion of, the mining operation.

You state that in carrying on your enterprise you transport mining equipment to and from mines sites on public roads in Australia and while at the mine site also relocate mining equipment on-site. You claim a FTC at the partial rate of 15.043 ¢ per litre for fuel acquired for transport of mining equipment to and from the mine sites.

The mining equipment that you relocate on-site is equipment presumably used in the process of removing overburden to gain better access to a mineral deposit in order to expose and mine a deposit, which is an eligible mining operation.

Your relocation of the mining equipment is to some degree functionally integrated to a mining operation. Although it is not part of the actual mining activity itself, the relocation is a necessary pre-requisite for the equipment to perform its work at a site. A spatial link exists as the relocation is carried out on-site. Whether a temporal link exists is less likely, as the relocation may occur some considerable time before the mining operation may occur. For example, you may relocate equipment even though it is not actually needed to perform its work for days or weeks thereafter.

On the balance of these criteria we consider that your relocation of the mining equipment on-site is an activity that occurs in the course of mining operations as defined in paragraphs 11(1)(a) and 11(1)(b) of the EGCSA. The relocation is transport on-site, not transport to or from a mine site, and therefore not excluded from mining operations by paragraph 11(2)(c) of the EGCSA.

Consequently, you are entitled to a full FTC for the fuel used in this activity.

The Transitional Act ceases to have effect from 1 July 2012. As a consequence, the EGCSA will not exist. From 1 July 2012, you will continue to be entitled to a full FTC for the business acquisition and use of fuel to relocate mining equipment on-site under section 41-5 of the FTA.

Issue 2:

Summary

Apportionment on a fair and reasonable basis.

Detailed reasoning

Fuel Tax Determination FTD 2010/1 advises that apportionment is appropriate where entitlement under section 41-5 of the FTA is between uses that give rise to different rates of FTC. The Commissioner considers any apportionment method that is fair and reasonable can be used to determine the FTC available for the taxable fuel acquired.

Law Administration Practice Statement PS LA 2010/3 advises a method of apportionment used by a claimant in a tax period must be applied consistently. A method of apportionment should exclude factors that may distort the results in the calculation. These factors may include extraordinary acquisitions or uses, for example, a substantial acquisition of taxable fuel for a one-off contract, or a one-off increase in the use of taxable fuel for off-road use when the vehicle is generally used for transporting goods using public roads.

Paragraph 83 of PS LA 2010/3 provides the following example using the average hourly fuel consumption of a vehicle as the measure for apportionment.

…Allegra Company uses its sales invoices itemising actual hours of work completed by each front loader over two separate four week periods (one in summer and one in winter) and the quantity of fuel actually used in the same periods to determine an average hourly fuel consumption of the front end loaders in carrying out agricultural and road construction activities. Allegra Company establishes that the front end loaders have different average hourly fuel consumption figures for each activity.

To apportion fuel between a full fuel tax credit and a half fuel tax credit, Allegra Company works out the quantity of diesel fuel acquired for use in each activity by multiplying the front end loaders' total operating hours for each activity by the respective average hourly fuel consumption figure.

The apportionment of fuel by reference to the average hourly fuel consumption of a front end loader in various working and climatic conditions would be considered a fair and reasonable basis for calculating Allegra Company's entitlement to a fuel tax credit in relation to its front end loaders for diesel fuel for use in agricultural and road construction activities.

The example relies upon the claimant having identified different rates of fuel consumption in its vehicles when performing agricultural work as when compared to road construction work. By doing this, factors that may have distorted the results in the calculation were eliminated. Otherwise, the method of apportionment would not have been fair and reasonable.

Your vehicles use diesel fuel to transport mining equipment to and from mines sites on public roads in Australia and to relocate mining equipment on the mine sites. Both of these uses are eligible; but give rise to different rates of FTC. This requires you to apportion your entitlement to FTCs on a fair and reasonable basis.

You intend to apportion your fuel usage between on-road and off-road activities by determining the number of hours the vehicles will be on-site at a mine by your drivers recording the time they enter and exit a mine site in comparison with the hours of the start and completion time of an overall job. The number of hours that a vehicle has been on-site will then be multiplied by each vehicle's individual fuel consumption rate to calculate the total litres it has used on-site. That amount will then be multiplied by the full FTC rate. The litres converted from the remaining hours will be multiplied by the on-road FTC rate.

Your proposed method of apportionment relies upon there being no significant fluctuation in the fuel consumption of your vehicles when they are used on-road as compared to when they are used on-site. If this is not the case, we would not consider the method of apportionment to be fair and reasonable as there would be factors present that would distort the reliability of using time as a measure to apportion fuel use between both activities.

In those circumstances, we would expect you to maintain records to identify the fuel consumption of the vehicles while working on-site at a mine. You can then use that level of fuel consumption to multiply by the number of hours the vehicle was on-site to achieve a more accurate amount of fuel eligible for a full FTC for that activity. You can use the remaining hours then to calculate your entitlement to an on-road FTC. We consider this would be a fair and reasonable method of apportionment.