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Authorisation Number: 1012254630283

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Ruling

Subject: Fuel tax credits - mining - extraction of minerals

Question 1:

Are you entitled to claim a fuel tax credit at the full rate for the use of diesel fuel in undertaking the extraction of minerals for the period 1 January 2008 to 30 June 2012?

Answer:

No.

Question 2:

Are you entitled to claim a fuel tax credit at the half rate for the use of diesel fuel in undertaking the extraction of minerals for the period 1 July 2008 to 30 June 2012?

Answer:

Yes.

This ruling applies for the following periods:

2007-08 income year

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 engaged in the extraction of minerals that is used in the manufacture of bricks.

You state that the extraction activities are undertaken on one site only.

You acquire diesel fuel for use in the following equipment in undertaking your business activities:

· bulldozers

· excavators

· dump trucks

· scrapers

· water carts

You undertake the removal of overburden to allow the minerals deposit to be exposed and then extracted.

To determine which minerals is suitable for extraction, you use a bulldozer rip, with samples picked up and marked where obtained, and then fired in a kiln.

You have stated that your activities are conducted on a mining lease.

You provided copies of some of the testing undertaken by the brick manufacturer.

These include the following types of tests:

· Raw material testing comparison

· Extruded bar testing report

· Particle size distribution test

· Clay and silica content test

· Extrusion testing includes:

· Water content

· Shrinkage

· Colour

You state that testing, sampling and analysis of the minerals used to take place two to three times per year, and now it is done on a needs basis.

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

Relevant legislative provisions

Fuel Tax Act 2006 section 41-5

Fuel Tax Act 2006 subdivision 41-B

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

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

Fuel Tax (Consequential and Transitional Provisions) Act 2006 subitem 10(5) 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 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 paragraph 11(1)(c)

Energy Grants (Credits) Scheme Act 2003 paragraph 11(1)(i)

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

Energy Grants (Credits) Scheme Act 2003 paragraph 11(2)(a)

Energy Grants (Credits) Scheme Act 2003 section 20

Energy Grants (Credits) Scheme Act 2003 paragraph 20(a)

Energy Grants (Credits) Scheme Act 2003 paragraph 20(b)

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 Divisions 1 and 2 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).

Subitems 10(5) and 11(5) of Schedule 3 to the FTCTPA provide 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 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.

The term 'mining operations' is relevantly defined in subsection 11(1) of the EGCSA as:

(a) exploration or prospecting of minerals, or the removal of over burden and other activities undertaken in the preparation of a site to enable mining for minerals to commence; or

(b) operations for the recovery of those 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;

Further, subsection 11(2) of the EGCSA states that 'mining operations' does not include:

(a) quarrying or dredging operations to the extent that the purpose of the operations is to obtain materials for use in building, road making, landscaping, construction or similar purposes; or

In determining whether your activities are 'mining operations', and therefore, eligible for an off-road credit it is appropriate to consider the following:

· Firstly, whether the activity falls within one of the paragraphs 11(1)(c) to (i) of the EGCSA and is not excluded by any of the activities contained in subsection 11(2) of the EGCSA.

· Secondly, if the activity does not satisfy a specific paragraph mentioned above (i.e. paragraphs 11(1)(c) to (i) of the EGCSA) and is not excluded by any of the activities contained in subsection 11(2) of the EGCSA, whether the activity otherwise comes within paragraphs 11(1)(a) or (b) of the EGCSA.

A central concept of the definition of 'mining operations' is the recovery of minerals, being mining for minerals or the beneficiation of those minerals. It is, therefore, relevant to look at the definition of 'mineral'.

Section 20 of the EGCSA defines 'minerals' as meaning:

Minerals in any form, whether solid, liquid or gaseous and whether organic or inorganic, except:

(a) sand, sandstone, soil, slate, clay (other than bentonite or kaolin), basalt, granite, gravel or water; or

(b) limestone (other than agricultural use limestone)

The Courts have taken the view that the term 'minerals' has, in its ordinary meaning, the denotation of substances, which can be won by mining. This denotation is reinforced by the central concept of 'mining operations' being defined to mean, amongst other things, the recovery of minerals by mining for those minerals and the beneficiation of those minerals or of ores bearing those minerals.

The Macquarie Dictionary defines 'mineral' as 'a substance obtained by mining'. Therefore, a factor to be considered in determining if a substance is a mineral is whether the extraction or recovery process would correspond to the normal understanding of the term 'mining.'

The definition provided by section 20 of the EGCSA adopts this ordinary meaning of 'minerals'. It then clarifies the meaning in respect of form and chemical qualities - that is, a mineral can be solid, liquid or gaseous and organic or inorganic - and restricts it by excluding the substances listed in paragraph 20(a) and 20(b).

Whether you are conducting mining operations for a particular mineral is a question of fact to be determined on the balance of the evidence available, having regard to matters considered in the Administrative Appeals Tribunal (AAT) and Federal Court. The AAT and Courts have had regard to a number of matters, including:

· the ultimate use of the substance that is extracted;

· the ultimate use of the specific mineral(s) contained in the material and the importance of the chemical properties of those minerals to that use;

· the degree of assurance as to the ultimate use of the material extracted. For example, whether the material is mined by the end user or their contractor for a specific use, or whether it is mined for sale on the open market with a range of possible uses;

· the extent of sampling, testing and analysis of the material both prior to and after extraction, to measure the precise levels of the desired mineral(s) contained within the material;

· discarding of the portion of the extracted material that does not contain the required mineral(s) in the required proportions; and

· planning of mining operations to target those parts of the deposit that contain the required mineral(s) in proportions suitable to the intended use.

In the case of Re Adelaide Brighton Cement Ltd and Chief Executive Officer of Customs (2002) 71 ALD 128 and Chief Executive Officer of Customs v Adelaide Brighton Cement Ltd (2004) 139 FCR 147 activities to recover minerals for use in cement manufacturing were allowed.

Mining operations sought to recover specific minerals, calcite, silica, alumina and haematite, in specific proportions. Extensive and regular testing, chemical analysis and sampling was undertaken to measure the precise levels of the desired minerals within the limestone body. The requirements for the mineral sought were entirely chemical, and directly determined by mineral content. There were no requirements for physical properties such as particle size or colour. The tests conducted were all tests for mineral content.

The AAT found that certain minerals were targeted and that the applicant was mining for those minerals. Further, the AAT took into account that calcite can be sourced from materials other than limestone in finding that the applicant was not mining for limestone as such. The applicant was indifferent as to whether the calcite source was limestone.

This is in contrast to the case of Midland Brick Company Pty Ltd and Chief Executive Officer of Customs [2008] AATA 673 (31 July 2008) (Midland) in which activities carried on at their brickworks were disallowed. The specifications for individual clays and for clay mixes did not include any requirements for mineral content. Midland rarely tested for mineral content, but tested the physical properties of clay regularly (such as particle size, plasticity and vitrification). There are a wide variety of geologically abundant clays, with a diverse mineral composition, that are suitable for use in brick manufacture.

The finding of the AAT was that the objective was to obtain clay suitable for clay brick manufacture. The AAT found that Midland requires clay, as such, to manufacture clay bricks. There was no evidence of alternatives to clay in the manufacture of clay bricks. It is clay, and not just some of the minerals in the clay, that is required and used to manufacture clay bricks. Also, it did not require any particular minerals in particular proportions. No material is separated from the clay in the brick manufacture process. The entire clay is fed into the kiln and used in the manufacture of clay bricks.

In applying the principles of the above cases, activities to recover minerals for use in brick making rather than the recovery of specific minerals, do not satisfy what is accepted as 'mining operations'.

In relation to your circumstances, the brick manufacturer has undertaken the following tests on an irregular basis:

· Raw material testing comparison

· Extruded bar testing report

· Particle size distribution test

· Clay and silica content test

None of these tests provide any detailed description relating to the precise mineral content of the minerals you are extracting.

You state that you extract minerals for use in the manufacture of bricks. Therefore, it can be said that the ultimate use of the extracted material is for that of brick making rather than for the recovery of certain minerals.

Accordingly, the minerals you extract does not fall within the definition of 'minerals' for the purposes of section 20 of the EGCSA. As a result, it cannot be said that you are undertaking 'mining operations' for the purposes of the EGCSA.

Therefore, you do not meet the requirements of subitems 10(5) and 11(5) of the FTCTPA.

Accordingly, you are not entitled to claim a fuel tax credit at the full rate for the use of diesel fuel in undertaking the extraction of minerals for the period 1 January 2008 to 30 June 2012.

Half rate of fuel tax credits

However, if you would not have been entitled to an on-road or an off-road credit under the EGCSA for a quantity of fuel you acquire and use in your business, 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. 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 environmental criteria, or

· for fuel used in aircraft.

As has been determined above, you are not undertaking 'mining operations' and as such are not entitled to claim a fuel tax credit at the full rate for the use of diesel fuel in undertaking the extraction of minerals for the period 1 January 2008 to 30 June 2012.

Accordingly, you are entitled to claim a fuel tax credit at the half rate for the use of diesel fuel in undertaking the extraction of minerals for the period 1 July 2008 to 30 June 2012.