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Edited version of your private ruling
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Ruling
Subject: Fuel tax credits - electricity generation and rail locomotives
Question:
Are you entitled to claim a fuel tax credit for the use of diesel fuel in the testing of rail locomotives for the period 1 July 2008 to 30 June 2012?
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 January 2008
Relevant facts and circumstances
You are a manufacturer of diesel/electric locomotives.
Prior to the delivery of the locomotives to your customers, you carry out a range of tests to ensure that every component of the locomotive is functioning properly. The testing processes cover a range of activities, the primary ones being:
· static testing - slow track testing (on a short test track)
· light engine run (i.e. not pulling a load), and
· load testing (i.e. pulling a load).
The basic mechanics of the diesel electric locomotives you manufacture can be described as follows:
· The locomotive's engine is either a V16 diesel engine or a V12 diesel engine.
· The main engine is fixed to a generator, which generates electricity to power the electric traction motors and other onboard equipment. Whenever the diesel engine is operating, the generator is operating.
· There is a traction motor on each axle, which provides propulsion power to the wheels. Each motor drives a small gear, which meshes with a larger gear on the axle shaft. This provides the gear reduction that allows the motor to drive the train at high speed.
You state the main reason why diesel locomotives are hybrid is because this eliminates the need for a mechanical transmission, such as found in cars and trucks. By going with a hybrid arrangement, the main diesel engine can run at a constant speed, turning an electrical generator. The generator sends electrical power to a traction motor at each axle, which powers the wheels.
In undertaking your testing activities, you acquire and use diesel fuel to power the locomotive's diesel engine which is linked to an electrical generator to generate electricity onboard the locomotive, which in turn is used to power the electric traction motors and for other purposes.
You are seeking a private ruling to confirm that you are eligible to claim fuel tax credits at the full rate in respect of diesel fuel used in the testing process.
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 1 of Schedule 3
Fuel Tax (Consequential and Transitional) Provisions Act 2006 subparagraph 10(1)(b)(iii) of Schedule 3
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)(iii) of Schedule 3
Energy Grants (Credits) Scheme Act 2003
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 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 for fuel purchased between 1 July 2006 and 30 June 2012, whilst retaining entitlements under the Energy Grants (Credits) Scheme Act 2003 (EGCSA).
Subparagraphs 10(1)(b)(iii) and 11(1)(b)(iii) of Schedule 3 to the FTCTPA provide that an entitlement to a fuel tax credit arises under section 41-5 of the FTA if you acquire taxable fuel for a use by you in generating electricity.
Fuel is used for the purpose of generating electricity where the generation of electricity is an end in itself and can in turn be used for any purpose for which electricity is required.
This includes fuel used in generating electricity when it is used in a generator to provide power to a business premises [or vessel] and/or a range of equipment.
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 directly driving or propelling the vehicle/vessel.
Similarly the use of fuel in the internal combustion engine of a machine where the electrical power generated by the machine is for use by that machine is for the purpose of operating the machine. For example, the generator attached to a cars' engine is for generating electricity to operate the engine.
Your diesel/electric locomotives are operated by either a V16 diesel engine or by a V12 diesel engine. The main engine is fixed to a generator, which creates electricity to power the electric traction motors and other onboard equipment. The generator is operating whenever the diesel engine is operating.
As your locomotives are hybrid diesel locomotives the need for mechanical transmission (like that found in cars and trucks) is eliminated and the main diesel engine can run at a constant speed to generate electricity.
Whilst undertaking your testing activities, you use diesel fuel to power the locomotive's diesel engine which is linked to an electrical generator to generate electricity onboard the locomotive, which in turn is used to power the electric traction motors at each axle, which powers the wheels.
This is a use by you in generating electricity for the purposes of subparagraphs 10(1)(b)(iii) and 11(1)(b)(iii) of the FTCTPA.
Accordingly, you are undertaking an activity that would be considered 'electricity generation'.
Therefore, you are entitled to claim a fuel tax credit for the use of diesel fuel in the testing of rail locomotives for the period 1 January 2008 to 30 June 2012.