Edited version of your private ruling

Authorisation Number: 1012532383772

Ruling

Subject: Fuel Tax Credits - use of kerosene

Question 1

Are you entitled to claim fuel tax credits for taxable fuel (kerosene) that you acquire and use to mix with another substance to make a specified material?

Answer

Yes.

Question 2

Are you entitled to fuel tax credits at the full rate of 38.143 cents per litre for kerosene that you acquire and use to mix with another substance to make a specified material?

Answer

Yes.

This ruling applies for the following periods:

2012-13 income year

2013-14 income year

2014-15 income year

The scheme commences on:

1 July 2012

Relevant facts and circumstances

You acquire kerosene upon which excise duty has been paid.

The kerosene is purchased in bulk and delivered into tanks. It is then mixed with another substance. The kerosene and other substance are placed into a tank. They are heated and mixed to form the end product.

The purpose of mixing the kerosene and the other substance is to alter the viscosity of the final product to the required consistency depending on the specifications of the job.

You use the end product and do not on-sell the end product to any third party.

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

Relevant legislative provisions

Fuel Tax Act 2006 section 41-5

Fuel Tax Act 2006 subdivision 41-B

Fuel Tax Act 2006 section 43-5

Fuel Tax Act 2006 section 43-8

Fuel Tax Act 2006 subsection 43-8(4)

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 or manufacture in, or import into Australia to the extent you do so for use in carrying on your enterprise, if you are registered for GST.

Entitlement to fuel tax credits is subject to the disentitlement rules provided for under subdivision 41-B of the FTA. This provides that you will not be entitled to a fuel tax credit if:

· another entity has previously been entitled to a fuel tax credit; or

· the fuel is used in vehicles with a gross vehicle mass (GVM) of 4.5 tonnes, or less, travelling on a public road; or

· the fuel is to be used in motor vehicles that do not meet the environmental criteria; or

· the fuel is to be used in an aircraft; unless covered by the opt-in scheme, or

· for gaseous fuel is subject to the carbon pricing mechanism.

You acquire and use kerosene (a taxable fuel) and mix this with another substance to make a specified material.

For the purposes of section 41-5 of the FTA, the term 'use' means 'expend or consume in use', which in turn requires that the fuel be expended or consumed, such that it no longer exists as fuel, by putting it into service in carrying on your enterprise.

Therefore, fuel that is acquired, manufactured in, or imported into, Australia would be used in carrying on your enterprise if, in the course of carrying on that enterprise:

· it ceases to exist after an action to use it (for example, in burner applications, internal combustion engines, or as a solvent or cleaning agent) or

· it is used in the production of another thing that no longer constitutes a fuel (this covers the blending of fuel with other products to create a blend that no longer constitutes a fuel).

There is a legislative intent to attribute a narrower meaning to 'use' which is further supported by the Revised Explanatory Memorandum of the Fuel Tax Bill 2006 which provides for the following explanation on the meaning of the term 'use':

2.34 Fuel is 'used' if it ceases to exist after an action to use it, either as a fuel or in the production of another thing. As such, a sale of fuel is not a use of the fuel and a taxpayer will not be considered to have used fuel if they sell the fuel to another entity...

2.35 The term 'use' is also intended to cover the blending of fuel with other products to create a fuel blend that no longer constitutes a fuel that can be used as a fuel in an internal combustion engine. Where a fuel blend cannot be used as a fuel in an internal combustion engine, the manufacturer of the blend, and not the end user, is entitled to claim a credit for any fuel tax paid on the constituents of the blend...

Fuel for the purposes of section 41-5 of the FTA is taken to have been used if it is blended as specified in a determination made under section 95-5 of the FTA which provides for blends that no longer constitute fuels. The determination made under section 95-5 of the FTA is called the Fuel Tax (Fuel Blends) Determination 2006 (No. 3).

In your case, Fuel Tax (Fuel Blends) Determination 2006 (No. 3) does not apply. This determination only applies to certain blends containing fuels listed in the Schedule to the Excise Tariff Act 1921 (the Schedule) at subitems 10.25, 10.26, 10.27 and 10.28 where the blend is not marketed or sold for use as a fuel in an internal combustion engine.

Kerosene is classified to sub item 10.16 of the Schedule. You then mix this with another substance to make a specified material and use this in carrying on your enterprise.

Accordingly, you are entitled to fuel tax credits for the taxable fuel (kerosene) that you acquire and use by mixing it with another substance to make a specified material.

However, section 43-5 of the FTA provides the amount of the fuel tax credit to which you are entitled for taxable fuel is the amount of effective fuel tax that is payable on the fuel less amount of carbon reduction (if applicable).

Section 43-8 of the FTA sets out the rules for working out the amount of the carbon reduction to fuel tax credit calculations from 1 July 2012.

However, subsection 43-8(4) of the FTA provides the amount of carbon reduction that applies to the fuel is nil to the extent that:

…

you acquire…the fuel for use otherwise than by combustion of the fuel.

As part of your enterprise you acquire kerosene and mix that with with another substance in bulk tanks by way of heating to make a specified material. The fuel you acquire is thus used otherwise than by combustion of the fuel.

In accordance with subsection 43-8(4) of the FTA, such a use of fuel is not subject to the carbon reduction amount.

Consequently the fuel tax credit calculated in respect to fuel acquired for this purpose will not be reduced by the carbon charge amount.

Accordingly, you are entitled to fuel tax credits at the full rate of 38.143 cents per litre for kerosene that you acquire and use to mix with another substance to make a specified material.